HEALTHPEAK PROPERTIES, INC.
The information set forth in this Item 7 is intended to provide readers with an
understanding of our financial condition, changes in financial condition and
results of operations. We will discuss and provide our analysis in the following
order:
•COVID-19 Update
•2020 Transaction Overview
•Dividends
•Results of Operations
•Liquidity and Capital Resources
•Contractual Obligations
•Off-Balance Sheet Arrangements
•Inflation
•Non-GAAP Financial Measure Reconciliations
•Critical Accounting Policies
•Recent Accounting Pronouncements
COVID-19 Update
Beginning in late 2019, a novel strain of Coronavirus ("COVID-19") began to
spread throughout the world, including the United States , ultimately being
declared a pandemic by the World Health Organization . Global health concerns and
increased efforts to reduce the spread of the COVID-19 pandemic have prompted
federal, state, and local governments to restrict normal daily activities, and
have resulted in travel bans, quarantines, school closings, "shelter-in-place"
orders requiring individuals to remain in their homes other than to conduct
essential services or activities, as well as business limitations and shutdowns,
which resulted in closure of many businesses deemed to be non-essential.
Although some of these restrictions have since been lifted or scaled back,
certain restrictions remain in place and any future surges of COVID-19 may lead
to other restrictions being re-implemented in response to efforts to reduce the
spread. In addition, our tenants, operators and borrowers are facing significant
cost increases as a result of increased health and safety measures, including
increased staffing demands for patient care and sanitation, as well as increased
usage and inventory of critical medical supplies and personal protective
equipment. These health and safety measures, which may remain in place for a
significant amount of time or be re-imposed from time to time, continue to place
a substantial strain on the business operations of many of our tenants,
operators, and borrowers.
Senior Housing
Within our SHOP and CCRC properties, occupancy rates have declined since the
onset of the pandemic, a trend that may continue during the pandemic and for
some period thereafter as a result of a reduction in, or in some cases
prohibitions on, new tenant move-ins due to stricter move-in criteria, lower
inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19
outbreaks at our facilities or the perception that outbreaks may occur.
Outbreaks, which directly affect our residents and the employees at our senior
housing facilities, have and could continue to materially and adversely disrupt
operations, as well as cause significant reputational harm to us, our operators,
and our tenants. As of February 8, 2021 , we had current confirmed resident
COVID-19 cases at 85 of our 95 senior housing properties, since the beginning of
the pandemic. Our senior housing property operators are also experiencing
significant cost increases as a result of higher staffing hours and
compensation, the implementation of increased health and safety measures and
protocols, and increased usage and inventory of critical medical supplies and
personal protective equipment. At our SHOP and CCRC facilities, we bear these
significant cost increases.
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We and/or our operators temporarily suspended redevelopment across our senior
housing portfolio due to "shelter-in-place" orders and local, state, and federal
directives, except for certain life safety and essential projects. Although some
of these projects have been allowed to restart with infection control protocols
in place, future local, state, or federal orders could cause us to re-suspend
the work. Other projects remain suspended and we do not know when we will be
able to restart construction. In locations where construction continues,
construction workers are following applicable guidelines, including appropriate
social distancing, limitations on large group gatherings in close proximity, and
increased sanitation efforts, which has slowed the pace of construction. These
protective actions do not, however, eliminate the risk that outbreaks caused or
spread by such activities may occur and impact our tenants, operators and
residents. In addition, our planned dispositions may not occur within the
expected time or at all because of buyer terminations or withdrawals related to
the pandemic, capital constraints, inability to tour properties, or other
factors relating to the pandemic.
The ultimate impact of the pandemic on senior housing generally and the public
perception of senior housing as a desirable residential setting depend on a
number of factors that are unknown at this time, including, but not limited to:
(i) the course and severity of the pandemic; (ii) responses of public and
private health authorities; and (iii) the timing, distribution, and health
effects of vaccines and other treatments.
Medical Office Portfolio
Within our medical office portfolio, many physician practices and affiliated
hospitals initially delayed or discontinued nonessential surgeries and
procedures due to "shelter-in-place" orders and other health and safety
measures, which negatively impacted their cash flows during part of 2020. These
restrictions have now been lifted in the majority of our markets and operations
are at or near pre-pandemic levels. However, we expect that planned move-outs
will be delayed during the COVID-19 pandemic, which is expected to slightly
increase short-term retention in this portfolio.
We implemented a deferred rent program during the second and third quarters of
2020 that was limited to certain non-health system and non-hospital tenants in
good standing, which reduced our cash collections during those months, although
we required that the deferred rent be repaid ratably by the end of 2020. Under
this program, we agreed to defer approximately $6 million of rent through
December 31, 2020 , substantially all of which had been collected as of
December 31, 2020 . We may also implement a deferred rent program for future
periods.
Life Science Portfolio
Within our life science portfolio, we have numerous tenants that are working
tirelessly to address critical research and testing needs in the fight against
COVID-19. We are focused on providing our tenants with the necessary space to
complete their critical work and are in continuous contact with our tenants
regarding how we can help them meet their needs. Through December 31, 2020 , we
had provided approximately $1 million of rent deferrals to our life science
tenants, all of which was required to be repaid by the end of 2020. As of
December 31, 2020 , all of the deferred rent had been collected.
However, within our life science portfolio, we may experience a decline in
leasing activity at certain points during the COVID-19 pandemic. As a result of
governmental restrictions on business activities in the greater San Francisco
and Boston areas, we temporarily suspended development, redevelopment, and
tenant improvement projects at many of our life science properties, resulting in
delayed deliveries and project completions. Though we have been able to continue
or re-start these projects, we remain subject to future governmental
restrictions that may again suspend these projects. Even when these projects
continue, we have been experiencing losses in efficiency as a result of the
implementation of health and safety protocols related to social distancing and
proper hygiene and sanitization.
Liquidity
We believe that we are well positioned to manage the short-term and long-term
impacts of the COVID-19 pandemic and the measures to slow its spread while
working closely with our tenants, operators, and borrowers as they navigate the
pandemic. We had approximately $2.51 billion of liquidity available, including
$2.26 billion borrowing capacity under our bank line of credit facility and $259
million of cash and cash equivalents, as of February 8, 2021 . While a future
downgrade in our credit ratings would adversely impact our cost of borrowing, we
believe we continue to have access to the unsecured debt markets. We could also
seek to enter into one or more secured debt financings, issue additional
securities, including under our 2020 ATM Program (as defined below), or dispose
of certain additional assets to fund future operating costs, capital
expenditures, or acquisitions, although no assurances can be made in this
regard.
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Future Rent Collections
The impact of COVID-19 on the ability of our tenants to pay rent in the future
is currently unknown. We have, and will continue to monitor the credit quality
of each of our tenants and write-off straight-line rent and accounts receivable,
as necessary. In the event we conclude that substantially all of a tenant's
straight-line rent or accounts receivable is not probable of collection in the
future, such amounts will be written off, which could have a material impact on
our future results of operations.
Employee Update
We have taken, and will continue to take, proactive measures to provide for the
well-being of our workforce. We have maximized our systems infrastructure as
well as virtual and remote working technologies for our employees, including our
executive team, to ensure productivity and connectivity internally, as well as
with key third-party relationships.
The extent of the impact of the COVID-19 pandemic on our business and financial
results will depend on future developments, including the duration, severity,
and spread of COVID-19, health and safety actions taken to contain its spread,
any new surges of COVID-19, the severity of outbreak of new strains of COVID-19,
the timing and distribution of vaccines and other treatments, and how quickly
and to what extent normal economic and operating conditions can resume within
the markets in which we operate, each of which are highly uncertain at this time
and outside of our control.
2020 Transaction Overview
South San Francisco Land Site Acquisition
In October 2020 , we executed a definitive agreement to acquire approximately 12
acres of land for $128 million . The acquisition site is located in South San
Francisco, CA , adjacent to two sites currently held by us as land for future
development. We made a $10 million nonrefundable deposit upon completing due
diligence in November 2020 and expect to close the transaction in 2021.
Cambridge Discovery Park Acquisition
In December 2020 , we acquired three life science facilities in Cambridge,
Massachusetts for $610 million and a 49% unconsolidated joint venture interest
in a fourth property on the same campus for $54 million .
Midwest MOB Acquisition
In October 2020 , we acquired a portfolio of seven MOBs located in Indiana ,
Missouri , and Illinois , for $169 million .
Scottsdale Gateway Acquisition
In July 2020 , we acquired one MOB in Scottsdale, Arizona , for $27 million .
The Post Acquisition
In April 2020 , we acquired a life science campus in Waltham, Massachusetts for
$320 million .
Master Transaction and Cooperation Agreement with Brookdale
In January 2020 , Healthpeak and Brookdale Senior Living Inc. ("Brookdale")
completed certain of the transactions governed by the previously announced
Master Transactions and Cooperation Agreement (the "2019 MTCA"), which includes
a series of transactions related to the previously jointly owned 15-campus CCRC
portfolio (the "CCRC JV") and the portfolio of senior housing properties that
were triple-net leased to Brookdale. Specifically, the following transactions
were completed on January 31, 2020 :
•We acquired Brookdale's 51% interest in 13 of the 15 communities in the CCRC JV
based on a valuation of $1.06 billion (the "CCRC Acquisition") and transitioned
management (under new management agreements) of those 13 communities to Life
Care Services LLC ("LCS");
•We paid Brookdale $100 million to terminate the previous management agreements
related to those 13 communities;
•Brookdale acquired 18 of the triple-net lease properties (the "Brookdale
Acquisition Assets") from us for cash proceeds of $385 million ;
•The remaining 24 triple-net lease properties, which were subsequently sold in
January 2021 (see Senior Housing Portfolio Sales below), were restructured into
a single master lease with 2.4% annual rent escalators and a maturity date of
December 31, 2027 (the "2019 Amended Master Lease ");
•A portion of annual rent (amount in excess of 6.5% of sales proceeds) related
to 14 of the 18 Brookdale Acquisition Assets was reallocated to the remaining
properties under the 2019 Amended Master Lease ; and
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•Brookdale paid down $20 million of future rent under the 2019 Amended Master
Lease .
Senior Housing Portfolio Sales
•In December 2020 , we sold a portfolio of ten senior housing triple-net assets
for $358 million .
•In November 2020 , we entered into definitive agreements to sell a portfolio of
13 SHOP assets for $334 million . We sold 12 of the assets for $312 million in
December 2020 and provided the buyer with financing of $61 million on four of
the assets sold. We expect to sell the final asset during the first half of
2021, upon completion of the license transfer process.
•In October 2020 , we entered into a definitive agreement to sell seven SHOP
assets for $115 million . We received a $3 million nonrefundable deposit and
expect to close the transaction during the first half of 2021.
•In November 2020 , we entered into a definitive agreement to sell 32 SHOP and 2
senior housing triple-net assets for $744 million . We received a $35 million
nonrefundable deposit upon completion of due diligence in December 2020 , sold
the 32 SHOP assets in January 2021 for $664 million , and provided the buyer with
financing of $410 million . The two senior housing triple-net assets are expected
to sell during the first half of 2021, upon completion of the license transfer
process.
•In January 2021 , we sold 24 senior housing assets under a triple-net lease with
Brookdale for $510 million .
•In January 2021 , we sold a portfolio of 16 SHOP assets for $230 million and
provided the buyer with financing of $150 million .
•In February 2021 , we sold eight senior housing assets in a triple-net lease
with Harbor Retirement Associates for $132 million .
Other Real Estate Transactions
•In addition to the sales discussed above, during the year ended December 31,
2020 , we sold the following: (i) 23 SHOP assets for $190 million , (ii) 21 senior
housing triple-net assets for $428 million (inclusive of the 18 facilities sold
to Brookdale under the 2019 MTCA), (iii) 11 MOBs for $136 million (inclusive of
the exercise of a purchase option by one of our tenants to acquire 3 MOBs), (iv)
two MOB land parcels for $3 million , and 1 asset from other non-reportable
segments for $1 million .
•In February 2020 , we sold a hospital under a DFL for $82 million .
•In December 2020 , we acquired one hospital in Dallas, Texas for $34 million .
•During the year ended December 31, 2020 , we converted: (i) 13 senior housing
triple-net assets with Capital Senior Living Corporation ("CSL") to a RIDEA
structure, with CSL remaining as the manager, (ii) 1 senior housing triple-net
asset with CSL to a RIDEA structure with Discovery Senior Living, LLC as the
operator, (iii) 2 senior housing triple-net assets with HRA Senior Living
("HRA") to a RIDEA structure, with HRA remaining as the manager, and (iv) 1
senior housing triple-net asset with Brookdale to a RIDEA structure.
Financing Activities
•During the year ended December 31, 2020 , we utilized the forward provisions
under the at-the-market equity offering program established in February 2019
(the "2019 ATM Program") to allow for the sale of up to an aggregate of 2.0
million shares of our common stock at an initial weighted average net price of
$35.23 per share, after commissions.
•During the year ended December 31, 2020 , we settled all 32.5 million shares
previously outstanding under (i) ATM forward contracts and (ii) a 2019 forward
equity sales agreement at a weighted average net price of $32.73 per share,
after commissions, resulting in net proceeds of $1.06 billion .
•In June 2020 , we completed a public offering of $600 million aggregate
principal amount of 2.88% senior unsecured notes due in 2031 (the "2031 Notes").
•In June 2020 , using a portion of the net proceeds from the 2031 Notes offering,
we repurchased $250 million aggregate principal amount of our 4.25% senior
unsecured notes due in 2023.
•In July 2020 , using an additional portion of the net proceeds from the 2031
Notes offering, we redeemed all $300 million aggregate principal amount of our
3.15% senior unsecured notes due in 2022.
•During the first quarter of 2021, we repurchased $112 million aggregate
principal amount of our 4.25% senior unsecured notes due in 2023, $201 million
aggregate principal amount of our 4.20% senior unsecured notes due in 2024, and
$469 million aggregate principal amount of our 3.88% senior unsecured notes due
in 2024.
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Development Activities
•As part of the development program with HCA Healthcare Inc., at December 31,
2020 , we had four MOB developments, all of which are on-campus, under contract
with an aggregate total estimated cost of $117 million .
•At December 31, 2020 , we had five life science development projects in process
with an aggregate total estimated cost of $855 million .
Dividends
Quarterly cash dividends paid during 2020 aggregated to $1.48 per share. On
February 9, 2021 , our Board of Directors declared a quarterly cash dividend of
$0.30 per common share. The dividend will be paid on March 5, 2021 to
stockholders of record as of the close of business on February 22, 2021 .
Results of Operations
We evaluate our business and allocate resources among our reportable business
segments: (i) life science, (ii) medical office, and (iii) CCRC. Under the life
science and medical office segments, we invest through the acquisition and
development of life science facilities, MOBs, and hospitals, which generally
require a greater level of property management. Our CCRCs are operated through
RIDEA structures. We have other non-reportable segments that are comprised
primarily of interests in an unconsolidated senior housing joint venture and
debt investments. We evaluate performance based upon property adjusted net
operating income ("Adjusted NOI" or "Cash NOI") in each segment. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies (see Note 2 to the Consolidated Financial
Statements).
In conjunction with classifying our senior housing triple-net and SHOP
portfolios as discontinued operations as of December 31, 2020 , the results of
operations related to those portfolios are no longer presented in reportable
business segments. Accordingly, results of operations of those portfolios are
not included in the reportable business segment analysis below. Refer to Note 5
to the Consolidated Financial Statements for further information regarding
discontinued operations.
Non-GAAP Financial Measures
Net Operating Income
NOI and Adjusted NOI are non-U.S. generally accepted accounting principles
("GAAP") supplemental financial measures used to evaluate the operating
performance of real estate. NOI is defined as real estate revenues (inclusive of
rental and related revenues, resident fees and services, income from direct
financing leases, and government grant income and exclusive of interest income),
less property level operating expenses (which exclude transition costs); NOI
excludes all other financial statement amounts included in net income (loss) as
presented in Note 16 to the Consolidated Financial Statements. Adjusted NOI is
calculated as NOI after eliminating the effects of straight-line rents, DFL
non-cash interest, amortization of market lease intangibles, termination fees,
actuarial reserves for insurance claims that have been incurred but not
reported, and the impact of deferred community fee income and expense. NOI and
Adjusted NOI include our share of income (loss) generated by unconsolidated
joint ventures and exclude noncontrolling interests' share of income (loss)
generated by consolidated joint ventures. Adjusted NOI is oftentimes referred to
as "Cash NOI." Management believes NOI and Adjusted NOI are important
supplemental measures because they provide relevant and useful information by
reflecting only income and operating expense items that are incurred at the
property level and present them on an unlevered basis. We use NOI and Adjusted
NOI to make decisions about resource allocations, to assess and compare property
level performance, and to evaluate our Same-Store ("SS") performance, as
described below. We believe that net income (loss) is the most directly
comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not
be viewed as alternative measures of operating performance to net income (loss)
as defined by GAAP since they do not reflect various excluded items. Further,
our definitions of NOI and Adjusted NOI may not be comparable to the definitions
used by other REITs or real estate companies, as they may use different
methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI
and Adjusted NOI to net income (loss) by segment, refer to Note 16 to the
Consolidated Financial Statements.
Operating expenses generally relate to leased medical office and life science
properties, as well as SHOP and CCRC facilities. We generally recover all or a
portion of our leased medical office and life science property expenses through
tenant recoveries. We present expenses as operating or general and
administrative based on the underlying nature of the expense.
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Same-Store
Same-Store NOI and Adjusted (Cash) NOI information allows us to evaluate the
performance of our property portfolio under a consistent population by
eliminating changes in the composition of our consolidated portfolio of
properties. Same-Store Adjusted NOI excludes amortization of deferred revenue
from tenant-funded improvements and certain non-property specific operating
expenses that are allocated to each operating segment on a consolidated basis.
Properties are included in Same-Store once they are stabilized for the full
period in both comparison periods. Newly acquired operating assets are generally
considered stabilized at the earlier of lease-up (typically when the tenant(s)
control(s) the physical use of at least 80% of the space) or 12 months from the
acquisition date. Newly completed developments and redevelopments are considered
stabilized at the earlier of lease-up or 24 months from the date the property is
placed in service. Properties that experience a change in reporting structure,
such as a conversion from a triple-net lease to a RIDEA reporting structure, are
considered stabilized after 12 months in operations under a consistent reporting
structure. A property is removed from Same-Store when it is classified as held
for sale, sold, placed into redevelopment, experiences a casualty event that
significantly impacts operations, a change in reporting structure or operator
transition has been agreed to, or a significant tenant relocates from a
Same-Store property to a non Same-Store property and that change results in a
corresponding increase in revenue. We do not report Same-Store metrics for our
other non-reportable segments.
For a reconciliation of Same-Store to total portfolio Adjusted NOI and other
relevant disclosures by segment, refer to our Segment Analysis below.
Funds From Operations ("FFO")
FFO encompasses NAREIT FFO and FFO as Adjusted, each of which is described in
detail below. We believe FFO applicable to common shares, diluted FFO applicable
to common shares, and diluted FFO per common share are important supplemental
non-GAAP measures of operating performance for a REIT. Because the historical
cost accounting convention used for real estate assets utilizes straight-line
depreciation (except on land), such accounting presentation implies that the
value of real estate assets diminishes predictably over time. Since real estate
values instead have historically risen and fallen with market conditions,
presentations of operating results for a REIT that use historical cost
accounting for depreciation could be less informative. The term FFO was designed
by the REIT industry to address this issue.
NAREIT FFO. FFO, as defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), is net income (loss) applicable to common shares
(computed in accordance with GAAP), excluding gains or losses from sales of
depreciable property, including any current and deferred taxes directly
associated with sales of depreciable property, impairments of, or related to,
depreciable real estate, plus real estate and other real estate-related
depreciation and amortization, and adjustments to compute our share of NAREIT
FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint
ventures are calculated to reflect our pro-rata share of both our consolidated
and unconsolidated joint ventures. We reflect our share of NAREIT FFO for
unconsolidated joint ventures by applying our actual ownership percentage for
the period to the applicable reconciling items on an entity by entity basis. For
consolidated joint ventures in which we do not own 100%, we reflect our share of
the equity by adjusting our NAREIT FFO to remove the third party ownership share
of the applicable reconciling items based on actual ownership percentage for the
applicable periods. Our pro-rata share information is prepared on a basis
consistent with the comparable consolidated amounts, is intended to reflect our
proportionate economic interest in the operating results of properties in our
portfolio and is calculated by applying our actual ownership percentage for the
period. We do not control the unconsolidated joint ventures, and the pro-rata
presentations of reconciling items included in NAREIT FFO do not represent our
legal claim to such items. The joint venture members or partners are entitled to
profit or loss allocations and distributions of cash flows according to the
joint venture agreements, which provide for such allocations generally according
to their invested capital.
The presentation of pro-rata information has limitations, which include, but are
not limited to, the following: (i) the amounts shown on the individual line
items were derived by applying our overall economic ownership interest
percentage determined when applying the equity method of accounting and do not
necessarily represent our legal claim to the assets and liabilities, or the
revenues and expenses and (ii) other companies in our industry may calculate
their pro-rata interest differently, limiting the usefulness as a comparative
measure. Because of these limitations, the pro-rata financial information should
not be considered independently or as a substitute for our financial statements
as reported under GAAP. We compensate for these limitations by relying primarily
on our GAAP financial statements, using the pro-rata financial information as a
supplement.
NAREIT FFO does not represent cash generated from operating activities in
accordance with GAAP, is not necessarily indicative of cash available to fund
cash needs and should not be considered an alternative to net income (loss). We
compute NAREIT FFO in accordance with the current NAREIT definition; however,
other REITs may report NAREIT FFO differently or have a different interpretation
of the current NAREIT definition from ours.
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FFO as Adjusted. In addition, we present NAREIT FFO on an adjusted basis before
the impact of non-comparable items including, but not limited to,
transaction-related items, impairments (recoveries) of non-depreciable assets,
losses (gains) from the sale of non-depreciable assets, restructuring and
severance related charges, prepayment costs (benefits) associated with early
retirement or payment of debt, litigation costs (recoveries), casualty-related
charges (recoveries), foreign currency remeasurement losses (gains), deferred
tax asset valuation allowances, and changes in tax legislation ("FFO as
Adjusted"). Transaction-related items include transaction expenses and
gains/charges incurred as a result of mergers and acquisitions and lease
amendment or termination activities. Prepayment costs (benefits) associated with
early retirement of debt include the write-off of unamortized deferred financing
fees, or additional costs, expenses, discounts, make-whole payments, penalties
or premiums incurred as a result of early retirement or payment of debt.
Management believes that FFO as Adjusted provides a meaningful supplemental
measurement of our FFO run-rate and is frequently used by analysts, investors,
and other interested parties in the evaluation of our performance as a REIT. At
the same time that NAREIT created and defined its FFO measure for the REIT
industry, it also recognized that "management of each of its member companies
has the responsibility and authority to publish financial information that it
regards as useful to the financial community." We believe stockholders,
potential investors, and financial analysts who review our operating performance
are best served by an FFO run-rate earnings measure that includes certain other
adjustments to net income (loss), in addition to adjustments made to arrive at
the NAREIT defined measure of FFO. FFO as Adjusted is used by management in
analyzing our business and the performance of our properties and we believe it
is important that stockholders, potential investors, and financial analysts
understand this measure used by management. We use FFO as Adjusted to: (i)
evaluate our performance in comparison with expected results and results of
previous periods, relative to resource allocation decisions, (ii) evaluate the
performance of our management, (iii) budget and forecast future results to
assist in the allocation of resources, (iv) assess our performance as compared
with similar real estate companies and the industry in general, and (v) evaluate
how a specific potential investment will impact our future results. Other REITs
or real estate companies may use different methodologies for calculating an
adjusted FFO measure, and accordingly, our FFO as Adjusted may not be comparable
to those reported by other REITs. For a reconciliation of net income (loss) to
NAREIT FFO and FFO as Adjusted and other relevant disclosure, refer to "Non-GAAP
Financial Measures Reconciliations" below.
Adjusted FFO ("AFFO")
AFFO is defined as FFO as Adjusted after excluding the impact of the following:
(i) amortization of deferred compensation expense, (ii) amortization of deferred
financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v)
amortization of acquired market lease intangibles, net, (vi) non-cash interest
related to DFLs and lease incentive amortization (reduction of straight-line
rents), (vii) actuarial reserves for insurance claims that have been incurred
but not reported, and (viii) deferred revenues, excluding amounts amortized into
rental income that are associated with tenant funded improvements
owned/recognized by us and up-front cash payments made by tenants to reduce
their contractual rents. Also, AFFO: (i) is computed after deducting recurring
capital expenditures, including second generation leasing costs and second
generation tenant and capital improvements and (ii) includes lease restructure
payments and adjustments to compute our share of AFFO from our unconsolidated
joint ventures. Certain prior period amounts in the "Non-GAAP Financial Measures
Reconciliation" below for AFFO have been reclassified to conform to the current
period presentation. More specifically, recurring capital expenditures,
including second generation leasing costs and second generation tenant and
capital improvements ("AFFO capital expenditures") excludes our share from
unconsolidated joint ventures (reported in "other AFFO adjustments").
Adjustments for joint ventures are calculated to reflect our pro-rata share of
both our consolidated and unconsolidated joint ventures. We reflect our share of
AFFO for unconsolidated joint ventures by applying our actual ownership
percentage for the period to the applicable reconciling items on an entity by
entity basis. We reflect our share for consolidated joint ventures in which we
do not own 100% of the equity by adjusting our AFFO to remove the third party
ownership share of the applicable reconciling items based on actual ownership
percentage for the applicable periods (reported in "other AFFO adjustments").
See FFO for further disclosure regarding our use of pro-rata share information
and its limitations. Other REITs or real estate companies may use different
methodologies for calculating AFFO, and accordingly, our AFFO may not be
comparable to those reported by other REITs. Although our AFFO computation may
not be comparable to that of other REITs, management believes AFFO provides a
meaningful supplemental measure of our performance and is frequently used by
analysts, investors, and other interested parties in the evaluation of our
performance as a REIT. We believe AFFO is an alternative run-rate earnings
measure that improves the understanding of our operating results among investors
and makes comparisons with: (i) expected results, (ii) results of previous
periods, and (iii) results among REITs more meaningful. AFFO does not represent
cash generated from operating activities determined in accordance with GAAP and
is not necessarily indicative of cash available to fund cash needs as it
excludes the following items which generally flow through our cash flows from
operating activities: (i) adjustments for changes in working capital or the
actual timing of the payment of income or expense items that are accrued in the
period, (ii) transaction-related costs, (iii) litigation settlement expenses,
(iv) severance-related expenses, and (v) actual cash receipts from interest
income recognized on loans receivable (in contrast to our AFFO adjustment to
exclude non-cash interest and depreciation related to our investments in direct
financing leases). Furthermore, AFFO is adjusted for recurring capital
expenditures, which are generally not considered when determining cash flows
from operations or liquidity. AFFO is a non-GAAP supplemental financial measure
and should not be considered as an alternative to net income (loss) determined
in
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accordance with GAAP. For a reconciliation of net income (loss) to AFFO and
other relevant disclosure, refer to "Non-GAAP Financial Measures
Reconciliations" below.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31,
2019 and the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Overview(1)
2020 and 2019
The following table summarizes results for the years ended December 31, 2020 and
2019 (dollars in thousands):
Year
Ended
2020 2019 Change
Net income (loss) applicable to common shares $ 411,147 $ 43,987 $ 367,160
NAREIT FFO 693,367 780,307 (86,940)
FFO as Adjusted 874,188 864,352 9,836
AFFO 772,705 745,820 26,885
_______________________________________
(1)For the reconciliation of non-GAAP financial measures, see "Non-GAAP
Financial Measure Reconciliations" below.
Net income (loss) applicable to common shares ("net income (loss)") increased
primarily as a result of the following:
•an increase in other income, net as a result of: (i) a gain upon change of
control related to the acquisition of the outstanding equity interests in 13
CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale
related to the sale of a hospital underlying a DFL during the first quarter of
2020, and (iii) government grant income received under the Coronavirus Aid,
Relief and Economic Security Act ("CARES Act") during 2020;
•an increase in net gain on sales of real estate during 2020;
•an increase in interest income, primarily as a result of new loans and
additional funding of existing loans;
•a decrease in loss on debt extinguishments;
•an increase in income tax benefit as a result of (i) the above-mentioned
acquisition of Brookdale's interest in 13 CCRCs and related management
termination fee expense paid to Brookdale in connection with transitioning
management to LCS during the first quarter of 2020 and (ii) the extension of the
net operating loss carryback provided by the CARES Act, partially offset by
additional income tax expense due to a deferred tax asset valuation allowance;
and
•NOI generated from: (i) 2019 and 2020 acquisitions of real estate, (ii)
development and redevelopment projects placed in service during 2019 and 2020,
and (iii) new leasing activity in 2019 and 2020 (including the impact to
straight-line rents).
The increase in net income (loss) was partially offset by:
•a reduction in income related to assets sold during 2019 and 2020;
•additional expense due to the management termination fee paid to Brookdale in
connection with transitioning management of 13 CCRCs to LCS during the first
quarter of 2020;
•additional expenses and decreased occupancy in our SHOP and CCRC assets related
to COVID-19;
•a reduction in equity income (loss) from unconsolidated joint ventures during
2020 primarily due to our share of net losses from an unconsolidated joint
venture owning 19 senior housing assets that was formed in December 2019 ;
•increased depreciation and amortization expense as a result of: (i) assets
acquired during 2019 and 2020, (ii) the acquisition of Brookdale's interest in
and consolidation of 13 CCRCs during the first quarter of 2020, and (iii)
development and redevelopment projects placed into service during 2019 and 2020,
partially offset by dispositions of real estate throughout 2019 and 2020; and
•increased credit losses related to loans receivable as a result of: (i)
adopting the current expected credit losses model required under Accounting
Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial
Instruments ("ASU 2016-13"), (ii) new loans funded during 2020, and (iii) the
impact of COVID-19 on expected credit losses.
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NAREIT FFO decreased primarily as a result of the aforementioned events
impacting net income (loss), except for the following, which are excluded from
NAREIT FFO:
•net gain on sales of depreciable real estate;
•the gain upon change of control related to the acquisition of Brookdale's
interest in 13 CCRCs; and
•depreciation and amortization expense.
FFO as Adjusted increased primarily as a result of the aforementioned events
impacting NAREIT FFO, except for the following, which are excluded from FFO as
Adjusted:
•deferred tax asset valuation allowance;
•net gain on sales of assets underlying DFLs and non-depreciable assets, such as
land;
•losses on debt extinguishment; and
•the increase in credit losses.
AFFO increased primarily as a result of the aforementioned events impacting FFO
as Adjusted, except for the impact of straight-line rents and the increase in
deferred tax benefit, which are excluded from AFFO.
2019 and 2018
The following table summarizes results for the years ended December 31, 2019 and
2018 (dollars in thousands):
Year
Ended
2019 2018 Change
Net income (loss) applicable to common shares $ 43,987 $ 1,058,424 $ (1,014,437)
NAREIT FFO 780,307 780,189 118
FFO as Adjusted 864,352 857,233 7,119
AFFO 745,820 746,397 (577)
Net income (loss) applicable to common shares ("net income (loss)") decreased
primarily as a result of the following:
•a reduction in NOI as a result of asset sales during 2018 and 2019;
•a larger net gain on sales of real estate during 2018 compared to 2019,
primarily related to the sale of our Shoreline Technology Center life science
campus in November 2018 ;
•increased depreciation and amortization expense as a result of: (i) assets
acquired during 2018 and 2019, (ii) development and redevelopment projects
placed into service during 2018 and 2019, and (iii) the conversion of 14 senior
housing triple-net assets from a DFL to a RIDEA structure in 2019, partially
offset by decreased depreciation and amortization from asset sales during 2018
and 2019;
•an increase in loss on debt extinguishments, resulting from redemptions and
repurchases of senior unsecured notes in 2019; and
•increased impairment charges on real estate assets recognized during 2019
compared to 2018.
The decrease in net income (loss) was partially offset by:
•increased NOI from: (i) annual rent escalations, (ii) 2018 and 2019
acquisitions, and (iii) development and redevelopment projects placed in service
during 2018 and 2019;
•a reduction in interest expense as a result of debt repayments during 2018 and
2019; and
•an increase in other income, primarily resulting from: (i) a gain upon change
of control of 19 SHOP assets in 2019, and (ii) a loss on consolidation of seven
care homes in the U.K. during the first quarter of 2018, partially offset by a
gain upon change of control related to the acquisition of the outstanding equity
interests in three life science joint ventures in November 2018 .
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NAREIT FFO increased primarily as a result of the aforementioned events
impacting net income (loss), except for the following, which are excluded from
NAREIT FFO:
•gains on sales of real estate, including related tax impacts;
•depreciation and amortization expense;
•impairments charges on real estate assets; and
•gains and losses upon change of control.
FFO as Adjusted increased primarily as a result of the aforementioned events
impacting NAREIT FFO, except for losses on debt extinguishment, which are
excluded from FFO as Adjusted.
AFFO decreased primarily as a result of the aforementioned events impacting FFO
as Adjusted, except for the impact of straight-line rents, which is excluded
from AFFO. The decrease in AFFO was also partially due to increased AFFO capital
expenditures during 2019.
Segment Analysis
The following tables provide selected operating information for our Same-Store
and total property portfolio for each of our reportable segments. For the year
ended December 31, 2020 , our Same-Store consists of 341 properties representing
properties acquired or placed in service and stabilized on or prior to
January 1, 2019 and that remained in operations under a consistent reporting
structure through December 31, 2020 . For the year ended December 31, 2019 , our
Same-Store consisted of 334 properties acquired or placed in service and
stabilized on or prior to January 1, 2018 and that remained in operations under
a consistent reporting structure through December 31, 2019 . Our total property
portfolio consisted of 457, 453, and 516 properties at December 31, 2020 , 2019,
and 2018, respectively.
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--------------------------------------------------------------------------------Table of Contents Life Science 2020 and 2019 The following table summarizes results at and for the years endedDecember 31, 2020 and 2019 (dollars and square feet in thousands, except per square foot data): SS Total Portfolio(1) 2020 2019 Change 2020 2019 Change Rental and related revenues$ 342,486 $ 329,024 $ 13,462 $ 569,296 $ 440,784 $ 128,512 Healthpeak's share of unconsolidated joint venture total revenues - - - 448 - 448 Noncontrolling interests' share of consolidated joint venture total revenues (146) (140) (6) (239) (187) (52) Operating expenses (81,364) (79,186) (2,178) (138,005) (107,472) (30,533) Healthpeak's share of unconsolidated joint venture operating expenses - - - (137) - (137) Noncontrolling interests' share of consolidated joint venture operating expenses 48 45 3 72 59 13 Adjustments to NOI(2) (1,758) (5,568) 3,810 (20,133) (22,103) 1,970 Adjusted NOI$ 259,266 $ 244,175 $ 15,091 411,302 311,081 100,221 Less: non-SS Adjusted NOI (152,036) (66,906) (85,130) SS Adjusted NOI$ 259,266 $ 244,175 $ 15,091 Adjusted NOI % change 6.2 % Property count(3) 95 95 140 134 End of period occupancy 96.8 % 95.5 % 96.3 % 96.0 % Average occupancy 96.4 % 96.2 % 96.0 % 96.7 % Average occupied square feet 5,825 5,819 8,724 7,288 Average annual total revenues per occupied square foot$ 58 $ 56 $ 63 $ 57 Average annual base rent per occupied square foot(4)$ 47 $ 44 $ 50 $ 45
_______________________________________
(1)Total Portfolio includes results of operations from disposed properties
through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company's definition of
Adjusted NOI. Refer to "Non-GAAP Measures" above for definitions of NOI and
Adjusted NOI.
(3)From our 2019 presentation of Same-Store, we removed one life science
facility that was placed in redevelopment and one life science facility related
to a significant tenant relocation.
(4)Base rent does not include tenant recoveries, additional rents in excess of
floors and non-cash revenue adjustments (i.e., straight-line rents, amortization
of market lease intangibles, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•annual rent escalations;
•new leasing activity; and
•mark-to-market lease renewals.
Total Portfolio Adjusted NOI increased primarily as a result of the
aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•NOI from (i) increased occupancy in developments and redevelopments placed into
service in 2019 and 2020 and (ii) acquisitions in 2019 and 2020; partially
offset by
•decreased NOI from the placement of facilities into redevelopment in 2019 and
2020.
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2019 and 2018
The following table summarizes results at and for the years ended December 31,
2019 and 2018 (dollars and square feet in thousands, except per square foot
data):
SS Total Portfolio(1)
2019 2018 Change 2019 2018 Change
Rental and related revenues $ 293,400 $ 276,996 $ 16,404 $ 440,784 $ 395,064 $ 45,720
Healthpeak's share of
unconsolidated joint venture
total revenues - - - - 4,328 (4,328)
Noncontrolling interests' share
of consolidated joint venture
total revenues (77) (79) 2 (187) (117) (70)
Operating expenses (69,422) (65,017) (4,405) (107,472) (91,742) (15,730)
Healthpeak's share of
unconsolidated joint venture
operating expenses - - - - (1,131) 1,131
Noncontrolling interests' share
of consolidated joint venture
operating expenses 20 22 (2) 59 44 15
Adjustments to NOI(2) (1,944) (2,829) 885 (22,103) (9,718) (12,385)
Adjusted NOI $ 221,977 $ 209,093 $ 12,884 311,081 296,728 14,353
Less: non-SS Adjusted NOI (89,104) (87,635) (1,469)
SS Adjusted NOI $ 221,977 $ 209,093 $ 12,884
Adjusted NOI % change 6.2 %
Property count(3) 93 93 134 124
End of period occupancy 96.6 % 96.1 % 96.0 % 96.6 %
Average occupancy 96.2 % 94.9 % 96.7 % 95.1 %
Average occupied square feet 5,415 5,345 7,288 7,194
Average annual total revenues
per occupied square foot $ 54 $ 51 $ 57 $ 55
Average annual base rent per
occupied square foot(4) $ 43 $ 41 $ 45 $ 44 _______________________________________
(1)Total Portfolio includes results of operations from disposed properties
through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company's definition of
Adjusted NOI. Refer to "Non-GAAP Measures" above for definitions of NOI and
Adjusted NOI.
(3)From our 2018 presentation of Same-Store, we removed one life science
facility that was sold, two life science facilities that were placed into
redevelopment, and one life science facility related to a casualty event.
(4)Base rent does not include tenant recoveries, additional rents in excess of
floors and non-cash revenue adjustments (i.e., straight-line rents, amortization
of market lease intangibles, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•new leasing activity;
•mark-to-market lease renewals;
•increased occupancy; and
•annual rent escalations.
Total Portfolio Adjusted NOI increased primarily as a result of the
aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•NOI from (i) increased occupancy in developments and redevelopments placed into
service in 2018 and 2019 and (ii) acquisitions in 2019; partially offset by
•decreased NOI from facilities sold in 2018 and 2019 and the placement of
facilities into redevelopment in 2019.
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--------------------------------------------------------------------------------Table of Contents Medical Office 2020 and 2019 The following table summarizes results at and for the years endedDecember 31, 2020 and 2019 (dollars and square feet in thousands, except per square foot data): SS Total Portfolio(1) 2020 2019 Change 2020 2019 Change Rental and related revenues$ 533,842 $ 527,192 $ 6,650 $ 612,678 $ 604,505 $ 8,173 Income from direct financing leases 8,575 8,387 188 9,720 16,666 (6,946) Healthpeak's share of unconsolidated joint venture total revenues 2,683 2,720 (37) 2,772 2,810 (38) Noncontrolling interests' share of consolidated joint venture total revenues (34,098) (33,460) (638) (34,597) (33,998) (599) Operating expenses (175,325) (175,192) (133) (204,008) (201,620) (2,388) Healthpeak's share of unconsolidated joint venture operating expenses (1,128) (1,107) (21) (1,129) (1,107) (22) Noncontrolling interests' share of consolidated joint venture operating expenses 10,281 10,045 236 10,282 10,109 173 Adjustments to NOI(2) (5,861) (6,564) 703 (5,544) (4,602) (942) Adjusted NOI$ 338,969 $ 332,021 $ 6,948 390,174 392,763 (2,589) Less: non-SS Adjusted NOI (51,205) (60,742) 9,537 SS Adjusted NOI$ 338,969 $ 332,021 $ 6,948 Adjusted NOI % change 2.1 % Property count(3) 246 246 281 281 End of period occupancy 92.5 % 92.9 % 90.4 % 92.3 % Average occupancy 92.5 % 92.6 % 91.3 % 92.3 % Average occupied square feet 18,488 18,506 20,448 20,736 Average annual total revenues per occupied square foot$ 29 $ 29 $ 30 $ 30 Average annual base rent per occupied square foot(4)$ 25 $ 25 $ 26 $ 26
_______________________________________
(1)Total Portfolio includes results of operations from disposed properties
through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company's definition of
Adjusted NOI. Refer to "Non-GAAP Measures" above for definitions of NOI and
Adjusted NOI.
(3)From our 2019 presentation of Same-Store, we removed 10 MOBs that were sold,
6 MOBs that were classified as held for sale, and3 MOBs that were placed into
redevelopment.
(4)Base rent does not include tenant recoveries, additional rents in excess of
floors and non-cash revenue adjustments (i.e., straight-line rents, amortization
of market lease intangibles, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•mark-to-market lease renewals; and
•annual rent escalations; partially offset by
•lower parking income.
Total Portfolio Adjusted NOI decreased primarily as a result of MOB sales during
2019 and 2020, partially offset by the aforementioned increases to Same-Store
and the following Non-Same-Store impacts:
•NOI from our 2019 and 2020 acquisitions; and
•increased occupancy in former redevelopment and development properties that
have been placed into service.
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2019 and 2018
The following table summarizes results at and for the years ended December 31,
2019 and 2018 (dollars and square feet in thousands, except per square foot
data):
SS Total Portfolio(1)
2019 2018 Change 2019 2018 Change
Rental and related revenues $ 510,623 $ 499,227 $ 11,396 $ 604,505 $ 580,050 $ 24,455
Income from direct financing
leases 16,665 16,349 316 16,666 16,349 317
Healthpeak's share of
unconsolidated joint venture
total revenues 2,720 2,606 114 2,810 2,695 115
Noncontrolling interests' share
of consolidated joint venture
total revenues (18,140) (17,689) (451) (33,998) (18,042) (15,956)
Operating expenses (162,996) (159,772) (3,224) (201,620) (195,362) (6,258)
Healthpeak's share of
unconsolidated joint venture
operating expenses (1,107) (1,052) (55) (1,107) (1,053) (54)
Noncontrolling interests' share
of consolidated joint venture
operating expenses 5,288 5,288 - 10,109 4,591 5,518
Adjustments to NOI(2) (3,641) (5,232) 1,591 (4,602) (5,953) 1,351
Adjusted NOI $ 349,412 $ 339,725 $ 9,687 392,763 383,275 9,488
Less: non-SS Adjusted NOI (43,351) (43,550) 199
SS Adjusted NOI $ 349,412 $ 339,725 $ 9,687
Adjusted NOI % change 2.9 %
Property count(3) 241 241 281 283
End of period occupancy 93.2 % 93.5 % 92.3 % 92.7 %
Average occupancy 93.2 % 93.4 % 92.3 % 92.6 %
Average occupied square feet 18,016 18,014 20,736 20,329
Average annual total revenues
per occupied square foot $ 29 $ 29 $ 30 $ 29
Average annual base rent per
occupied square foot(4) $ 25 $ 25 $ 26 $ 25 _______________________________________
(1)Total Portfolio includes results of operations from disposed properties
through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company's definition of
Adjusted NOI. Refer to "Non-GAAP Measures" above for definitions of NOI and
Adjusted NOI.
(3)From our 2018 presentation of Same-Store, we removed eight MOBs that were
sold, three MOBs that were placed into redevelopment, and two MOBs that were
classified as held for sale.
(4)Base rent does not include tenant recoveries, additional rents in excess of
floors and non-cash revenue adjustments (i.e., straight-line rents, amortization
of market lease intangibles, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•mark-to-market lease renewals; and
•annual rent escalations.
Total Portfolio Adjusted NOI increased primarily as a result of the
aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•2018 and 2019 acquisitions; and
•increased occupancy in former development and redevelopment properties placed
into service; partially offset by
•dispositions during 2018 and 2019.
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Continuing Care Retirement Community
2020 and 2019
The following table summarizes results at and for the years ended December 31,
2020 and 2019 (dollars in thousands, except per unit data):
SS(1) Total Portfolio(2)
2020 2019 Change 2020 2019 Change
Resident fees and services $ - $ - $ - $ 436,494 $ 3,010 $ 433,484
Government grant income(3) - - - 16,198 - 16,198
Healthpeak's share of unconsolidated
joint venture total revenues - - - 35,392 211,377 (175,985)
Healthpeak's share of unconsolidated
joint venture government grant
income - - - 920 - 920
Operating expenses - - - (440,528) (2,215) (438,313)
Healthpeak's share of unconsolidated
joint venture operating expenses - - - (32,125) (170,473) 138,348
Adjustments to NOI(4) - - - 97,072 16,985 80,087
Adjusted NOI $ - $ - $ - 113,423 58,684 54,739
Less: non-SS Adjusted NOI (113,423) (58,684) (54,739)
SS Adjusted NOI $ - $ - $ -
Adjusted NOI % change - %
Property count - - 17 17
Average occupancy - % - % 81.4 % 85.6 %
Average capacity (units)(5) - - 8,323 7,310
Average annual rent per unit $ - $ - $ 63,252 $ 64,337 _______________________________________
(1)All CCRC properties are excluded from the Same-Store population as they
experienced a change in reporting structure, underwent an operator transition
during the periods presented, or are classified as held for sale. As such, no
Same-Store results are presented in the table above.
(2)Total Portfolio includes results of operations from disposed properties and
properties that transferred segments through the disposition or transfer date.
(3)Represents government grant income received under the CARES Act, which is
recorded in other income (expense), net in the consolidated statements of
operations.
(4)Represents adjustments to NOI in accordance with the Company's definition of
Adjusted NOI. Refer to "Non-GAAP Measures" above for definitions of NOI and
Adjusted NOI.
(5)Represents average capacity as reported by the respective tenants or
operators for the 12-month period.
Total Portfolio Adjusted NOI increased primarily as a result of the following:
•the acquisition of the remaining 51% interest in 13 communities previously held
in a joint venture during the first quarter of 2020; and
•the transfer of two CCRC properties that converted from triple-net leases to
RIDEA structures during the fourth quarter of 2019.
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2019 and 2018
The following table summarizes results at and for the years ended December 31,
2019 and 2018 (dollars in thousands, except per unit data):
SS Total Portfolio(1)
2019 2018 Change 2019 2018 Change
Resident fees and services $ - $ - $ - $ 3,010 $ - $ 3,010
Healthpeak's share of
unconsolidated joint venture total
revenues - - - 211,377 206,221 5,156
Operating expenses - - - (2,215) - (2,215)
Healthpeak's share of
unconsolidated joint venture
operating expenses - - - (170,473) (166,414) (4,059)
Adjustments to NOI(3) - - - 16,985 15,504 1,481
Adjusted NOI $ - $ - $ - 58,684 55,311 3,373
Less: non-SS Adjusted NOI (58,684) (55,311) (3,373)
SS Adjusted NOI $ - $ - $ -
Adjusted NOI % change - %
Property count - - 17 15
Average occupancy - % - % 85.6 % 85.8 %
Average capacity (units)(4) - - 7,310 7,263
Average annual rent per unit $ - $ - $ 64,337 $ 62,531 _____________________________________
(1)All CCRC properties are excluded from the Same-Store population as they
experienced a change in reporting structure, underwent an operator transition
during the periods presented, or are classified as held for sale. As such, no
Same-Store results are presented in the table above.
(2)Total Portfolio includes results of operations from disposed properties and
properties that transferred segments through the disposition or transfer date.
(3)Represents adjustments to NOI in accordance with the Company's definition of
Adjusted NOI. Refer to "Non-GAAP Measures" above for definitions of NOI and
Adjusted NOI.
(4)Represents average capacity as reported by the respective tenants or
operators for the 12-month period.
Total Portfolio Adjusted NOI increased as a result of the transfer of two CCRC
properties that converted from triple-net leases to RIDEA structures during the
fourth quarter of 2019 and an increase in our share of Total Portfolio Adjusted
NOI from the CCRC JV.
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Other Income and Expense Items
The following table summarizes results for the years ended
Year Ended December 31, 2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Interest income $ 16,553 $ 9,844 $ 10,406 $ 6,709 $ (562)
Interest expense 218,336 217,612 261,280 724 (43,668)
Depreciation and amortization 553,949 435,191 404,681 118,758 30,510
General and administrative 93,237 92,966 96,702 271 (3,736)
Transaction costs 18,342 1,963 1,137 16,379 826
Impairments and loan loss reserves
(recoveries), net 42,909 17,708 10,917 25,201 6,791
Gain (loss) on sales of real estate, net 90,350 (40) 831,368 90,390 (831,408)
Loss on debt extinguishments (42,912) (58,364) (44,162) 15,452 (14,202)
Other income (expense), net 234,684 165,069 13,425 69,615 151,644
Income tax benefit (expense) 9,423 5,479 4,396 3,944 1,083
Equity income (loss) from unconsolidated
joint ventures (66,599) (6,330) (5,755) (60,269) (575)
Income (loss) from discontinued
operations 267,746 (115,408) 236,256 383,154 (351,664)
Noncontrolling interests' share in
continuing operations (14,394) (14,558) (12,294) 164 (2,264)
Noncontrolling interests' share in
discontinued operations (296) 27 (87) (323) 114
Interest income
Interest income increased for the year ended December 31, 2020 primarily as a
result of new loans and additional funding of existing loans.
Interest expense
Interest expense decreased for the year ended December 31, 2019 primarily as a
result of senior unsecured notes repurchases and redemptions during 2018 and
2019, partially offset by senior unsecured notes issued during 2019.
Depreciation and amortization expense
Depreciation and amortization expense increased for the year ended December 31,
2020 primarily as a result of: (i) the acquisition of Brookdale's interest in
and consolidation of 13 CCRCs during the first quarter of 2020, (ii) assets
acquired during 2019 and 2020, and (iii) development and redevelopment projects
placed into service during 2019 and 2020. The increase was partially offset by
dispositions of real estate throughout 2019 and 2020.
Depreciation and amortization expense increased for the year ended December 31,
2019 primarily as a result of (i) assets acquired during 2018 and 2019 and (ii)
development and redevelopment projects placed into service during 2018 and 2019,
partially offset by dispositions of real estate throughout 2018 and 2019.
General and administrative expense
General and administrative expenses decreased for the year ended December 31,
2019 primarily as a result of decreased severance and related charges, driven by
the departure of our former Executive Chairman in March 2018 , partially offset
by higher compensation costs in 2019.
Transaction costs
Transaction costs increased for the year ended December 31, 2020 primarily as a
result of costs associated with the transition of 13 CCRCs from Brookdale to LCS
in January 2020 .
Impairments and loan loss reserves (recoveries), net
The impairment charges recognized in each period vary depending on facts and
circumstances related to each asset and are impacted by negotiations with
potential buyers, current operations of the assets, and other factors.
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Impairments and loan loss reserves (recoveries), net increased for the year
ended December 31, 2020 primarily as a result of: (i) an increase related to
buildings we intend to demolish and (ii) an increase in credit losses under the
current expected credit losses model (which we began using in conjunction with
our adoption of ASU 2016-13 on January 1, 2020 ).
Impairments and loan loss reserves (recoveries), net increased for the year
ended December 31, 2019 as a result of additional assets being impaired under
the held-for-sale impairment model.
Gain (loss) on sales of real estate, net
During the year ended December 31, 2020 , we sold: (i) 11 MOBs, (ii) 2 MOB land
parcels, and (iii) 1 facility from the other non-reportable segment, resulting
in total gain on sales of $90 million .
During the year ended December 31, 2019 , we sold: (i) our remaining 49% interest
in our U.K. joint venture, (ii) 11 MOBs, (iii) 1 life science asset, (iv) 1
undeveloped life science land parcel, and (v) 1 facility from other
non-reportable segments, resulting in no material gain or loss on sale.
During the year ended December 31, 2018 , we sold: (i) a 51% interest in
substantially all the U.K. assets previously owned by the Company, (ii) 16 life
science assets, and (iii) 4 MOBs, resulting in total gain on sales of $831
million .
Loss on debt extinguishments
Refer to Note 11 to the Consolidated Financial Statements for information
regarding unsecured note repurchases, repayments, and redemptions and the
associated loss on debt extinguishments recognized.
Other income (expense), net
Other income (expense), net increased for the year ended December 31, 2020
primarily as a result of: (i) a gain upon change of control related to the
acquisition of the outstanding equity interest in 13 CCRCs from Brookdale during
the first quarter of 2020; (ii) a gain on sale related to the sale of a hospital
underlying a DFL during the first quarter of 2020; and (iii) government grant
income received under the CARES Act during 2020. The increase was partially
offset by a gain upon change of control recognized in 2019 related to a senior
housing joint venture with a sovereign wealth fund (see Note 4 to the
Consolidated Financial Statements).
Other income (expense), net increased for the year ended December 31, 2019
primarily as a result of (i) a gain upon change of control recognized in 2019
related to a senior housing joint venture with a sovereign wealth fund and (ii)
a loss upon change of control of seven U.K. care homes in March 2018 (see Note
19 to the Consolidated Financial Statements). The increase in other income
(expense), net was partially offset by a gain upon change of control related to
the acquisition of the outstanding equity interests in three life science joint
ventures in November 2018 .
Income tax benefit (expense)
Income tax benefit increased for the year ended December 31, 2020 primarily as a
result of the tax benefits related to the purchase of Brookdale's interest in 13
of the 15 communities in the CCRC JV, including the management termination fee
expense paid to Brookdale in connection with transitioning management of 13
CCRCs to LCS, and the extension of the net operating loss carryback period
provided by the CARES Act, partially offset by a deferred tax asset valuation
allowance and corresponding income tax expense recognized in 2020.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures decreased for the year ended
December 31, 2020 primarily as a result of our share of net losses from an
unconsolidated joint venture owning 19 SHOP assets that was formed in December
2019 , partially offset by no longer recognizing the operating results of 13
CCRCs in equity income (loss) from unconsolidated joint ventures as we acquired
Brookdale's interest and now consolidate those facilities. The decrease is
further offset by our share of a gain on sale of one asset in an unconsolidated
joint venture during the first quarter of 2020.
Equity income from unconsolidated joint ventures decreased for the year ended
December 31, 2019 primarily as a result of an impairment charge recognized
related to one asset classified as held-for-sale in the CCRC JV (see Note 9 to
the Consolidated Financial Statements) and the sale of our equity method
investment in RIDEA II in June 2018 , partially offset by additional equity
income from our previously-held investment in the U.K. JV.
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Income (loss) from discontinued operations
Income from discontinued operations increased for the year ended December 31,
2020 primarily as a result of: (i) increased gain on sales of real estate from
the disposal of multiple senior housing portfolios during 2019 and 2020; (ii)
decreased depreciation and amortization expense due to assets being disposed of
or classified as held for sale throughout 2019 and 2020 and assets that were
fully depreciated in 2019 and 2020; (iii) government grant income received under
the CARES Act during 2020; and (iv) NOI from acquisitions during 2019. The
increase in income (loss) from discontinued operations was partially offset by:
(i) decreased NOI from dispositions of real estate during 2019 and 2020 and (ii)
increased expenses and decreased occupancy related to COVID-19.
Income (loss) from discontinued operations decreased for the year ended
December 31, 2019 primarily as a result of: (i) decreased gain on sales of real
estate; (ii) increased impairment charges due to additional asset being
classified as held for sale in 2019; (iii) increased depreciation and
amortization expense due to acquisitions of real estate during 2018 and 2019;
(iv) decreased NOI from dispositions of real estate during 2018 and 2019. The
decrease in income (loss) from discontinued operations was partially offset by:
(i) increased other income (expense), net from a gain upon change of control
related to consolidating a senior housing joint venture in 2019 and (ii)
additional NOI from acquisitions during 2018 and 2019.
Liquidity and Capital Resources
We anticipate that our cash flow from operations, available cash balances, and
cash from our various financing activities will be adequate for at least the
next 12 months for purposes of: (i) funding recurring operating expenses; (ii)
meeting debt service requirements; and (iii) satisfying our distributions to our
stockholders and non-controlling interest members. During the year ended
December 31, 2020 , distributions to common shareholders and noncontrolling
interest holders exceeded cash flows from operations by approximately
$66 million . Distributions were made using a combination of cash flows from
operations, funds available under our bank line of credit and commercial paper
program, proceeds from the sale of properties, and other sources of cash
available to us.
Our principal investing liquidity needs for the next 12 months are to:
•fund capital expenditures, including tenant improvements and leasing costs and
•fund future acquisition, transactional and development activities.
We anticipate satisfying these future investing needs using one or more of the
following:
•cash flow from operations;
•sale of, or exchange of ownership interests in, properties or other
investments;
•borrowings under our bank line of credit and commercial paper program;
•issuance of additional debt, including unsecured notes, term loans, and
mortgage debt; and/or
•issuance of common or preferred stock or its equivalent.
Our ability to access the capital markets impacts our cost of capital and
ability to refinance maturing indebtedness, as well as our ability to fund
future acquisitions and development through the issuance of additional
securities or secured debt. Credit ratings impact our ability to access capital
and directly impact our cost of capital as well. For example, our bank line of
credit and term loan accrue interest at a rate per annum equal to LIBOR plus a
margin that depends upon the credit ratings of our senior unsecured long term
debt. We also pay a facility fee on the entire revolving commitment that depends
upon our credit ratings. As of February 8, 2021 , we had long-term credit ratings
of Baa1 from Moody's and BBB+ from S&P Global and Fitch, and short-term credit
ratings of P-2, A-2 and F2 from Moody's, S&P Global, and Fitch, respectively.
A downgrade in credit ratings by Moody's, S&P Global, and Fitch may have a
negative impact on the interest rates and facility fees for our bank line of
credit and term loan. While a downgrade in our credit ratings would adversely
impact our cost of borrowing, we believe we continue to have access to the
unsecured debt markets, and we could also seek to enter into one or more secured
debt financings, issue additional securities, including under our 2020 ATM
Program (as defined below), or dispose of certain assets to fund future
operating costs, capital expenditures, or acquisitions, although no assurances
can be made in this regard. Refer to "COVID-19 Update" above for a more
comprehensive discussion of the potential impact of COVID-19 on our business.
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Cash Flow Summary
The following summary discussion of our cash flows is based on the Consolidated
Statements of Cash Flows and is not meant to be an all-inclusive discussion of
the changes in our cash flows for the periods presented below. The following
table sets forth changes in cash flows (in thousands):
Year
Ended
2020 2019 2018
Net cash provided by (used in) operating activities
(1,448,778) 1,829,279
Net cash provided by (used in) financing activities 246,450
647,271 (2,620,536)
Operating Cash Flows
Operating cash flow decreased $88 million between the years ended December 31,
2020 and 2019 primarily as the result of: (i) the termination fee paid to
Brookdale in connection with the CCRC Acquisition; (ii) assets sold during 2019
and 2020, and (iii) additional expenses and decreased occupancy in our SHOP and
CCRC assets related to COVID-19. The decrease in operating cash flow is
partially offset by: (i) 2019 and 2020 acquisitions, (ii) annual rent increases,
(iii) new leasing activity; (iv) developments and redevelopments placed in
service during 2019 and 2020, and (v) increased interest received from new loan
investments.
Operating cash flow decreased $3 million between the years ended December 31,
2019 and 2018 primarily as the result of: (i) dispositions during 2018 and 2019
and (ii) occupancy declines and higher labor costs within our SHOP assets. The
decrease in operating cash flow is partially offset by: (i) 2018 and 2019
acquisitions, (ii) annual rent increases, (iii) developments and redevelopments
placed in service during 2018 and 2019, and (iv) decreased interest paid as a
result of debt repayments during 2018 and 2019.
Our cash flow from operations is dependent upon the occupancy levels of our
buildings, rental rates on leases, our tenants' performance on their lease
obligations, the level of operating expenses, and other factors.
Investing Cash Flows
The following are significant investing activities for the year ended
December 31, 2020 :
•received net proceeds of $1.5 billion primarily from (i) sales of real estate
assets (including real estate assets under DFLs) and (ii) sales and repayments
of loans receivable; and
•made investments of $2.5 billion primarily related to the (i) acquisition,
development, and redevelopment of real estate and (ii) funding of loan
investments.
The following are significant investing activities for the year ended
December 31, 2019 :
•received net proceeds of $976 million primarily from: (i) sales of real estate
assets (including real estate assets under DFLs), (ii) the sale of our
investment in the U.K. JV, and (iii) the sale of a 46.5% interest in 19
previously consolidated SHOP assets; and
•made investments of $2.4 billion primarily related to the (i) acquisition,
development, and redevelopment of real estate and (ii) funding of loan
investments.
The following are significant investing activities for the year ended
December 31, 2018 :
•received net proceeds of $2.9 billion primarily from: (i) sales of real estate
assets, (ii) the sale of RIDEA II, (iii) the sale of the Tandem Mezzanine Loan,
and (iv) the U.K. JV transaction; and
•made investments of $1.1 billion primarily for the acquisition and development
of real estate.
Financing Cash Flows
The following are significant financing activities for the year ended
December 31, 2020 :
•made net borrowings of $16 million primarily under our bank line of credit,
commercial paper, and senior unsecured notes (including debt extinguishment
costs);
•paid cash dividends on common stock of $787 million ; and
•issued common stock of $1.1 billion .
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The following are significant financing activities for the year ended
December 31, 2019 :
•made net borrowings of $573 million primarily under our bank line of credit,
commercial paper, term loan, and senior unsecured notes (including debt
extinguishment costs);
•paid cash dividends on common stock of $720 million ; and
•issued common stock of $796 million .
The following are significant financing activities for the year ended
December 31, 2018 :
•repaid $2.4 billion of debt under our: (i) bank line of credit, (ii) term loan,
(iii) senior unsecured notes (including debt extinguishment costs) and (iv)
mortgage debt;
•paid cash dividends on common stock of $697 million ;
•paid $83 million for distributions to and purchases of noncontrolling
interests, primarily related to our acquisition of Brookdale's noncontrolling
interest in RIDEA I;
•raised net proceeds of $218 million from the issuances of common stock,
primarily from our at-the-market equity program; and
•received proceeds of $300 million for issuances of noncontrolling interests.
Discontinued Operations
Operating, investing, and financing cash flows in our Consolidated Statements of
Cash Flows are reported inclusive of both cash flows from continuing operations
and cash flows from discontinued operations. Certain significant cash flows from
discontinued operations are disclosed in Note 18 to the Consolidated Financial
Statements. The absence of future cash flows from discontinued operations is not
expected to significantly impact our liquidity, as the proceeds from senior
housing triple-net and SHOP dispositions are expected to be used to pay down
debt and invest in additional real estate in our other business lines.
Additionally, we have multiple other sources of liquidity that can be utilized
in the future, as needed. Refer to the Liquidity and Capital Resources section
above for additional information regarding our liquidity.
Debt
Senior Unsecured Notes
In June 2020 , we completed a public offering of $600 million in aggregate
principal amount of our 2031 Notes.
In June 2020 , using a portion of the net proceeds from the 2031 Notes offering,
we repurchased $250 million aggregate principal amount of our 4.25% senior
unsecured notes due in 2023.
In July 2020 , using an additional portion of the net proceeds from the 2031
Notes offering, we redeemed all $300 million of our 3.15% senior unsecured notes
due in 2022.
From January 1, 2021 to February 8, 2021 , we repurchased $112 million aggregate
principal amount of our 4.25% senior unsecured notes due in 2023, $201 million
aggregate principal amount of our 4.20% senior unsecured notes due in 2024, and
$469 million aggregate principal amount of our 3.88% senior unsecured notes due
in 2024.
See Note 11 to the Consolidated Financial Statements for additional information
about our outstanding debt.
Approximately 94%, 94%, and 99% of our consolidated debt, excluding debt
classified as liabilities related to assets held for sale and discontinued
operations, net, was fixed rate debt as of December 31, 2020 , 2019 and 2018,
respectively. At December 31, 2020 , our fixed rate debt and variable rate debt
had weighted average interest rates of 3.85% and 0.85%, respectively. At
December 31, 2019 , our fixed rate debt and variable rate debt had weighted
average interest rates of 3.94% and 2.58%, respectively. At December 31, 2018 ,
our fixed rate debt and variable rate debt had weighted average interest rates
of 4.04% and 2.12%, respectively. We had $36 million , $42 million and $43
million of variable rate debt swapped to fixed through interest rate swaps as of
December 31, 2020 , 2019 and 2018, respectively, which is reported in liabilities
related to assets held for sale and discontinued operations, net. For a more
detailed discussion of our interest rate risk, see "Quantitative and Qualitative
Disclosures About Market Risk" in Item 3 below.
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Equity
At December 31, 2020 , we had 538 million shares of common stock outstanding,
equity totaled $7.3 billion , and our equity securities had a market value of
$16.5 billion .
At December 31, 2020 , non-managing members held an aggregate of five million
units in seven limited liability companies ("DownREITs") for which we are the
managing member. The DownREIT units are exchangeable for an amount of cash
approximating the then-current market value of shares of our common stock or, at
our option, shares of our common stock (subject to certain adjustments, such as
stock splits and reclassifications). At December 31, 2020 , the outstanding
DownREIT units were convertible into approximately seven million shares of our
common stock.
At-The-Market Program
In February 2020 , we terminated our previous at-the-market equity offering
program and concurrently established a new at-the-market equity offering program
(the "2020 ATM Program"). In addition to the issuance and sale of shares of our
common stock, we may also enter into one or more forward sales agreements with
sales agents for the sale of our shares of common stock under our 2020 ATM
Program.
During the year ended December 31, 2020 , the Company settled all 16.8 million
shares previously outstanding under ATM forward contracts at a weighted average
net price of $31.38 per share, after commissions, resulting in net proceeds of
$528 million .
At December 31, 2020 , approximately $1.25 billion of our common stock remained
available for sale under the 2020 ATM Program. Actual future sales of our common
stock will depend upon a variety of factors, including but not limited to market
conditions, the trading price of our common stock, and our capital needs. We
have no obligation to sell any of the remaining shares under our 2020 ATM
Program.
Other than in connection with settlement of ATM forward contracts described
above, during the year ended December 31, 2020 , we did not issue any shares of
our common stock under our 2020 ATM Program.
See Note 13 to the Consolidated Financial Statements for additional information
about our 2020 ATM Program and our previous at-the-market equity offering
program.
Shelf Registration
In May 2018 , we filed a prospectus with the SEC as part of a registration
statement on Form S-3, using an automatic shelf registration process. This shelf
registration statement expires in May 2021 and at or prior to such time, we
expect to file a new shelf registration statement. Under the "shelf" process, we
may sell any combination of the securities described in the prospectus through
one or more offerings. The securities described in the prospectus include common
stock, preferred stock, depositary shares, debt securities and warrants.
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Contractual Obligations
The following table summarizes our material contractual payment obligations and
commitments, excluding obligations and commitments related to assets classified
as discontinued operations, at December 31, 2020 (in thousands):
More than
Total(1) 2021 2022-2023 2024-2025 Five Years
Bank line of credit $ - $ - $ - $ - $ -
Commercial paper 129,590 129,590 - - -
Term loan 250,000 - - 250,000 -
Senior unsecured notes 5,750,000 - 300,000 2,500,000 2,950,000
Mortgage debt(2) 216,780 13,015 94,717 6,259 102,789
Construction loan commitments(3) 11,137 11,137 - - -
Lease and other contractual
commitments(4) 109,126 94,124 15,002 - -
Development commitments(5) 196,749 180,846 15,247 656 -
Ground and other operating leases 536,223 11,349 23,196 19,622 482,056
Interest(6) 1,649,566 233,954 457,063 332,007 626,542
Total $ 8,849,171 $ 674,015 $ 905,225 $ 3,108,544 $ 4,161,387 _______________________________________
(1)Excludes$4 million of development commitments,$4 million of ground and other operating leases, and$111 million of interest related to assets classified as discontinued operations. See Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations. (2)Excludes mortgage debt on assets held for sale and discontinued operations of$319 million and mortgage debt from unconsolidated joint ventures. (3)Represents loan commitments to finance development and redevelopment projects. (4)Represents our commitments, as lessor, under signed leases and contracts for operating properties and includes allowances for tenant improvements and leasing commissions. Excludes allowances for tenant improvements related to developments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements (recognized in the "Development commitments" line). (5)Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of$28 million that we have provided as a lessor. (6)Interest on variable-rate debt is calculated using rates in effect atDecember 31, 2020 . Off-Balance Sheet Arrangements We own interests in certain unconsolidated joint ventures as described in Note 9 to the Consolidated Financial Statements. Except in limited circumstances, our risk of loss is limited to our investment in the joint venture and any outstanding loans receivable. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except those described above under "Contractual Obligations". Inflation Our leases often provide for either fixed increases in base rents or indexed escalators, based on the Consumer Price Index or other measures, and/or additional rent based on increases in the tenants' operating revenues. Most of our MOB leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance and utilities. Substantially all of our senior housing triple-net, life science, and remaining other leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs. We believe that inflationary increases in expenses will be offset, in part, by the tenant or operator expense reimbursements and contractual rent increases described above. 64 -------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measure Reconciliations Funds From Operations The following is a reconciliation from net income (loss) applicable to common shares, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NAREIT FFO, FFO as Adjusted and AFFO (in thousands, except per share data): Year Ended December 31, 2020 2019 2018 2017 2016
Net income (loss) applicable to common shares
697,143 659,989 549,499 534,726 572,998
Healthpeak's share of real estate related
depreciation and amortization from
unconsolidated joint ventures 105,090 60,303 63,967 60,058 49,043
Noncontrolling interests' share of real estate
related depreciation and amortization (19,906) (20,054) (11,795) (15,069) (21,001)
Other real estate-related depreciation and
amortization 2,766 6,155 6,977 9,364 11,919
Loss (gain) on sales of depreciable real
estate, net (550,494) (22,900) (925,985) (356,641) (164,698)
Healthpeak's share of loss (gain) on sales of
depreciable real estate, net, from
unconsolidated joint ventures (9,248) (2,118) - (1,430) (16,332)
Noncontrolling interests' share of gain (loss)
on sales of depreciable real estate, net (3) 335 - - 224
Loss (gain) upon change of control, net(1) (159,973) (166,707)
(9,154) - -
Taxes associated with real estate
dispositions(2) (7,785) - 3,913 (5,498) 60,451
Impairments (recoveries) of depreciable real
estate, net 224,630 221,317 44,343 22,590 -
NAREIT FFO applicable to common shares 693,367 780,307 780,189 661,113 1,119,153
Distributions on dilutive convertible units and
other 6,662 6,592 - - 8,732
Diluted NAREIT FFO applicable to common shares
536,562 494,335 470,719 468,935 471,566
Impact of adjustments to NAREIT FFO:
Transaction-related items(3) $ 128,619 $
15,347
(22,046) 10,147 7,619 92,900 -
Restructuring and severance related charges(5) 2,911 5,063 13,906 5,000 16,965
Loss on debt extinguishments 42,912 58,364 44,162 54,227 46,020
Litigation costs (recoveries) 232 (520) 363 15,637 3,081
Casualty-related charges (recoveries), net 469 (4,106) - 10,964 -
Foreign currency remeasurement losses (gains) 153 (250) (35) (1,043) 585
Valuation allowance on deferred tax assets(6) 31,161 - - - -
Tax rate legislation impact(7) (3,590) - - 17,028 -
Total adjustments $ 180,821 $
84,045
FFO as Adjusted applicable to common shares
6,490 6,396 (198) 6,657 12,849
Diluted FFO as Adjusted applicable to common
shares $ 880,678 $
870,748
536,562 494,335 470,719 473,620 473,340
FFO as Adjusted applicable to common shares
17,368 14,790 14,714 13,510 15,581
Amortization of deferred financing costs 10,157 10,863 12,612 14,569 20,014
Straight-line rents (29,316) (28,451) (23,138) (23,933) (27,560)
AFFO capital expenditures (93,579) (108,844) (106,193) (113,471) (88,953)
Lease restructure payments 1,321 1,153 1,195 1,470 16,604
CCRC entrance fees(8) - 18,856 17,880 21,385 21,287
Deferred income taxes (15,647) (18,972) (18,744) (15,490) (13,692)
Other AFFO adjustments(9) 8,213 (7,927) (9,162) (12,722) (9,975)
AFFO applicable to common shares 772,705 745,820 746,397 803,720 1,215,696
Distributions on dilutive convertible units and
other 6,662 6,591 - - 13,088
Diluted AFFO applicable to common shares
536,562 494,335 470,719 468,935 473,340
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Year Ended December 31,
2020 2019 2018 2017 2016
Diluted earnings per common share $ 0.77 $ 0.09 $ 2.24 $ 0.88 $ 1.34
Depreciation and amortization 1.47 1.43 1.30 1.25 1.30
Loss (gain) on sales of depreciable real estate,
net (1.05) (0.04) (1.96) (0.76) (0.38)
Loss (gain) upon change of control, net(1) (0.30) (0.34) (0.02) - -
Taxes associated with real estate
dispositions(2) (0.01) - 0.01 (0.01) 0.13
Impairments (recoveries) of depreciable real
estate, net 0.42 0.45 0.09 0.05 -
Diluted NAREIT FFO per common share $ 1.30 $ 1.59 $ 1.66 $ 1.41 $ 2.39
Transaction-related items(3) 0.24 0.03 0.02 0.13 0.20
Other impairments (recoveries) and other losses
(gains), net(4) (0.04) 0.02 0.02 0.20 -
Restructuring and severance related charges(5) 0.01 0.01 0.03 0.01 0.04
Loss on debt extinguishments 0.08 0.12 0.09 0.11 0.10
Litigation costs (recoveries) - - - 0.03 0.01
Casualty-related charges (recoveries), net - (0.01) - 0.02 -
Valuation allowance on deferred tax assets(6) 0.06 - - - -
Tax rate legislation impact(7) (0.01) - - 0.04 -
Diluted FFO as Adjusted per common share
_______________________________________
(1)For the year endedDecember 31, 2020 , includes a$170 million gain upon consolidation of 13 CCRCs in which we acquired Brookdale's interest and began consolidating during the first quarter of 2020. For the year endedDecember 31, 2019 , includes a$161 million gain upon deconsolidation of 19 previously consolidated SHOP assets that were contributed into a new unconsolidated senior housing joint venture with a sovereign wealth fund. For the year endedDecember 31, 2018 , represents the gain upon consolidation related to the acquisition of our partner's interests in four previously unconsolidated life science assets, partially offset by the loss upon consolidation of sevenU.K. care homes. Gains and losses upon change of control are included in other income (expense), net in the consolidated statements of operations. (2)For the year endedDecember 31, 2016 , represents income tax expense associated with the state built-in gain tax payable upon the disposition of specific real estate assets, of which$49 million relates to theHCR ManorCare, Inc. ("HCRMC") real estate portfolio that we spun-off in 2016. (3)For the year endedDecember 31, 2020 , includes the termination fee and transition fee expenses related to terminating the management agreements with Brookdale for 13 CCRCs and transitioning those communities to LCS, partially offset by the tax benefit related to those expenses. The expenses related to terminating management agreements are included in operating expenses in the consolidated statements of operations. For the year endedDecember 31, 2017 , includes$55 million of net non-cash charges related to the right to terminate certain triple-net leases and management agreements in conjunction with the 2017 Brookdale Transactions. For the year endedDecember 31, 2016 , primarily relates to the spin-off ofQuality Care Properties, Inc. (4)For the year endedDecember 31, 2020 , includes reserves for loan losses under the current expected credit losses accounting standard in accordance with Accounting Standards Codification 326, Financial Instruments - Credit Losses ("ASC 326"). The year endedDecember 31, 2020 also includes a gain on sale of a hospital that was in a DFL and the impairment of an undeveloped MOB land parcel, which was sold during the third quarter. For the year endedDecember 31, 2019 , represents the impairment of 13 senior housing triple-net facilities under DFLs recognized as a result of entering into sales agreements. For the year endedDecember 31, 2018 , primarily relates to the impairment of an undeveloped life science land parcel classified as held for sale, partially offset by an impairment recovery upon the sale of a mezzanine loan investment inMarch 2018 . For the year endedDecember 31, 2017 , relates to$144 million of impairments on ourTandem Mezzanine Loan , net of a$51 million impairment recovery upon the sale of a senior notes investment. (5)For the year endedDecember 31, 2018 , primarily relates to the departure of our former Executive Chairman and corporate restructuring activities. For the year endedDecember 31, 2017 , primarily relates to the departure of our former Chief Accounting Officer. For the year endedDecember 31, 2016 , primarily relates to the departure of our former President and Chief Executive Officer. (6)For the year endedDecember 31, 2020 , represents the valuation allowance and corresponding income tax expense related to deferred tax assets that are no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio. We determined we were unlikely to hold the assets long enough to realize the future value of certain deferred tax assets generated by the net operating losses of our taxable REIT subsidiaries. (7)For the year endedDecember 31, 2020 , represents the tax benefit from the CARES Act, which extended the net operating loss carryback period to five years. For the year endedDecember 31, 2017 , represents the remeasurement of deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act that was signed into legislation onDecember 22, 2017 . (8)In connection with the acquisition of the remaining 51% interest in the CCRC JV inJanuary 2020 , we consolidated the 13 communities in the CCRC JV and recorded the assets and liabilities at their acquisition date relative fair values, including the CCRC contract liabilities associated with previously collected non-refundable entrance fees. In conjunction with increasing those CCRC contract liabilities to their fair value, we concluded that we will no longer adjust for the timing difference between non-refundable entrance fees collected and amortized as we believe the amortization of these fees is a meaningful representation of how we satisfy the performance obligations of the fees. As such, upon consolidation of the CCRC assets, we no longer exclude the difference between CCRC entrance fees collected and amortized from the calculation of AFFO. For comparative periods presented, the adjustment continues to represent our 49% share of non-refundable entrance fees collected by the CCRC JV, net of reserves and net of CCRC JV entrance fee amortization. (9)Primarily includes our share of AFFO capital expenditures from unconsolidated joint ventures, partially offset by noncontrolling interests' share of AFFO capital expenditures from consolidated joint ventures. For the year endedDecember 31, 2020 , includes an increase to insurance claims that have been incurred but not yet reported on the 13 CCRCs in which we acquired Brookdale's interest and began consolidating during the first quarter of 2020 and senior housing triple-net assets that transitioned to RIDEA structures during the year. 66 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies The preparation of financial statements in conformity withU.S. GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. For a more detailed discussion of our significant accounting policies, see Note 2 to the Consolidated Financial Statements. Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. Principles of Consolidation The consolidated financial statements include the accounts ofHealthpeak Properties, Inc. , our wholly-owned subsidiaries, and joint ventures and variable interest entities ("VIEs") that we control, through voting rights or other means. We consolidate investments in VIEs when we are the primary beneficiary of the VIE. A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities that most significantly impact the entity's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. We make judgments about which entities are VIEs based on an assessment of whether: (i) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support, (ii) substantially all of an entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE. We continually assess whether events have occurred that require us to reconsider the initial determination of whether an entity is a VIE. Such events include, but are not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control. When a reconsideration event occurs, we reassess whether the entity is a VIE. We also make judgments with respect to our level of influence or control over an entity and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to: •which activities most significantly impact the entity's economic performance, and our ability to direct those activities; •our form of ownership interest; •our representation on the entity's governing body; •the size and seniority of our investment; •our ability to manage our ownership interest relative to other interest holders; and •our ability and the rights of other investors to participate in policy making decisions, replace the manager, and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. When we perform a reassessment of the primary beneficiary at a date other than at inception of the VIE, our assumptions may be different and may result in the identification of a different primary beneficiary. 67 -------------------------------------------------------------------------------- Table of Contents If we determine that we are the primary beneficiary of a VIE, our consolidated financial statements include the operating results of the VIE rather than the results of our variable interest in the VIE. We require VIEs to provide us timely financial information and review the internal controls of VIEs to determine if we can rely on the financial information it provides. If a VIE has deficiencies in its internal controls over financial reporting, or does not provide us with timely financial information, it may adversely impact the quality and/or timing of our financial reporting and our internal controls over financial reporting. Revenue Recognition Lease Classification At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. For leases entered into prior toJanuary 1, 2019 , the lease arrangement was classified as an operating lease if none of the following criteria were met: (i) transfer of ownership to the lessee prior to or shortly after the end of the lease term, (ii) the lessee had a bargain purchase option during or at the end of the lease term, (iii) the lease term was equal to 75% or more of the underlying property's economic life, or (iv) the present value of future minimum lease payments (excluding executory costs) was equal to 90% or more of the estimated fair value of the leased asset. If one of the four criteria was met and the minimum lease payments were determined to be reasonably predictable and collectible, the lease arrangement was generally accounted for as a DFL. Concurrent with our adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASU 2016-02") onJanuary 1, 2019 , we began classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to us at the end of the lease term. If the assumptions utilized in the above classification assessments were different, our lease classification for accounting purposes may have been different; thus the timing and amount of our revenue recognized would have been impacted, which may be material to our consolidated financial statements. Rental and Related Revenues We recognize rental revenue for operating leases on a straight-line basis over the lease term when collectibility of all minimum lease payments is probable and the tenant has taken possession or controls the physical use of a leased asset. If the lease provides for tenant improvements, we determine whether the tenant improvements are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the leased asset until the tenant improvements are substantially complete. When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of a tenant improvement is subject to significant judgment. If our assessment of the owner of the tenant improvements was different, the timing and amount of our revenue recognized would be impacted. Certain leases provide for additional rents that are contingent upon a percentage of the facility's revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant, or estimates of tenant results, exceed the base amount or other thresholds. The recognition of additional rents requires us to make estimates of amounts owed and, to a certain extent, is dependent on the accuracy of the facility results reported to us. Our estimates may differ from actual results, which could be material to our consolidated financial statements. Resident Fees and Services Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears. Certain of our CCRCs are operated as entrance fee communities, which typically require a resident to pay an upfront entrance fee that includes both a refundable portion and non-refundable portion. When we receive a nonrefundable entrance fee, it is recognized as deferred revenue and amortized into revenue over the estimated stay of the resident. 68 -------------------------------------------------------------------------------- Table of Contents Credit Losses We continuously assess the collectibility of operating lease straight-line rent receivables. If it is no longer probable that substantially all future minimum lease payments will be received, the straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period. We monitor the liquidity and creditworthiness of our tenants and operators on a continuous basis. This evaluation considers industry and economic conditions, property performance, credit enhancements, and other factors. We exercise judgment in this assessment and consider payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements. Loans receivable and DFLs (collectively, "finance receivables"), are reviewed and assigned an internal rating of Performing,Watch List , or Workout. Finance receivables that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured.Watch List finance receivables are defined as finance receivables that do not meet the definition of Performing or Workout. Workout finance receivables are defined as finance receivables in which we have determined, based on current information and events, that: (i) it is probable we will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) we have commenced action or anticipate pursuing action in the near term to seek recovery of our investment. Finance receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is not reasonably assured (the asset will have an internal rating of eitherWatch List or Workout). Further, we perform a credit analysis to support the tenant's, operator's, borrower's, and/or guarantor's repayment capacity and the underlying collateral values. We use the cash basis method of accounting for finance receivables placed on nonaccrual status unless one of the following conditions exist whereby we utilize the cost recovery method of accounting: (i) if we determine that it is probable that we will only recover the recorded investment in the finance receivable, net of associated allowances or charge-offs (if any) or (ii) we cannot reasonably estimate the amount of an impaired finance receivable. For cash basis method of accounting we apply payments received, excluding principal paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original contractual terms. For cost recovery method of accounting any payment received is applied to reduce the recorded investment. Generally, we return a finance receivable to accrual status when all delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured. Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") onJanuary 1, 2020 , allowances were established for finance receivables on an individual basis utilizing an estimate of probable losses, if they were determined to be impaired. Finance Receivables were impaired when it was deemed probable that we would be unable to collect all amounts due in accordance with the contractual terms of the loan or lease. An allowance was based upon our assessment of the lessee's or borrower's overall financial condition, economic resources, payment record, the prospects for support from any financially responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates considered all available evidence, including the expected future cash flows discounted at the finance receivable's effective interest rate, fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. If a finance receivable was deemed partially or wholly uncollectible, the uncollectible balance was charged off against the allowance in the period in which the uncollectible determination has been made. Subsequent to adopting ASU 2016-13 onJanuary 1, 2020 , we began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historicalU.S. GAAP. Under the new model, we are required to recognize future credit losses expected to be incurred over the life of a finance receivable at inception of that instrument. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and rely on counter-party specific information to ensure the most accurate estimate is recognized. 69 -------------------------------------------------------------------------------- Table of Contents Real Estate We make estimates as part of our process for allocating a purchase price to the various identifiable assets and liabilities of an acquisition based upon the relative fair value of each asset or liability. The most significant components of our allocations are typically buildings as-if-vacant, land, and in-place leases. In the case of allocating fair value to buildings and intangibles, our fair value estimates will affect the amount of depreciation and amortization we record over the estimated useful life of each asset acquired. In the case of allocating fair value to in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. Our assumptions affect the amount of future revenue and/or depreciation and amortization expense that we will recognize over the remaining useful life for the acquired in-place leases. Certain of our acquisitions involve the assumption of contract liabilities. We typically estimate the fair value of contract liabilities by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the contract. We consider a variety of market and contract-specific conditions when making assumptions that impact the estimated fair value of the contract liability. A variety of costs are incurred in the development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, and other costs incurred during the period of development. We consider a construction project to be considered substantially complete and available for occupancy and cease capitalization of costs upon the completion of the related tenant improvements. Assets Held for Sale and Discontinued Operations We classify a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. If an asset is classified as held for sale, it is reported at the lower of its carrying value or fair value less costs to sell and no longer depreciated. We classify a loan receivable as held for sale when we no longer have the intent and ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, it is reported at the lower of amortized cost or fair value. A discontinued operation represents: (i) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on our operations and financial results or (ii) an acquired business that is classified as held for sale on the date of acquisition. Examples of a strategic shift may include disposing of: (i) a separate major line of business, (ii) a separate major geographic area of operations, or (iii) other major parts of the Company. Impairment of Long-Lived Assets We assess the carrying value of our real estate assets and related intangibles ("real estate assets") when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate asset. 70 -------------------------------------------------------------------------------- Table of Contents Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per-unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc.). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements. Investments inUnconsolidated Joint Ventures The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture interest, the fair value of assets contributed to the joint venture, or the fair value of the assets prior to the sale of interests in the joint venture. We evaluate our equity method investments for impairment by first reviewing for indicators of impairment based on the performance of the underlying real estate assets held by the joint venture. If an equity-method investment shows indicators of impairment, we compare the fair value of the investment to the carrying value. If we determine there is a decline in the fair value of our investment in an unconsolidated joint venture below its carrying value and it is other-than-temporary, an impairment charge is recorded. The determination of the fair value of investments in unconsolidated joint ventures and as to whether a deficiency in fair value is other-than-temporary involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows, discounted at market rates, general economic conditions and trends, severity and duration of a fair value deficiency, and other relevant factors. Capitalization rates, discount rates, and credit spreads utilized in our valuation models are based on rates we believe to be within a reasonable range of current market rates for the respective investments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements. Income Taxes As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. Our determinations are based on interpretation of tax laws and our conclusions may have an impact on the income tax expense recognized. Adjustments to income tax expense may be required as a result of: (i) audits conducted by federal, state, and local tax authorities, (ii) our ability to qualify as a REIT, (iii) the potential for built-in gain recognition, and (iv) changes in tax laws. Adjustments required in any given period are included within the income tax provision. We are required to evaluate our deferred tax assets for realizability and recognize a valuation allowance, which is recorded against its deferred tax assets, if it is more likely than not that the deferred tax assets will not be realized. We consider all available evidence in its determination of whether a valuation allowance for deferred tax assets is required. Recent Accounting Pronouncements See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the consolidated balance sheets at fair value (see Note 22 to the Consolidated Financial Statements). To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of the derivative portfolio in order to determine the change in fair value. Assuming a one percentage point change in the underlying interest rate curve, the estimated change in fair value of each of the underlying derivative instruments would not be material. Interest Rate Risk AtDecember 31, 2020 , our exposure to interest rate risk is primarily on our variable rate debt. AtDecember 31, 2020 ,$36 million of our variable-rate debt was hedged by interest rate swap transactions. The interest rate swaps are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable-rate debt to fixed interest rates. 71 -------------------------------------------------------------------------------- Table of Contents Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. However, interest rate changes will affect the fair value of our fixed rate instruments. AtDecember 31, 2020 , a one percentage point increase or decrease in interest rates would change the fair value of our fixed rate debt by approximately$369 million and$401 million , respectively, and would not materially impact earnings or cash flows. Additionally, a one percentage point increase or decrease in interest rates would change the fair value of our fixed rate debt investments by approximately$2 million and would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point change in the interest rate related to our variable-rate debt and variable-rate investments, and assuming no other changes in the outstanding balance atDecember 31, 2020 , our annual interest expense and interest income would increase by approximately$3 million and$1 million , respectively. Market Risk We have investments in marketable debt securities classified as held-to-maturity because we have the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded at amortized cost and adjusted for the amortization of premiums and discounts through maturity. We consider a variety of factors in evaluating an other-than-temporary decline in value, such as: the length of time and the extent to which the market value has been less than our current adjusted carrying value, the issuer's financial condition, capital strength and near-term prospects, any recent events specific to that issuer and economic conditions of its industry, and our investment horizon in relationship to an anticipated near-term recovery in the market value, if any. AtDecember 31, 2020 , both the fair value and carrying value of marketable debt securities was$20 million . 72 -------------------------------------------------------------------------------- Table of Contents ITEM 8. Financial Statements and Supplementary DataHealthpeak Properties, Inc. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 74 Consolidated Balance Sheets-December 31, 2020 and 2019 76
Consolidated Statements of Operations-for the years ended
77
Consolidated Statements of Comprehensive Income (Loss)-for the years ended
78
Consolidated Statements of Equity-for the years ended
79
Consolidated Statements of Cash Flows-for the years ended
80
Notes to Consolidated Financial Statements 81
73-------------------------------------------------------------------------------- Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors ofHealthpeak Properties, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets ofHealthpeak Properties, Inc. and subsidiaries. (the "Company") as ofDecember 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of the three years in the period endedDecember 31, 2020 , and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2020 , in conformity with accounting principles generally accepted inthe United States of America . We have also audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the Company's internal control over financial reporting as ofDecember 31, 2020 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission and our report datedFebruary 10, 2021 , expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Impairments - Real Estate - Refer to Notes 2 and 6 to the consolidated financial statements Critical Audit Matter Description The Company's evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related intangibles ("real estate assets") when events or changes in circumstances indicate that the carrying value may not be recoverable. If a real estate asset is classified as held for sale, individually or as part of a disposal group, the long-lived asset or disposal group shall be measured at the lower of its carrying value or fair value less costs to sell. If a real estate asset is held for use and its carrying value is not recoverable, the real estate asset shall be measured at the lower of its carrying value or fair value. The determination of the fair value of real estate assets involves significant judgment. The fair value of the impaired assets was based on forecasted sales prices of the long-lived asset or disposal group, which are considered to be Level 3 measurements within the fair value hierarchy. Disposal groups were determined based on management's intent, as of the measurement date, to sell two or more real estate assets as a portfolio. Forecasted sales prices were determined using an income approach and/or a market approach (comparable sales model), which rely on certain assumptions by the Company, including: (i) market capitalization rates, (ii) market prices per unit, and (iii) forecasted cash flow streams (lease-up periods, lease revenue rates, expense rates, growth rates, etc.). There are inherent uncertainties in these assumptions. 74 -------------------------------------------------------------------------------- Table of Contents Given the Company's evaluation of the forecasted sales price of a long lived asset or disposal group requires management to make significant estimates and assumptions related to market capitalization rates, market prices per unit, and forecasted cash flow streams, performing audit procedures to evaluate the reasonableness of management's forecasted sales price required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasted sales price for certain real estate assets or disposal groups included the following, among others: •We tested the effectiveness of controls over impairment of real estate, including those over the forecasted sales price for real estate assets. •We evaluated the forecasted sales prices for a sample of real estate assets, which may have included estimates of market capitalization rates, market prices per unit, and/or forecasted cash flow streams used in the determination of fair value for each selected real estate asset by (1) evaluating the source information and assumptions used by management and (2) testing the mathematical accuracy of the discounted cash flow or direct capitalization model. •We performed a retrospective review of impairment charges and real estate assets that were classified as held for sale to evaluate the changing facts and circumstances that led to the timing and recognition of impairment and/or change in classification during the period and how such facts compared to the facts that were considered in previous periods. /s/DELOITTE & TOUCHE LLP Costa Mesa, California February 10, 2021 We have served as the Company's auditor since 2010. 75 -------------------------------------------------------------------------------- Table of ContentsHealthpeak Properties, Inc. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2020 2019 ASSETS Real estate: Buildings and improvements$ 11,048,433 $ 8,112,193 Development costs and construction in progress 613,182 654,792 Land 1,867,278 1,605,599 Accumulated depreciation and amortization (2,409,135) (2,141,960) Net real estate 11,119,758 8,230,624 Net investment in direct financing leases 44,706 84,604 Loans receivable, net of reserves of$10,280 and$0 195,375 190,579 Investments in and advances to unconsolidated joint ventures 402,871 774,381 Accounts receivable, net of allowance of$3,994 and$387 42,269 44,842 Cash and cash equivalents 44,226 80,398 Restricted cash 67,206 13,385 Intangible assets, net 519,917 260,204 Assets held for sale and discontinued operations, net 2,626,306 3,648,265 Right-of-use asset, net 192,349 167,316 Other assets, net 665,106 538,293 Total assets$ 15,920,089 $ 14,032,891 LIABILITIES AND EQUITY Bank line of credit and commercial paper$ 129,590 $ 93,000 Term loan 249,182 248,942 Senior unsecured notes 5,697,586 5,647,993 Mortgage debt 221,621 12,317 Intangible liabilities, net 144,199 74,991
Liabilities related to assets held for sale and discontinued operations, net
415,737 403,688
Lease liability 179,895 152,400
Accounts payable, accrued liabilities, and other liabilities 763,391 457,532
Deferred revenue 774,316 274,554
Total liabilities 8,575,517 7,365,417Commitments and contingencies
Common stock,
538,405 505,222
Additional paid-in capital 10,229,857 9,183,892
Cumulative dividends in excess of earnings (3,976,232) (3,601,199)
Accumulated other comprehensive income (loss) (3,685) (2,857)
Total stockholders' equity 6,788,345 6,085,058
Joint venture partners 357,069 378,061
Non-managing member unitholders 199,158 204,355
Total noncontrolling interests 556,227 582,416
Total equity 7,344,572 6,667,474
Total liabilities and equity $
15,920,089
See accompanying Notes to Consolidated Financial Statements.
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Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2020 2019 2018
Revenues:
Rental and related revenues $ 1,182,108 $ 1,069,502 $ 1,020,348
Resident fees and services 436,494 144,327 144,217
Income from direct financing leases 9,720 16,666 16,349
Interest income 16,553 9,844 10,406
Total revenues 1,644,875 1,240,339 1,191,320
Costs and expenses:
Interest expense 218,336 217,612 261,280
Depreciation and amortization 553,949 435,191 404,681
Operating 782,541 405,244 378,657
General and administrative 93,237 92,966 96,702
Transaction costs 18,342 1,963 1,137
Impairments and loan loss reserves (recoveries), net 42,909
17,708 10,917
Total costs and expenses 1,709,314 1,170,684 1,153,374
Other income (expense):
Gain (loss) on sales of real estate, net 90,350 (40) 831,368
Loss on debt extinguishments (42,912) (58,364) (44,162)
Other income (expense), net 234,684 165,069 13,425
Total other income (expense), net 282,122 106,665 800,631
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
217,683 176,320 838,577
Income tax benefit (expense) 9,423 5,479 4,396
Equity income (loss) from unconsolidated joint ventures (66,599)
(6,330) (5,755)
Income (loss) from continuing operations 160,507 175,469 837,218
Income (loss) from discontinued operations 267,746 (115,408) 236,256
Net income (loss) 428,253 60,061 1,073,474
Noncontrolling interests' share in continuing
operations (14,394) (14,558) (12,294)
Noncontrolling interests' share in discontinued
operations (296) 27 (87)
Net income (loss) attributable to Healthpeak
Properties, Inc. 413,563 45,530 1,061,093
Participating securities' share in earnings (2,416) (1,543) (2,669)
Net income (loss) applicable to common shares $ 411,147 Basic earnings (loss) per common share: Continuing operations$ 0.27 $ 0.33 $ 1.75 Discontinued operations 0.50 (0.24) 0.50 Net income (loss) applicable to common shares$ 0.77 $ 0.09 $ 2.25 Diluted earnings (loss) per common share: Continuing operations$ 0.27 $ 0.33 $ 1.74 Discontinued operations 0.50 (0.24) 0.50 Net income (loss) applicable to common shares$ 0.77
Weighted average shares outstanding: Basic 530,555 486,255 470,551 Diluted 531,056 489,335 475,387
See accompanying Notes to Consolidated Financial Statements.
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Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Year Ended December 31,
2020 2019 2018
Net income (loss) $ 428,253 $ 60,061 $ 1,073,474
Other comprehensive income (loss):
Net unrealized gains (losses) on derivatives (583) 758 6,025
Reclassification adjustment realized in net income (loss)
13 1,023 18,088
Change in Supplemental Executive Retirement Plan
obligation and other (258) (590) 561
Foreign currency translation adjustment - 660 (5,358)
Total other comprehensive income (loss) (828) 1,851 19,316
Total comprehensive income (loss) 427,425 61,912 1,092,790
Total comprehensive (income) loss attributable to
noncontrolling interests' share in continuing operations (14,394) (14,558) (12,294)
Total comprehensive (income) loss attributable to
noncontrolling interests' share in discontinued
operations (296) 27 (87)
Total comprehensive income (loss) attributable to
Healthpeak Properties, Inc. $ 412,735 See accompanying Notes to Consolidated Financial Statements.
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Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share data)
Common Stock
Cumulative
Additional Dividends In Accumulated Other Total
Paid-In Excess Comprehensive Stockholders' Noncontrolling Total
Shares Amount Capital Of Earnings Income (Loss) Equity Interests Equity
December 31, 2017 469,436 $ 469,436 $ 8,226,113 $ (3,370,520) $ (24,024) $ 5,301,005 $ 293,933 $ 5,594,938
Impact of adoption of ASU No.
2017-05(1) - - - 79,144 - 79,144 - 79,144
January 1, 2018 469,436 $ 469,436 $ 8,226,113 $ (3,291,376) $ (24,024) $ 5,380,149 $ 293,933 $ 5,674,082
Net income (loss) - - - 1,061,093 - 1,061,093 12,381 1,073,474
Other comprehensive income (loss) - - - - 19,316 19,316 - 19,316
Issuance of common stock, net 8,078 8,078 207,101 - - 215,179 - 215,179
Conversion of DownREIT units to
common stock 3 3 133 - - 136 (136) -
Repurchase of common stock (141) (141) (3,291) - - (3,432) - (3,432)
Exercise of stock options 120 120 2,357 - - 2,477 - 2,477
Amortization of deferred
compensation - - 16,563 - - 16,563 - 16,563
Common dividends ($1.48 per share) - - - (696,913) - (696,913) - (696,913)
Distributions to noncontrolling
interests - - - - - - (18,415) (18,415)
Issuances of noncontrolling
interests - - - - - - 299,666 299,666
Purchase of noncontrolling
interests - - (50,129) - - (50,129) (19,277) (69,406)
December 31, 2018 477,496 $ 477,496 $ 8,398,847 $ (2,927,196) $ (4,708) $ 5,944,439 $ 568,152 $ 6,512,591
Impact of adoption of ASU No.
2016-02(2) - - - 590 - 590 - 590
January 1, 2019 477,496 $ 477,496 $ 8,398,847 $ (2,926,606) $ (4,708) $ 5,945,029 $ 568,152 $ 6,513,181
Net income (loss) - - - 45,530 - 45,530 14,531 60,061
Other comprehensive income (loss) - - - - 1,851 1,851 - 1,851
Issuance of common stock, net 27,523 27,523 763,525 - - 791,048 - 791,048
Conversion of DownREIT units to
common stock 213 213 4,932 - - 5,145 (5,145) -
Repurchase of common stock (162) (162) (4,881) - - (5,043) - (5,043)
Exercise of stock options 152 152 4,386 - - 4,538 - 4,538
Amortization of deferred
compensation - - 18,162 - - 18,162 - 18,162
Common dividends ($1.48 per share) - - - (720,123) - (720,123) - (720,123)
Distributions to noncontrolling
interests - - - - - - (28,301) (28,301)
Issuances of noncontrolling
interests - - - - - - 33,318 33,318
Purchase of noncontrolling
interests - - (1,079) - - (1,079) (139) (1,218)
December 31, 2019 505,222 $ 505,222 $ 9,183,892 $ (3,601,199) $ (2,857) $ 6,085,058 $ 582,416 $ 6,667,474
Impact of adoption of ASU No.
2016-13(3) - - - (1,524) - (1,524) - (1,524)
January 1, 2020 505,222 $ 505,222 $ 9,183,892 $ (3,602,723) $ (2,857) $ 6,083,534 $ 582,416 $ 6,665,950
Net income (loss) - - - 413,563 - 413,563 14,690 428,253
Other comprehensive income (loss) - - - - (828) (828) - (828)
Issuance of common stock, net 33,307 33,307 1,033,764 - - 1,067,071 - 1,067,071
Conversion of DownREIT units to
common stock 120 120 3,957 - - 4,077 (4,077) -
Repurchase of common stock (298) (298) (10,231) - - (10,529) - (10,529)
Exercise of stock options 54 54 1,752 - - 1,806 - 1,806
Amortization of deferred
compensation - - 20,534 - - 20,534 - 20,534
Common dividends ($1.48 per share) - - - (787,072) - (787,072) - (787,072)
Distributions to noncontrolling
interests - - - - - - (36,994) (36,994)
Purchase of noncontrolling
interests - - (3,811) - - (3,811) 192 (3,619)
December 31, 2020 538,405 $ 538,405 $ 10,229,857 $ (3,976,232) $ (3,685) $ 6,788,345 $ 556,227 $ 7,344,572 _______________________________________
(1)OnJanuary 1, 2018 , the Company adopted Accounting Standards Update ("ASU") No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"), and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption. (2)OnJanuary 1, 2019 , the Company adopted a series of ASUs related to accounting for leases, and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption. (3)OnJanuary 1, 2020 , the Company adopted a series of ASUs related to accounting for credit losses and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption. See accompanying Notes to Consolidated Financial Statements. 79 -------------------------------------------------------------------------------- Table of ContentsHealthpeak Properties, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income (loss)$ 428,253 $ 60,061 $ 1,073,474 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of real estate, in-place 697,143 659,989 549,499
lease and other intangibles
Amortization of deferred compensation 17,368 18,162 16,563 Amortization of deferred financing costs 10,157 10,863 12,612 Straight-line rents (24,532) (22,479) (23,138) Amortization of nonrefundable entrance fees and (81,914) - -
above/below market lease intangibles
Equity loss (income) from unconsolidated joint ventures 67,787
8,625 2,594
Distributions of earnings from unconsolidated joint 12,294 20,114 22,467
ventures
Loss (gain) on sale of real estate under direct financing (41,670)
- -
leases
Deferred income tax expense (benefit) (14,573) (18,253) (18,525) Impairments and loan loss reserves (recoveries), net 244,253 225,937 55,260 Loss on debt extinguishments 42,912 58,364 44,162 Loss (gain) on sales of real estate, net (550,494) (22,900) (925,985) Loss (gain) upon change of control, net (159,973) (168,023) (9,154) Casualty-related loss (recoveries), net 469 (3,706) - Other non-cash items 2,175 (2,569) 2,569 Changes in: Decrease (increase) in accounts receivable and other 15,281 (49,771) 5,686 assets, net Increase (decrease) in accounts payable, accrued 93,495 71,659 40,625 liabilities, and deferred revenue Net cash provided by (used in) operating activities 758,431 846,073 848,709
Cash flows from investing activities:
Acquisitions of real estate (1,170,651) (1,604,285) (426,080)
Development, redevelopment, and other major improvements (791,566)
(626,904) (503,643)
of real estate
Leasing costs, tenant improvements, and recurring capital (94,121)
(108,844) (106,193)
expenditures
Proceeds from sales of real estate, net 1,304,375 230,455 2,044,477 Acquisition of CCRC Portfolio (394,177) - - Contributions to unconsolidated joint ventures (39,118) (14,956) (12,203)
Distributions in excess of earnings from unconsolidated 18,555
27,072 26,472
joint ventures
Proceeds from insurance recovery 1,802 9,359 -
Proceeds from the RIDEA II transaction, net - - 335,709
Proceeds from the U.K. JV transaction, net - 89,868 393,997
Proceeds from the Sovereign Wealth Fund Senior Housing JV - 354,774 -
transaction, net
Proceeds from sales/principal repayments on debt 202,763 274,150 148,024 investments and direct financing leases Investments in loans receivable, direct financing leases, (45,562) (79,467) (71,281)
and other
Net cash provided by (used in) investing activities (1,007,700)
(1,448,778) 1,829,279
Cash flows from financing activities:
Borrowings under bank line of credit and commercial paper 4,742,600 7,607,788 1,823,000
Repayments under bank line of credit and commercial paper (4,706,010)
(7,597,047) (2,755,668)
Issuance and borrowings of debt, excluding bank line of 594,750
2,047,069 223,587
credit and commercial paper
Repayments and repurchase of debt, excluding bank line of (568,343) (1,654,142) (1,604,026)
credit and commercial paper
Borrowings under term loan - 250,000 -
Payments for debt extinguishment and deferred financing (47,210)
(80,616) (41,552)
costs
Issuance of common stock and exercise of options 1,068,877 795,586 217,656 Repurchase of common stock (10,529) (5,043) (3,432) Dividends paid on common stock (787,072) (720,123) (696,913) Issuance of noncontrolling interests - 33,318 299,666
Distributions to and purchase of noncontrolling interests (40,613)
(29,519) (82,854)
Net cash provided by (used in) financing activities 246,450 647,271 (2,620,536)
Effect of foreign exchanges on cash, cash equivalents and (153)
245 191
restricted cash
Net increase (decrease) in cash, cash equivalents and (2,972) 44,811 57,643
restricted cash
Cash, cash equivalents and restricted cash, beginning of 184,657 139,846 82,203
year
Cash, cash equivalents and restricted cash, end of year
$ 184,657 $ 139,846 Less: cash, cash equivalents and restricted cash of (70,253) (90,874) (78,701) discontinued operations Cash, cash equivalents and restricted cash of continuing$ 111,432 $ 93,783 $ 61,145 operations, end of year
See accompanying Notes to Consolidated Financial Statements.
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Healthpeak Properties, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Business
Overview
Healthpeak Properties, Inc. , aStandard & Poor's 500 company, is aMaryland corporation that is organized to qualify as a real estate investment trust ("REIT") which, together with its consolidated entities (collectively, "Healthpeak" or the "Company"), invests primarily in real estate serving the healthcare industry inthe United States ("U.S."). HealthpeakTM acquires, develops, leases, owns, and manages healthcare real estate. The Company's diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) life science; (ii) medical office; and (iii) continuing care retirement community ("CCRC"). New Corporate Headquarters InNovember 2020 , the Company established a new corporate headquarters inDenver, CO. With properties in nearly every state, the new headquarters provides a favorable mix of affordability and a centralized geographic location. The Company'sIrvine, CA andFranklin, TN offices will continue to operate. Senior Housing Triple-Net and Senior Housing Operating Portfolio Dispositions During 2020, the Company established and began executing a plan to dispose of its senior housing triple-net and Senior Housing Operating ("SHOP") properties. The held for sale criteria for all such assets were met either on or beforeDecember 31, 2020 . As ofDecember 31, 2020 , the Company concluded the planned dispositions represented a strategic shift and therefore, the assets are classified as discontinued operations in all periods presented herein. See Note 5 for further information. COVID-19 Update InMarch 2020 , theWorld Health Organization declared the outbreak caused by the coronavirus ("COVID-19") to be a global pandemic. While COVID-19 continues to evolve daily and its ultimate outcome is uncertain, it has caused significant disruption to individuals, governments, financial markets, and businesses, including the Company. Global health concerns and increased efforts to reduce the spread of the COVID-19 pandemic prompted federal, state, and local governments to restrict normal daily activities, and resulted in travel bans, quarantines, school closings, "shelter-in-place" orders requiring individuals to remain in their homes other than to conduct essential services or activities, as well as business limitations and shutdowns, which resulted in closure of many businesses deemed to be non-essential. Although some of these restrictions have since been lifted or scaled back, certain restrictions remain in place or have been re-imposed and any future surges of COVID-19 may lead to other restrictions being re-implemented in response to efforts to reduce the spread. In addition, the Company's tenants, operators and borrowers are facing significant cost increases as a result of increased health and safety measures, including increased staffing demands for patient care and sanitation, as well as increased usage and inventory of critical medical supplies and personal protective equipment. These health and safety measures, which may remain in place for a significant amount of time or be re-imposed from time to time, continue to place a substantial strain on the business operations of many of the Company's tenants, operators, and borrowers. The Company evaluated the impacts of COVID-19 on its business thus far and incorporated information concerning the impact of COVID-19 into its assessments of liquidity, impairments, and collectibility from tenants, residents, and borrowers as ofDecember 31, 2020 . The Company will continue to monitor such impacts and will adjust its estimates and assumptions based on the best available information. NOTE 2. Summary of Significant Accounting Policies Use of Estimates Management is required to make estimates and assumptions in the preparation of financial statements in conformity withU.S. generally accepted accounting principles ("GAAP"). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management's estimates. 81 -------------------------------------------------------------------------------- Table of Contents Principles of Consolidation The consolidated financial statements include the accounts ofHealthpeak Properties, Inc. , its wholly-owned subsidiaries, and joint ventures and variable interest entities that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation. The Company is required to continually evaluate its variable interest entity ("VIE") relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support, (ii) substantially all of an entity's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE. The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control. A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but is not limited to, its form of ownership interest, its representation on the VIE's governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity. For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners' rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed. Revenue Recognition Lease Classification At the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification. For leases entered into prior toJanuary 1, 2019 , a lease arrangement was classified as an operating lease if none of the following criteria were met: (i) transfer of ownership to the lessee prior to or shortly after the end of the lease term, (ii) lessee had a bargain purchase option during or at the end of the lease term, (iii) the lease term was equal to 75% or more of the underlying property's economic life, or (iv) the present value of future minimum lease payments (excluding executory costs) was equal to 90% or more of the excess fair value (over retained tax credits) of the leased property. If one of the four criteria was met and the minimum lease payments were determined to be reasonably predictable and collectible, the lease arrangement was generally accounted for as a direct financing lease ("DFL"). Concurrent with the Company's adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASU 2016-02") onJanuary 1, 2019 , the Company began classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term. 82 -------------------------------------------------------------------------------- Table of Contents Rental and Related Revenues The Company commences recognition of rental revenue for operating lease arrangements when the tenant has taken possession or controls the physical use of a leased asset. The tenant is not considered to have taken physical possession or have control of the leased asset until the Company-owned tenant improvements are substantially complete. If a lease arrangement provides for tenant improvements, the Company determines whether the tenant improvements are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized into income over the lease term. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Ownership of tenant improvements is determined based on various factors including, but not limited to, the following criteria: •lease stipulations of how and on what a tenant improvement allowance may be spent; •which party to the arrangement retains legal title to the tenant improvements upon lease expiration; •whether the tenant improvements are unique to the tenant or general purpose in nature; •if the tenant improvements are expected to have significant residual value at the end of the lease term; •the responsible party for construction cost overruns; and •which party constructs or directs the construction of the improvements. Certain leases provide for additional rents that are contingent upon a percentage of the facility's revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant or estimates of tenant results, exceed the base amount or other thresholds, and only after any contingency has been removed (when the related thresholds are achieved). This may result in the recognition of rental revenue in periods subsequent to when such payments are received. Tenant recoveries subject to operating leases generally relate to the reimbursement of real estate taxes, insurance, and repair and maintenance expense, and are recognized as both revenue (in rental and related revenues) and expense (in operating expenses) in the period the expense is incurred as the Company is the party paying the service provider. For operating leases with minimum scheduled rent increases, the Company recognizes income on a straight line basis over the lease term when collectibility of future minimum lease payments is probable. Recognizing rental income on a straight line basis results in a difference in the timing of revenue amounts from what is contractually due from tenants. If the Company determines that collectibility of future minimum lease payments is not probable, the straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period and future revenue recognition is limited to amounts contractually owed and paid. Resident Fees and Services Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Residency agreements for SHOP and continuing care retirement community ("CCRC") facilities are generally for a term of 30 days to one year, with resident fees billed monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears. Certain of the Company's CCRCs are operated as entrance fee communities, which typically require a resident to pay an upfront entrance fee that includes both a refundable portion and non-refundable portion. When the Company receives a nonrefundable entrance fee, it is recorded in deferred revenue in the consolidated balance sheets and amortized into revenue over the estimated stay of the resident. The Company utilizes third-party actuarial experts in its determination of the estimated stay of residents. AtDecember 31, 2020 and 2019, unamortized nonrefundable entrance fee liabilities were$484 million and$68 million , respectively. Income from Direct Financing Leases The Company utilizes the direct finance method of accounting to record DFL income. For a lease accounted for as a DFL, the net investment in the DFL represents receivables for the sum of future minimum lease payments and the estimated residual value of the leased property, less the unamortized unearned income. Unearned income is deferred and amortized to income over the lease term to provide a constant yield when collectibility of the lease payments is reasonably assured. 83 -------------------------------------------------------------------------------- Table of Contents Interest Income Loans receivable are classified as held-for-investment based on management's intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and reduced by a valuation allowance for estimated credit losses, as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, loan fees paid and received, using the interest method. The interest method is applied on a loan-by-loan basis when collectibility of the future payments is reasonably assured. Premiums and discounts are recognized as yield adjustments over the term of the related loans. Gain (loss) on sales of real estate, net The Company recognizes a gain (loss) on sale of real estate when the criteria for an asset to be derecognized are met, which include when: (i) a contract exists, (ii) the buyer obtains control of the asset, and (iii) it is probable that the Company will receive substantially all of the consideration to which it is entitled. These criteria are generally satisfied at the time of sale. Government Grant Income OnMarch 27, 2020 , the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") to provide financial aid to individuals, businesses, and state and local governments. During the year endedDecember 31, 2020 , the Company received government grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic. Grant income is recognized when there is reasonable assurance that the grant will be received and the Company will comply with all conditions attached to the grant. Additionally, grants are recognized over the periods in which the Company recognizes the increased expenses and lost revenue the grants are intended to defray. As ofDecember 31, 2020 , the amount of qualifying expenditures and lost revenue exceeded grant income recognized and the Company had complied or will continue to comply with all grant conditions. The following table summarizes information related to government grant income: Year Ended December 31, 2020 2019 2018 Government grant income recorded in other income (expense), net$ 16,198 $ - $ - Government grant income recorded in equity income (loss) from unconsolidated joint ventures 1,279 - -
Government grant income recorded in income (loss) from discontinued operations
15,436 - -
Total government grants received $ 32,913 $ - $ -
FromJanuary 1, 2021 throughFebruary 8, 2021 , the Company received$3 million in government grants under the CARES Act, which will be recognized during the first quarter of 2021. Credit Losses The Company evaluates the liquidity and creditworthiness of its tenants, operators, and borrowers on a monthly and quarterly basis. The Company's evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The Company's tenants, operators, and borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis; the Company utilizes this financial information to calculate the lease or debt service coverages that it uses as a primary credit quality indicator. Lease and debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating income, occupancy, rental rate, reimbursement trends, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures. The Company evaluates, on a monthly basis or immediately upon a significant change in circumstance, its tenants', operators', and borrowers' ability to service their obligations with the Company. If it is no longer probable that substantially all future minimum lease payments under operating leases will be received, the straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period. 84 -------------------------------------------------------------------------------- Table of Contents In connection with the Company's quarterly review process or upon the occurrence of a significant event, loans receivable and DFLs (collectively, "finance receivables"), are reviewed and assigned an internal rating of Performing,Watch List , or Workout. Finance receivables that are deemed Performing meet all present contractual obligations, and collection and timing, of all amounts owed is reasonably assured.Watch List finance receivables are defined as finance receivables that do not meet the definition of Performing or Workout. Workout finance receivables are defined as finance receivables in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment. Finance receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is not reasonably assured (the asset will have an internal rating of eitherWatch List or Workout). Further, the Company performs a credit analysis to support the tenant's, operator's, borrower's, and/or guarantor's repayment capacity and the underlying collateral values. The Company uses the cash basis method of accounting for finance receivables placed on nonaccrual status unless one of the following conditions exist whereby it utilizes the cost recovery method of accounting if: (i) the Company determines that it is probable that it will only recover the recorded investment in the finance receivable, net of associated allowances or charge-offs (if any), or (ii) the Company cannot reasonably estimate the amount of an impaired finance receivable. For cash basis method of accounting, the Company applies payments received, excluding principal paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original contractual terms. For cost recovery method of accounting, any payment received is applied to reduce the recorded investment. Generally, the Company returns a finance receivable to accrual status when all delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured. Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") onJanuary 1, 2020 , allowances were established for finance receivables on an individual basis utilizing an estimate of probable losses, if they were determined to be impaired. Finance receivables were impaired when it was deemed probable that the Company would be unable to collect all amounts due in accordance with the contractual terms of the finance receivable. An allowance was based upon the Company's assessment of the borrower's overall financial condition, economic resources, payment record, the prospects for support from any financially responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates considered all available evidence, including the expected future cash flows discounted at the finance receivable's effective interest rate, fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. If a finance receivable was deemed partially or wholly uncollectible, the uncollectible balance was charged off against the allowance in the period in which the uncollectible determination was made. Subsequent to adopting ASU 2016-13 onJanuary 1, 2020 , the Company began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historicalU.S. GAAP. Under the new model, the Company is required to recognize future credit losses expected to be incurred over the life of a finance receivable at inception of that instrument. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and to rely on counter-party specific information to ensure the most accurate estimate is recognized. Real Estate The Company's real estate acquisitions are generally classified as asset acquisitions for which the Company records identifiable assets acquired, liabilities assumed, and any associated noncontrolling interests at cost on a relative fair value basis. In addition, for such asset acquisitions, no goodwill is recognized, third party transaction costs are capitalized and any associated contingent consideration is generally recorded when the amount of consideration is reasonably estimable and probable of being paid. The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions, and relevant per square foot or unit cost information. A real estate asset's fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant. 85 -------------------------------------------------------------------------------- Table of Contents The Company recognizes acquired "above and below market" leases at their relative fair value (for asset acquisitions) using discount rates which reflect the risks associated with the leases acquired. The fair value is based on the present value of the difference between (i) the contractual amounts paid pursuant to each in-place lease and (ii) management's estimate of fair market lease rates for each in-place lease, measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the extended term for any leases with renewal options that are reasonably certain to be exercised. Other intangible assets acquired include amounts for in-place lease values that are based on an evaluation of the specific characteristics of each property and the acquired tenant lease(s). Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In estimating costs to execute similar leases, the Company considers leasing commissions, legal, and other related costs. Certain of the Company's acquisitions involve the assumption of contract liabilities. The Company typically estimates the fair value of contract liabilities by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the contract. A variety of market and contract-specific conditions are considered when making assumptions that impact the estimated fair value of the contract liability. The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes, insurance, and other costs directly related and essential to the development or construction of a real estate asset. The Company capitalizes construction and development costs while substantive activities are ongoing to prepare an asset for its intended use. The Company considers a construction project as substantially complete and held available for occupancy upon the completion of Company-owned tenant improvements, but no later than one year from cessation of significant construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred. For redevelopment of existing operating properties, the Company capitalizes the cost for the construction and improvement incurred in connection with the redevelopment. Costs previously capitalized related to abandoned developments/redevelopments are charged to earnings. Expenditures for repairs and maintenance are expensed as incurred. The Company considers costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and such costs are reflected as investing activities in the Company's consolidated statement of cash flows. The Company computes depreciation on properties using the straight-line method over the assets' estimated useful lives. Depreciation is discontinued when a property is identified as held for sale. Buildings and improvements are depreciated over useful lives ranging up to 60 years. Above and below market lease intangibles are amortized to revenue over the remaining noncancellable lease terms and renewal periods that are reasonably certain to be exercised, if any. In-place lease intangibles are amortized to expense over the remaining noncancellable lease term and renewal periods that are reasonably certain to be exercised, if any. Concurrent with the Company's adoption of ASU 2016-02 onJanuary 1, 2019 , the Company elected to recognize expense associated with short-term leases (those with a noncancellable lease term of 12 months or less) under which the Company is the lessee on a straight-line basis and not recognize those leases on its consolidated balance sheets. For leases other than short-term operating leases under which the Company is the lessee, such as ground leases and corporate office leases, the Company recognizes a right-of-use asset and related lease liability on its consolidated balance sheet at inception of the lease. The lease liability is calculated as the sum of: (i) the present value of minimum lease payments at lease commencement (discounted using the Company's secured incremental borrowing rate) and (ii) the present value of amounts probable of being paid under any residual value guarantees. The right-of-use asset is calculated as the lease liability, adjusted for the following: (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and (ii) any initial direct costs incurred by the Company. Impairment of Long-Lived Assets andGoodwill The Company assesses the carrying value of real estate assets and related intangibles ("real estate assets") when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company tests its real estate assets for impairment by comparing the sum of the expected future undiscounted cash flows to the carrying value of the real estate assets. The expected future undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Further, the analysis considers the impact, if any, of master lease agreements on cash flows, which are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. If the carrying value exceeds the expected future undiscounted cash flows, an impairment loss will be recognized to the extent that the carrying value of the real estate assets exceeds their fair value. 86 -------------------------------------------------------------------------------- Table of Contents Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc.). When testing goodwill for impairment, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company recognizes an impairment loss for the amount by which the carrying value, including goodwill, exceeds the reporting unit's fair value. Assets Held for Sale and Discontinued OperationsThe Company classifies a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. If a real estate property is classified as held for sale, it is reported at the lower of its carrying value or fair value less costs to sell and no longer depreciated. The Company classifies a loan receivable as held for sale when management no longer has the intent and ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, it is reported at the lower of amortized cost or fair value. A discontinued operation represents: (i) a component of the Company or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on the Company's operations and financial results or (ii) an acquired business that is classified as held for sale on the date of acquisition. Examples of a strategic shift may include disposing of: (i) a separate major line of business, (ii) a separate major geographic area of operations, or (iii) other major parts of the Company. Investments inUnconsolidated Joint Ventures Investments in entities the Company does not consolidate, but over which the Company has the ability to exercise significant influence over operating and financial policies, are reported under the equity method of accounting. Under the equity method of accounting, the Company's share of the investee's earnings or losses is included in equity income (loss) from unconsolidated joint ventures within the Company's consolidated statements of operations. The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture interest, the fair value of assets contributed to the joint venture, or the fair value of the assets prior to the sale of interests in the joint venture. To the extent that the Company's cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company's share of equity in earnings of the joint venture. The Company evaluates its equity method investments for impairment based on a comparison of the fair value of the equity method investment to its carrying value. When the Company determines a decline in fair value below carrying value of an investment in an unconsolidated joint venture is other-than-temporary, an impairment is recorded. The Company recognizes gains on the sale of interests in joint ventures to the extent the economic substance of the transaction is a sale. The Company's fair values of its equity method investments are determined based on discounted cash flow models that include all estimated cash inflows and outflows over a specified holding period and, where applicable, any estimated debt premiums or discounts. Capitalization rates, discount rates, and credit spreads utilized in these valuation models are based on assumptions that the Company believes to be within a reasonable range of current market rates for the respective investments. Share-Based Compensation Compensation expense for share-based awards granted to employees with graded vesting schedules is generally recognized on a straight-line basis over the vesting period. Forfeitures of share-based awards are recognized as they occur. Cash and Cash Equivalents and Restricted Cash Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of three months or less when purchased. Restricted cash primarily consists of amounts held by mortgage lenders to provide for: (i) real estate tax expenditures, (ii) tenant improvements, and (iii) capital expenditures, as well as security deposits and net proceeds from property sales that were executed as tax-deferred dispositions. 87 -------------------------------------------------------------------------------- Table of Contents Derivatives and Hedging During its normal course of business, the Company uses certain types of derivative instruments for the purpose of managing interest rate and foreign currency risk. To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with the Company's related assertions. The Company recognizes all derivative instruments, including embedded derivatives that are required to be bifurcated, as assets or liabilities to the consolidated balance sheets at fair value. Changes in fair value of derivative instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are recognized in earnings. For derivative instruments designated in qualifying cash flow hedging relationships, changes in fair value related to the effective portion of the derivative instruments are recognized in accumulated other comprehensive income (loss), whereas changes in fair value of the ineffective portion are recognized in earnings. If it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company discontinues its cash flow hedge accounting prospectively and records the appropriate adjustment to earnings based on the current fair value of the derivative instrument. For net investment hedge accounting, upon sale or liquidation of the hedged investment, the cumulative balance of the remeasurement value is reclassified to earnings. Income TaxesHealthpeak Properties, Inc. has elected REIT status and believes it has always operated so as to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,Healthpeak Properties, Inc. will generally not be subject toU.S. federal income tax, provided that it continues to qualify as a REIT and makes distributions to stockholders equal to or in excess of its taxable income. In addition, the Company has formed several consolidated subsidiaries that have elected REIT status.Healthpeak Properties, Inc. and its consolidated REIT subsidiaries are each subject to the REIT qualification requirements under the Code. If any REIT fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates and may be ineligible to qualify as a REIT for four subsequent tax years.Healthpeak Properties, Inc. and its consolidated REIT subsidiaries are subject to state, local, and/or foreign income taxes in some jurisdictions. In certain circumstances each REIT may also be subject to federal excise taxes on undistributed income. In addition, certain activities that the Company undertakes may be conducted by entities that have elected to be treated as taxable REIT subsidiaries ("TRSs"). TRSs are subject to federal, state, and local income taxes. The Company recognizes tax penalties relating to unrecognized tax benefits as additional income tax expense. Interest relating to unrecognized tax benefits is recognized as interest expense. The Company is required to evaluate its deferred tax assets for realizability and recognize a valuation allowance, which is recorded against its deferred tax assets, if it is more likely than not that the deferred tax assets will not be realized. The Company considers all available evidence in its determination of whether a valuation allowance for deferred tax assets is required. Advertising Costs All advertising costs are expensed as incurred and reported within operating expenses. During the years endedDecember 31, 2020 , 2019, and 2018, total advertising expense was$18 million ,$13 million , and$9 million , respectively ($12 million ,$13 million , and$9 million , respectively, of which is reported in income (loss) from discontinued operations). Capital Raising Issuance Costs Costs incurred in connection with the issuance of common shares are recorded as a reduction of additional paid-in capital. Debt issuance costs related to debt instruments, excluding line of credit arrangements and commercial paper, are deferred, recorded as a reduction of the related debt liability, and amortized to interest expense over the remaining term of the related debt liability utilizing the effective interest method. Debt issuance costs related to line of credit arrangements and commercial paper are deferred, included in other assets, and amortized to interest expense on a straight-line basis over the remaining term of the related line of credit arrangement. Commercial paper are unsecured short-term debt securities with varying maturities. A line of credit serves as a liquidity backstop for repayment of commercial paper borrowings. Penalties incurred to extinguish debt and any remaining unamortized debt issuance costs, discounts, and premiums are recognized as income or expense in the consolidated statements of operations at the time of extinguishment. 88 -------------------------------------------------------------------------------- Table of Contents Segment Reporting The Company's reportable segments, based on how it evaluates its business and allocates resources, are as follows: (i) life science, (ii) medical office, and (iii) CCRC. In conjunction with establishing and beginning execution of a plan to dispose of the Company's senior housing triple-net and SHOP portfolios during 2020, both of these previously reportable segments are now classified as discontinued operations in all periods presented herein. See Notes 1 and 5 for further information. InDecember 2020 , as a result of a change in how operating results are reported to the Company's chief operating decision makers ("CODMs") for the purpose of evaluating performance and allocating resources, the Company's hospitals were reclassified from other non-reportable segments to the medical office segment and the Company's one remaining unconsolidated investment in a senior housing joint venture was reclassified from the SHOP segment to other non-reportable segments. Additionally, inJanuary 2020 , primarily as a result of: (i) consolidating 13 of 15 CCRCs previously held by a CCRC joint venture (see discussion of the Brookdale 2019 Master Transaction and Cooperation Agreement in Note 3) and (ii) deconsolidating 19 SHOP assets into a new joint venture inDecember 2019 , the Company's CODMs began reviewing operating results of CCRCs on a stand-alone basis and financial information for each respective segment inclusive of the Company's share of unconsolidated joint ventures and exclusive of noncontrolling interests' share of consolidated joint ventures. Therefore, during the first quarter of 2020, the Company began reporting CCRCs as a separate segment and segment measures inclusive of the Company's share of unconsolidated joint ventures and exclusive of noncontrolling interests' share of consolidated joint ventures. All prior period segment information has been recast to conform to the current period presentation. Noncontrolling Interests Arrangements with noncontrolling interest holders are assessed for appropriate balance sheet classification based on the redemption and other rights held by the noncontrolling interest holder. Net income (loss) attributable to a noncontrolling interest is included in net income (loss) on the consolidated statements of operations and, upon a gain or loss of control, the interest purchased or sold, and any interest retained, is recorded at fair value with any gain or loss recognized in earnings. The Company accounts for purchases or sales of equity interests that do not result in a change in control as equity transactions. The Company consolidates non-managing member limited liability companies ("DownREITs") because it exercises control, and the noncontrolling interests in these entities are carried at cost. The non-managing member limited liability company ("LLC") units ("DownREIT units") are exchangeable for an amount of cash approximating the then-current market value of shares of the Company's common stock or, at the Company's option, shares of the Company's common stock (subject to certain adjustments, such as stock splits and reclassifications). Upon exchange of DownREIT units for the Company's common stock, the carrying amount of the DownREIT units is reclassified to stockholders' equity. Foreign Currency Translation and Transactions Assets and liabilities denominated in foreign currencies that are translated intoU.S. dollars use exchange rates in effect at the end of the period, and revenues and expenses denominated in foreign currencies that are translated intoU.S. dollars use average rates of exchange in effect during the related period. Gains or losses resulting from translation are included in accumulated other comprehensive income (loss). Gains or losses resulting from foreign currency transactions are translated intoU.S. dollars at the rates of exchange prevailing at the dates of the transactions. The effects of transaction gains or losses are included in other income (expense), net in the consolidated statements of operations. Fair Value Measurement The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy: •Level 1-quoted prices for identical instruments in active markets; •Level 2-quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and 89 -------------------------------------------------------------------------------- Table of Contents •Level 3-fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities that are required to be measured at fair value. When available, the Company utilizes quoted market prices to determine fair value and classifies such items in Level 1. In instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and classifies the asset or liability in Level 2. If quoted market prices or inputs are not available, fair value measurements are based on valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads, and/or market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash flow models. The Company also considers its counterparty's and own credit risk for derivative instruments and other liabilities measured at fair value. The Company has elected the mid-market pricing expedient when determining fair value. Earnings per Share Basic earnings per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of shares of common stock outstanding during the period. The Company accounts for unvested share-based payment awards that contain non-forfeitable dividend rights or dividend equivalents (whether paid or unpaid) as participating securities, which are included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per common share is calculated by including the effect of dilutive securities, such as the impact of forward equity sales agreements using the treasury stock method and common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units, and unvested restricted stock units. Recent Accounting Pronouncements Adopted Revenue Recognition. BetweenMay 2014 andFebruary 2017 , theFinancial Accounting Standards Board ("FASB") issued four ASUs changing the requirements for recognizing and reporting revenue (together, herein referred to as the "Revenue ASUs"): (i) ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), (ii) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ("ASU 2016-08"), (iii) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients ("ASU 2016-12"), and (iv) ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). ASU 2014-09 provides guidance for revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-08 is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU 2016-12 provides practical expedients and improvements on the previously narrow scope of ASU 2014-09. ASU 2017-05 clarifies the scope of the FASB's guidance on nonfinancial asset derecognition and aligns the accounting for partial sales of nonfinancial assets and in-substance nonfinancial assets with the guidance in ASU 2014-09. The Company adopted the Revenue ASUs effectiveJanuary 1, 2018 and utilized a modified retrospective adoption approach, resulting in a cumulative-effect adjustment to equity of$79 million as ofJanuary 1, 2018 . Under the Revenue ASUs, the Company also elected to utilize a practical expedient which allowed the Company to only reassess contracts that were not completed as of the adoption date, rather than all historical contracts. 90 -------------------------------------------------------------------------------- Table of Contents As the timing and recognition of the majority of the Company's revenue is the same whether accounted for under the Revenue ASUs or lease accounting guidance (see discussion below), the impact of the Revenue ASUs, upon and subsequent to adoption, is generally limited to the following: •Prior to the adoption of the Revenue ASUs, the Company recognized a gain on sale of real estate using the full accrual method when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient, and other profit recognition criteria had been satisfied. The Company deferred all or a portion of a gain on sale of real estate if the requirements for gain recognition were not met at the time of sale. Subsequent to adopting the Revenue ASUs onJanuary 1, 2018 , the Company began recognizing a gain on sale of real estate upon transferring control of the asset to the purchaser, which is generally satisfied at the time of sale. In conjunction with its adoption of the Revenue ASUs, the Company reassessed its historical partial sale of real estate transactions to determine which transactions, if any, were not completed contracts (i.e., the transaction did not qualify for sale treatment under previous guidance). The Company concluded that it had one such material transaction, its partial sale of RIDEA II in the first quarter of 2017 (which was not a completed sale under historical guidance as of the Company's adoption date due to a minor obligation related to the interest sold). In accordance with the Revenue ASUs, the Company recorded its retained 40% equity investment at fair value as of the sale date. As a result, the Company recorded an adjustment to equity as ofJanuary 1, 2018 (under the modified retrospective transition approach) representing a step-up in the fair value of its equity investment in RIDEA II of$107 million (to a carrying value of$121 million as ofJanuary 1, 2018 ) and a$30 million impairment charge to decrease the carrying value to the sales price of the investment (see Note 5). The Company completed the sale of its equity investment inJune 2018 and no longer holds an economic interest in RIDEA II. •The Company generally expects that the Revenue ASUs will result in certain transactions qualifying as sales of real estate at an earlier date than under historical accounting guidance. Leases. InFebruary 2016 , the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 (codified under Accounting Standards Codification ("ASC") 842, Leases) amends the previous accounting for leases to: (i) require lessees to put most leases on their balance sheets (not required for short-term leases with lease terms of 12 months or less), but continue recognizing expenses on their income statements in a manner similar to requirements under prior accounting guidance, (ii) eliminate real estate specific lease provisions, and (iii) modify the classification criteria and accounting for sales-type leases for lessors. Additionally, ASU 2016-02 provides a practical expedient, which the Company elected, that allows an entity to not reassess the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement, (ii) lease classification related to expired or existing lease arrangements, or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. As a result of adopting ASU 2016-02 onJanuary 1, 2019 using the modified retrospective transition approach, the Company recognized a cumulative-effect adjustment to equity of$1 million as ofJanuary 1, 2019 . Under ASU 2016-02, the Company began capitalizing fewer costs related to the drafting and negotiation of its lease agreements. Additionally, the Company began recognizing all of its significant operating leases for which it is the lessee, including corporate office leases, equipment leases, and ground leases, on its consolidated balance sheets as a lease liability and corresponding right-of-use asset. As such, the Company recognized a lease liability of$153 million and right-of-use asset of$166 million onJanuary 1, 2019 . The aggregate lease liability was calculated as the present value of minimum lease payments, discounted using a rate that approximated the Company's secured incremental borrowing rate at the time of adoption, adjusted for the noncancelable term of each lease. The right-of-use asset was calculated as the aggregate lease liability, adjusted for the existing accrued straight-line rent liability balance of$20 million and net unamortized above/below market ground lease intangible assets of$33 million . Under ASU 2016-02, a practical expedient was offered to lessees to make a policy election, which the Company elected, to not separate lease and nonlease components, but rather account for the combined components as a single lease component under ASC 842. InJuly 2018 , the FASB issued ASU No. 2018-11, Leases - Targeted Improvements ("ASU 2018-11"), which provides lessors with a similar option to elect a practical expedient allowing them to not separate lease and nonlease components in a contract for the purpose of revenue recognition and disclosure. This practical expedient is limited to circumstances in which: (i) the timing and pattern of transfer are the same for the nonlease component and the related lease component and (ii) the lease component, if accounted for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is predominantly lease or service based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly lease-based would be accounted for under ASU 2016-02 and predominantly service-based would be accounted for under the Revenue ASUs). The Company elected this practical expedient as well and, as a result, beginningJanuary 1, 2019 , the Company recognizes revenue from its senior housing triple-net, medical office, and life science properties under ASC 842 and revenue from its SHOP and CCRC properties under the Revenue ASUs (codified under ASC 606, Revenue from Contracts with Customers). 91 -------------------------------------------------------------------------------- Table of Contents InDecember 2018 , the FASB issued ASU No. 2018-20, Narrow Scope Improvements for Lessors ("ASU 2018-20"), which requires that a lessor: (i) exclude certain lessor costs paid directly by a lessee to third parties on behalf of the lessor from a lessor's measurement of variable lease revenue and associated expense (i.e., no gross up of revenue and expense for these costs,) and (ii) include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense (i.e., gross up revenue and expense for these costs). This is consistent with the Company's historical presentation and did not require a change onJanuary 1, 2019 . Credit Losses. InJune 2016 , the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amendments in ASU 2016-13 eliminate the "probable" initial threshold for recognition of credit losses in previous accounting guidance and, instead, reflect an entity's current estimate of all expected credit losses over the life of the financial instrument. Historically, when credit losses were measured under previous accounting guidance, an entity generally only considered past events and current conditions in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss. As a result of adopting ASU 2016-13 onJanuary 1, 2020 using the modified retrospective transition approach, the Company recognized a cumulative-effect adjustment to equity of$2 million as ofJanuary 1, 2020 . Under ASU 2016-13, the Company began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historical GAAP. Under the new model, the Company is required to recognize future credit losses expected to be incurred over the life of its finance receivables, including loans receivable, direct financing leases ("DFLs"), and certain accounts receivable, at inception of those instruments. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and rely on counter-party specific information to ensure the most accurate estimate is recognized. The Company will reassess its reserves on finance receivables at each balance sheet date to determine if an adjustment to the previous reserve is necessary. Accounting for Lease Concessions Related to COVID-19. InApril 2020 , the FASB staff issued a question-and-answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under ASC 842, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. During the year endedDecember 31, 2020 , the Company provided rent deferrals (to be repaid before the end of 2020) to certain tenants in its life science and medical office segments that were impacted by COVID-19 (discussed in further detail in Note 7). As it relates to these deferrals, the Company elected to not assess them on a lease-by-lease basis and to continue recognizing rent revenue on a straight-line basis. While the Company's election for rent deferrals will be applied consistently to future deferrals of a similar nature, if the Company grants future lease concessions of a different type (such as rent abatements), it will make an election related to those concessions at that time. NOTE 3. Master Transactions and Cooperation Agreement with Brookdale 2019 Master Transactions and Cooperation Agreement with Brookdale InOctober 2019 , the Company and Brookdale Senior Living Inc. ("Brookdale") entered into a Master Transactions and Cooperation Agreement (the "2019 MTCA"), which includes a series of transactions related to its previously jointly owned 15-campus CCRC portfolio (the "CCRC JV") and the portfolio of senior housing properties Brookdale triple-net leased from the Company, which, at the time, included 43 properties. In connection with the 2019 MTCA, the Company and Brookdale, and certain of their respective subsidiaries, closed the following transactions related to the CCRC JV onJanuary 31, 2020 : •The Company, which owned a 49% interest in the CCRC JV, purchased Brookdale's 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of$1.06 billion (the "CCRC Acquisition"); •The management agreements related to the CCRC Acquisition communities were terminated and management transitioned (under new management agreements) from Brookdale toLife Care Services LLC ("LCS"); and •The Company paid a$100 million management termination fee to Brookdale. 92 -------------------------------------------------------------------------------- Table of Contents In addition, pursuant to the 2019 MTCA, the Company and Brookdale closed the following transactions related to properties Brookdale triple-net leased from the Company onJanuary 31, 2020 : •Brookdale acquired 18 of the properties from the Company (the "Brookdale Acquisition Assets") for cash proceeds of$385 million ; •The remaining 24 properties (excludes one property to be transitioned or sold to a third party, as discussed below) were restructured into a single master lease with 2.4% annual rent escalators and a maturity date ofDecember 31, 2027 (the "2019 AmendedMaster Lease "); •A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets was reallocated to the remaining properties under the 2019 AmendedMaster Lease ; and •Brookdale paid down$20 million of future rent under the 2019 AmendedMaster Lease . As agreed to by the Company and Brookdale under the 2019 MTCA, inDecember 2020 , the Company terminated the triple-net lease related to one property and converted it to a RIDEA structure. The 24 assets under the 2019 AmendedMaster Lease were sold inJanuary 2021 (see Note 5). Additionally, under the 2019 MTCA, the Company and Brookdale agreed to the following transactions which have not yet been completed: •The CCRC JV will sell the remaining two CCRCs, which are being marketed for sale to third parties; •The Company will provide up to$35 million of capital investment in the 2019 AmendedMaster Lease properties over a five-year term, which will increase rent by 7% of the amount spent, per annum. As ofDecember 31, 2020 , the Company had funded$5 million of this capital investment. Upon selling the 24 assets under the 2019 AmendedMaster Lease inJanuary 2021 , the remaining capital investment obligation was transferred to the buyer. As a result of the above transactions, onJanuary 31, 2020 , the Company began consolidating the 13 CCRCs in which it acquired Brookdale's interest. Accordingly, the Company derecognized its investment in the CCRC JV of$323 million and recognized a gain upon change of control of$170 million , which is included in other income (expense), net. In connection with consolidating the 13 CCRCs during the first quarter of 2020, the Company recognized real estate and intangible assets of$1.8 billion , refundable entrance fee liabilities of$308 million , contractual liabilities associated with previously collected non-refundable entrance fees of$436 million , debt assumed of$215 million , other net assets of$48 million , and cash paid of$396 million . Upon sale of the 18 senior housing triple-net assets to Brookdale, the Company recognized an aggregate gain on sales of real estate of$164 million , which is recorded within income (loss) from discontinued operations. Fair Value Measurement Techniques and Quantitative Information AtJanuary 31 , 2020, the Company performed a fair value assessment of each of the 2019 MTCA components that provided measurable economic benefit or detriment to the Company. Each fair value calculation was based on an income or market approach and relied on historical and forecasted net operating income, actuarial assumptions about the expected resident length of stay, and market data, including, but not limited to, discount rates ranging from 10% to 12%, annual rent escalators ranging from 2% to 3%, and real estate capitalization rates ranging from 7% to 9%. All assumptions were considered to be Level 3 measurements within the fair value hierarchy. 2017 MTCA with Brookdale In November 2017, the Company and Brookdale entered into a Master Transactions and Cooperation Agreement (the "2017 MTCA") to provide the Company with the ability to significantly reduce its concentration of assets leased to and/or managed by Brookdale. In connection with the overall transaction pursuant to the 2017 MTCA, the Company and Brookdale, and certain of their respective subsidiaries, agreed to the following: •The Company, which owned 90% of the interests in its RIDEA I and RIDEA III joint ventures with Brookdale at the time the 2017 MTCA was executed, agreed to purchase Brookdale's 10% noncontrolling interest in each joint venture. At the time the 2017 MTCA was executed, these joint ventures collectively owned and operated 58 independent living, assisted living, memory care, and/or skilled nursing facilities (the "RIDEA Facilities"). The Company completed its acquisitions of the RIDEA III noncontrolling interest for $32 million in December 2017 and the RIDEA I noncontrolling interest for $63 million in March 2018; •The Company received the right to sell, or transition to other operators, 32 of the 78 total assets under an Amended and RestatedMaster Lease and Security Agreement (the "2017 AmendedMaster Lease ") with Brookdale and 36 of the RIDEA Facilities (and terminate related management agreements with an affiliate of Brookdale without penalty), certain of which were sold during 2018 and 2019; 93 -------------------------------------------------------------------------------- Table of Contents •The Company provided an aggregate $5 million annual reduction in rent on three assets, effective January 1, 2018; and •Brookdale agreed to purchase two of the assets under the 2017 AmendedMaster Lease for $35 million and four of the RIDEA Facilities for $240 million, all of which were sold in 2018. During 2018, the Company terminated the previous management agreements or leases with Brookdale on 37 assets contemplated under the 2017 MTCA and completed the transition of 20 SHOP assets and 17 senior housing triple-net assets to other managers. NOTE 4. Real Estate Transactions 2020 Real Estate Investments The Post Acquisition In April 2020, the Company acquired a life science campus inWaltham, Massachusetts for $320 million. Scottsdale Gateway Acquisition In July 2020, the Company acquired one medical office building ("MOB") inScottsdale, Arizona for $27 million. Midwest MOB Portfolio Acquisition In October 2020, the Company acquired a portfolio of seven MOBs located inIndiana ,Missouri , andIllinois for $169 million. Cambridge Discovery Park Acquisition In December 2020, the Company acquired three life science facilities inCambridge, Massachusetts for $610 million and a 49% unconsolidated joint venture interest in a fourth property on the same campus for $54 million. If the fourth property is sold in a taxable transaction, the Company is generally obligated to indemnify its joint venture partner for its federal and state income taxes associated with the gain that existed at the time of the contribution to the joint venture. South San Francisco Land Site Acquisition In October 2020, the Company executed a definitive agreement to acquire approximately 12 acres of land for $128 million. The acquisition site is located inSouth San Francisco, California , adjacent to two sites currently held by the Company as land for future development. The Company made a $10 million nonrefundable deposit upon completing due diligence in November 2020 and expects to close the transaction in 2021. Waldwick JV Interest Purchase In October 2020, the Company acquired the remaining 15% equity interest of a senior housing joint venture structure (which owned one senior housing facility), in which the Company previously held an unconsolidated equity investment, for $4 million. Subsequent to acquisition, the Company owned 100% of the equity, began consolidating the facility, and recognized a gain upon change of control of $6 million, which is recorded in other income (expense), net within income (loss) from discontinued operations. In December 2020, the Company sold the property as part of the Atria SHOP Portfolio disposition discussed in Note 5. MBK JV Dissolution In November 2020, as part of the dissolution of a senior housing joint venture, the Company was distributed one property, one land parcel, and $11 million in cash. Upon consolidating the property and land parcel at the time of distribution, the Company recognized a loss upon change of control of $16 million, which is recorded in other income (expense), net within income (loss) from discontinued operations. The property is classified as held-for-sale as of December 31, 2020. In conjunction with the distribution of the property, the Company assumed $36 million of secured mortgage debt which was recorded at its fair value through asset acquisition accounting. Other Real Estate Acquisitions In December 2020, the Company acquired one hospital inDallas, Texas for $34 million. 2019 Real Estate Investments Cambridge Acquisition During the first quarter of 2019, the Company acquired a life science facility for $71 million and development rights at an adjacent undeveloped land parcel for consideration of up to $27 million. The existing facility and land parcel are located inCambridge, Massachusetts . 94 -------------------------------------------------------------------------------- Table of Contents Discovery Portfolio Acquisition In April 2019, the Company acquired a portfolio of nine senior housing properties for $445 million. The properties are located acrossFlorida ,Georgia , andTexas and are operated byDiscovery Senior Living , LLC. Oakmont Portfolio Acquisitions In May 2019, the Company acquired three senior housing communities inCalifornia for $113 million and in July 2019, the Company acquired an additional five senior housing communities for $284 million. Both portfolios were acquired from and continue to be operated by Oakmont Senior Living LLC ("Oakmont"). Each portfolio was contributed to a DownREIT joint venture in which the sellers received non-controlling interests in lieu of cash for a portion of the sales price. The Company consolidates each DownREIT joint venture. As part of the May and July 2019 Oakmont transactions, the Company assumed $50 million and $112 million, respectively, of secured mortgage debt, both of which were recorded at their relative fair values through asset acquisition accounting. Sierra Point Towers Acquisition In June 2019, the Company acquired two life science buildings inSouth San Francisco, California adjacent to the Company's The Shore at Sierra Point development, for $245 million. Vintage Park JV Interest Purchase In June 2019, the Company acquired the outstanding equity interests of a senior housing joint venture structure (which owned one senior housing facility), in which the Company previously held an unconsolidated equity investment, for $24 million. Subsequent to acquisition, the Company owned 100% of the equity. Upon consolidating the facility at acquisition, the Company derecognized the existing investment in the joint venture structure, marked the real estate to fair value (using a relative fair value allocation), and recognized a gain upon change of control of $12 million, net of a tax impact of $1 million. The gain upon change of control is recognized within other income (expense), net and the tax impact is recognized within income tax benefit (expense). Hartwell Innovation Campus Acquisition In July 2019, the Company acquired a life science campus in the suburbanBoston submarket ofLexington, Massachusetts , for $228 million. The campus is comprised of four buildings. West Cambridge Acquisition In December 2019, the Company acquired one life science building, adjacent to the Company's existing properties inCambridge, Massachusetts , for $333 million. Sovereign Wealth Fund Senior Housing Joint Venture In December 2019, the Company formed a new joint venture (the "SWF SH JV") with a sovereign wealth fund that owns 19 SHOP assets operated by Brookdale. The Company owns 53.5% of the SWF SH JV and contributed all 19 assets with a fair value of $790 million. The SWF SH JV partner owns the other 46.5% and purchased its interest for $367 million. Upon formation of the SWF SH JV, the Company recognized its retained equity method investment at fair value, deconsolidated the 19 SHOP assets, and recognized a gain upon change of control of $161 million, which is recorded in other income (expense), net. Other Real Estate Acquisitions During the year ended December 31, 2019, the Company acquired one MOB inKansas for $15 million, one MOB inTexas for $9 million, and one life science building in the Sorrento Mesa submarket ofSan Diego, California for $16 million. Construction, Tenant, and Other Capital Improvements The following table summarizes the Company's expenditures for construction, tenant and other capital improvements, excluding expenditures related to properties classified as discontinued operations (in thousands): Year Ended December 31, Segment 2020 2019 2018 Life science $ 573,999 $ 499,956 $ 396,431 Medical office 173,672 146,466 146,087 CCRC 41,224 - - Other - 30,852 18,357 $ 788,895 $ 677,274 $ 560,875 95
-------------------------------------------------------------------------------- Table of Contents NOTE 5. Dispositions of Real Estate and Discontinued Operations 2020 Dispositions of Real Estate Aegis NNN Portfolio In December 2020, the Company sold 10 senior housing triple-net assets (the "Aegis NNN Portfolio") for $358 million, resulting in total gain on sales of $228 million, which is recognized in income (loss) from discontinued operations. Atria SHOP Portfolio In November 2020, the Company entered into definitive agreements to sell a portfolio of 13 SHOP assets (the "Atria SHOP Portfolio") for $334 million. In December 2020, the Company sold 12 of those assets for $312 million, resulting in total gain on sales of $39 million, which is recognized in income (loss) from discontinued operations. The Company provided the buyer with financing of $61 million on four of the assets sold (see Note 8). The final asset is expected to be sold during the first half of 2021, upon completion of the license transfer process. Sunrise Senior Housing Portfolio In November 2020, the Company entered into a definitive agreement to sell 32 SHOP and 2 senior housing triple-net assets for $744 million (the "Sunrise Senior Housing Portfolio"). The Company received a $35 million nonrefundable deposit upon completion of due diligence in December 2020, sold the 32 SHOP assets in January 2021 for $664 million, and provided the buyer with financing of $410 million (see Note 8). The two remaining senior housing triple-net assets are expected to be sold during the first half of 2021, upon completion of the license transfer process. SLC SHOP Portfolio In October 2020, the Company entered into a definitive agreement to sell seven SHOP assets for $115 million. The Company received a $3 million nonrefundable deposit and expects to close the transaction during the first half of 2021. Brookdale Triple-Net Portfolio In January 2021, the Company sold 24 senior housing assets in a triple-net lease with Brookdale for $510 million. Additional SHOP Portfolio In January 2021, the Company sold a portfolio of 16 SHOP assets for $230 million and provided the buyer with financing of $150 million (see Note 8). HRA Triple-Net Portfolio In February 2021, the Company sold eight senior housing assets in a triple-net lease withHarbor Retirement Associates for $132 million. 2020 Other Dispositions In addition to the sales discussed above, during the year ended December 31, 2020, the Company sold the following: (i) 23 SHOP assets for $190 million, (ii) 21 senior housing triple-net assets for $428 million (inclusive of the 18 facilities sold to Brookdale under the 2019 MTCA - see Note 3), (iii) 11 MOBs for $136 million (inclusive of the exercise of a purchase option by a tenant to acquire 3 MOBs inSan Diego, California ), (iv) two MOB land parcels for $3 million, and (v) 1 asset from other non-reportable segments for $1 million, resulting in total gain on sales of $283 million ($193 million of which is reported in income (loss) from discontinued operations). 2019 Dispositions of Real Estate During the year ended December 31, 2019, the Company sold the following: (i) 18 SHOP assets for $181 million, (ii) 2 senior housing triple-net assets for $26 million, (iii) 11 MOBs for $28 million, (vi) 1 life science asset for $7 million, (v) 1 undeveloped life science land parcel for $35 million, and (vi) 1 facility from the other non-reportable segment for $15 million, resulting in total gain on sales of $30 million ($23 million of which is reported in income (loss) from discontinued operations). 96 -------------------------------------------------------------------------------- Table of Contents 2018 Dispositions of Real Estate Shoreline Technology Center In November 2018, the Company sold its Shoreline Technology Center life science campus located inMountain View, California for $1.0 billion and recognized a gain on sale of $726 million. Brookdale MTCA Dispositions As discussed in Note 3, during the fourth quarter of 2018, the Company sold 19 assets (11 senior housing triple-net assets and 8 SHOP assets) to a third-party for $377 million and recognized a gain on sale of $40 million, which is reported in income (loss) from discontinued operations. Refer to Note 3 for further detail on the Brookdale transactions. RIDEA II Sale Transaction In January 2017, the Company completed the contribution of its ownership interest in RIDEA II to an unconsolidated joint venture owned by Healthpeak and an investor group led by Columbia Pacific Advisors, LLC ("CPA") (the "Healthpeak/CPA JV"). Also in January 2017, RIDEA II was recapitalized with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by the Company. In return for both transaction elements, the Company received combined proceeds of $480 million from the Healthpeak/CPA JV and $242 million in loans receivable and retained an approximately 40% ownership interest in RIDEA II. This transaction resulted in the Company deconsolidating the net assets of RIDEA II and recognizing a net gain on sale of $99 million. Refer to Note 2 for the impact of adopting the Revenue ASUs on January 1, 2018 to the Company's partial sale of RIDEA II in the first quarter of 2017. In June 2018, the Company sold its remaining 40% ownership interest in RIDEA II to an investor group led by CPA for $91 million. Additionally, CPA refinanced the Company's $242 million of loans receivable from RIDEA II, resulting in total proceeds of $332 million. The Company no longer holds an economic interest in RIDEA II. U.K. Portfolio In June 2018, the Company entered into a joint venture with an institutional investor (the "U.K. JV") through which the Company sold a 51% interest in substantially allUnited Kingdom ("U.K.") assets previously owned by the Company (the "U.K. Portfolio") based on a total value of £382 million ($507 million). The Company retained a 49% noncontrolling interest in theU.K. JV and received gross proceeds of $402 million, including proceeds from the refinancing of the Company's previously held intercompany loans. Upon closing theU.K. JV, the Company deconsolidated theU.K. Portfolio, recognized its retained noncontrolling interest investment at fair value ($105 million) and recognized a gain on sale of $11 million, net of $17 million of cumulative foreign currency translation reclassified from other comprehensive income recorded in gain (loss) on sales of real estate, net (see Note 22 for the reclassification impact of the Company's hedge of its net investment in theU.K. ). TheU.K. JV provides numerous mechanisms by which the joint venture partner can acquire the Company's remaining interest in theU.K. JV. The fair value of the Company's retained noncontrolling interest investment was based on Level 2 measurements within the fair value hierarchy. Additionally, in August 2018, the Company sold its remaining £11 millionU.K. development loan at par. In December 2019, the Company sold its remaining 49% interest in theU.K. JV (see Note 9). 2018 Other Dispositions Additionally, during the year ended December 31, 2018, the Company sold the following: (i) 4 life science assets for $269 million, (ii) 1 undeveloped land parcel for $3 million, (iii) 2 senior housing triple-net assets for $35 million, (iv) 23 SHOP facilities for $394 million, and (v) 4 MOBs for $25 million, resulting in total gain on sales of $141 million ($55 million of which is reported in income (loss) from discontinued operations). Held for Sale and Discontinued Operations At December 31, 2020, 41 senior housing triple-net facilities, 6 MOBs, 97 SHOP facilities, and 1 SHOP joint venture were classified as held for sale and/or discontinued operations. At December 31, 2019, 90 senior housing triple-net facilities (inclusive of 18 facilities sold to Brookdale under the 2019 MTCA - see Note 3), 115 SHOP facilities, 2 MOBs, and 4 SHOP joint ventures were classified as held for sale and/or discontinued operations. During 2020, the Company established and began executing a plan to dispose of all the assets in its senior housing triple-net and SHOP portfolios. The held for sale criteria for all such assets were met either on or before December 31, 2020 and the Company concluded the dispositions met the requirements to be classified as discontinued operations. 97 -------------------------------------------------------------------------------- Table of Contents The following summarizes the assets and liabilities classified as discontinued operations at December 31, 2020 and 2019, which are included in assets held for sale and discontinued operations, net and liabilities related to assets held for sale and discontinued operations, net, respectively, on the consolidated balance sheets (in thousands): December 31, 2020 2019 ASSETS Real estate: Buildings and improvements $ 2,553,254 $ 3,626,665 Development costs and construction in progress 21,509 38,728 Land 355,803 467,956 Accumulated depreciation and amortization (615,708) (861,557) Net real estate 2,314,858 3,271,792 Investments in and advances to unconsolidated joint ventures 5,842 51,134 Accounts receivable, net of allowance of $5,873 and $4,178 20,500 14,575 Cash and cash equivalents 53,085 63,834 Restricted cash 17,168 27,040 Intangible assets, net 24,541 82,071 Right-of-use asset, net 4,109 5,701 Other assets, net(1) 103,965 125,502 Total assets of discontinued operations, net 2,544,068 3,641,649 Total medical office assets held for sale, net(2) 82,238 6,616 Assets held for sale and discontinued operations, net $ 2,626,306 $ 3,648,265 LIABILITIES Mortgage debt 318,876 296,879 Lease liability 3,189 4,871 Accounts payable, accrued liabilities, and other liabilities 79,411 83,392 Deferred revenue 11,442 18,520 Total liabilities of discontinued operations, net 412,918 403,662
Total liabilities related to medical office assets held for sale, net
2,819 26
Liabilities related to assets held for sale and discontinued operations, net
$ 415,737 $ 403,688
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(1)Includes goodwill of $29 million and $30 million as of December 31, 2020 and
2019, respectively.
(2)Primarily comprised of six MOBs with net real estate assets of $73 million
and two MOBs with net real estate assets of $7 million as of December 31, 2020
and 2019, respectively.
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The results of discontinued operations through December 31, 2020, or the
disposal date of each asset or portfolio of assets if they have been sold, are
included in the consolidated results for the years ended December 31, 2020,
2019, and 2018. Summarized financial information for discontinued operations for
the years ended December 31, 2020, 2019, and 2018 is as follows (in thousands):
Year Ended December 31,
2020 2019 2018
Revenues:
Rental and related revenues $ 97,877 $ 152,576 $ 216,887
Resident fees and services 621,253 583,653 400,557
Income from direct financing leases - 20,815 37,926
Total revenues 719,130 757,044 655,370
Costs and expenses:
Interest expense 10,538 8,007 5,062
Depreciation and amortization 143,194 224,798 144,819
Operating 550,226 474,126 326,381
Transaction costs 20,426 6,780 9,635
Impairments and loan loss reserves (recoveries), net 201,344 208,229 44,343
Total costs and expenses 925,728 921,940 530,240
Other income (expense):
Gain (loss) on sales of real estate, net 460,144 22,940 94,618
Other income (expense), net 5,475 17,060 (110)
Total other income (expense), net 465,619 40,000 94,508
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
259,021 (124,896) 219,638
Income tax benefit (expense) 9,913 11,783 13,459
Equity income (loss) from unconsolidated joint ventures (1,188) (2,295) 3,159
Income (loss) from discontinued operations $ 267,746 $ (115,408) $ 236,256
NOTE 6. Impairments
Real Estate
During the year ended December 31, 2020, the Company recognized an aggregate
impairment charge of $210 million ($201 million of which is reported in income
(loss) from discontinued operations) related to 42 SHOP assets, 5 senior housing
triple-net assets, 5 MOBs, and 1 undeveloped MOB land parcel as a result of
being classified as held for sale and wrote down their aggregate carrying value
of $960 million to their aggregate fair value, less estimated costs to sell, of
$750 million. Additionally, during the year ended December 31, 2020, the Company
recognized an impairment charge of $15 million related to one life science
facility that it intends to demolish for a future development project.
The fair value of the impaired assets was based on forecasted sales prices,
which are considered to be Level 3 measurements within the fair value hierarchy.
Forecasted sales prices were determined using an income approach and/or a market
approach (comparable sales model), which rely on certain assumptions by
management, including: (i) market capitalization rates, (ii) comparable market
transactions, (iii) estimated prices per unit, (iv) negotiations with
prospective buyers, and (v) forecasted cash flow streams (lease revenue rates,
expense rates, growth rates, etc.). There are inherent uncertainties in making
these assumptions. For the Company's impairment calculations during and as of
the year ended December 31, 2020, the Company's fair value estimates primarily
relied on a market approach and utilized prices per unit ranging from $13,000 to
$300,000, with a weighted average price per unit of $164,000. When utilizing the
income approach, assumptions include, but are not limited to, terminal
capitalization rates ranging from 5.5% to 7.5% and discount rates ranging from
8.0% to 9.5%.
During the year ended December 31, 2019, the Company recognized an aggregate
impairment charge of $194 million ($189 million of which is reported in income
(loss) from discontinued operations) related to 8 senior housing triple-net
assets, 27 SHOP assets, 3 MOBs, and 1 other non-reportable asset as a result of
being classified as held for sale and wrote down their aggregate carrying value
of $416 million to their aggregate fair value, less estimated costs to sell, of
$223 million. During the year ended December 31, 2019, the Company also
recognized an impairment charge of $4 million related to one MOB that it intends
to demolish for a future development project.
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The fair value of the impaired assets was based on forecasted sales prices,
which are considered to be Level 3 measurements within the fair value hierarchy.
For the Company's impairment calculations during and as of the year ended
December 31, 2019, the Company estimated the fair value of each asset using
either (i) market capitalization rates ranging from 4.97% to 8.27%, with a
weighted average rate of 6.22% or (ii) prices per unit ranging from $24,000 to
$125,000, with a weighted average price of $73,000.
Additionally, during the year ended December 31, 2019, the Company determined
the carrying value of two MOBs and one SHOP asset that were candidates for
potential future sale were no longer recoverable due to the Company's shortened
intended hold period under the held-for-use impairment model. Accordingly, the
Company wrote-down the carrying amount of these three assets to their respective
fair value, which resulted in an aggregate impairment charge of $18 million
($9 million of which is reported in income (loss) from discontinued operations).
The fair value of the assets are considered to be Level 2 measurements within
the fair value hierarchy.
During the year ended December 31, 2018, in conjunction with classifying the
assets as held for sale, the Company determined that 17 underperforming SHOP
assets and one undeveloped life science land parcel were impaired. Additionally,
the Company determined that three additional underperforming SHOP assets that
were candidates for potential future sale were impaired under the held-for-use
impairment model. Accordingly, the Company recognized total impairment charges
of $52 million ($44 million of which is reported in income (loss) from
discontinued operations), during the year ended December 31, 2018 to write-down
the carrying value of the assets to their respective fair values (less estimated
costs to sell for assets classified as held for sale). The fair value of the
assets was based on contracted or forecasted sales prices and expected future
cash flows, which are considered to be Level 2 measurements within the fair
value hierarchy.
Casualty-Related
During the year ended December 31, 2019, the Company recognized a $5 million
casualty-related gain, net of deferred tax impacts, as a result of insurance
proceeds received for property damage and other associated costs related to
hurricanes in 2017. Of the total $5 million, $2 million is recorded in other
income (expense), net, and $3 million is recorded in income (loss) from
discontinued operations.
Other
See Note 7 for information on the impairment charge related to the write-down of
a DFL portfolio to its fair value. See Note 8 for information related to the
Company's reserve for loan losses. See Note 9 for information on the impairment
charge related to an asset classified as held-for-sale within the CCRC JV.
NOTE 7. Leases
Lease Income The following table summarizes the Company's lease income, excluding discontinued operations (in thousands):
Year Ended December 31,
2020 2019 2018
Fixed income from operating leases $ 943,638 $ 853,545 $ 829,774
Variable income from operating leases 238,470 215,957 190,574
Interest income from direct financing leases 9,720 16,666 16,349
Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
December 31,
2020 2019
Present value of minimum lease payments receivable $ 9,804 $ 19,138
Present value of estimated residual value 44,706 84,604
Less deferred selling profits (9,804) (19,138)
Net investment in direct financing leases $ 44,706 $ 84,604
Properties subject to direct financing leases 1 2
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Direct Financing Lease Internal Ratings
The following table summarizes the Company's internal ratings for DFLs at
December 31, 2020 (dollars in thousands):
Internal Ratings
Carrying Percentage of
Segment Amount DFL Portfolio Performing DFLs Watch List DFLs Workout DFLs
Medical office $ 44,706 100 $ 44,706 - -
$ 44,706 100 $ 44,706 $ - $ -
2020 Direct Financing Lease Sale
During the first quarter of 2020, the Company sold a hospital under a DFL for
$82 million and recognized a gain on sale of $42 million, which is included in
other income (expense), net.
2019 Direct Financing Lease Conversion
During the first quarter of 2019, the Company converted a DFL portfolio of 14
senior housing triple-net properties, previously on "Watch List" status, to a
RIDEA structure, requiring the Company to recognize net assets equal to the
lower of the net assets' fair value or the carrying value of the net investment
in the DFL. As a result, the Company derecognized the $351 million carrying
value of the net investment in DFL related to the 14 properties and recognized a
combination of net real estate ($331 million) and net intangibles assets ($20
million) for the same aggregate amount, with no gain or loss recognized. As a
result of the transaction, the 14 properties were transferred from the senior
housing triple-net segment to the SHOP segment during the first quarter of 2019.
2019 Direct Financing Lease Sale
During the second quarter of 2019, the Company entered into agreements to sell
13 senior housing facilities under DFLs (the "DFL Sale Portfolio") for $274
million. Upon entering into the agreements, the Company recognized an allowance
for DFL losses and related impairment charge of $10 million (recognized in
income (loss) from discontinued operations) to write-down the carrying value of
the DFL Sale Portfolio to its fair value. The fair value of the DFL Sale
Portfolio was based upon the agreed upon sale price, less estimated costs to
sell, which was considered to be a Level 2 measurement within the fair value
hierarchy. In conjunction with the entering into agreements to sell the DFL Sale
Portfolio, the Company placed the portfolio on nonaccrual status and began
recognizing income equal to the amount of cash received.
The Company completed the sale of the DFL Sale Portfolio in September 2019.
For the DFL Sale Portfolio, during the years ended December 31, 2019 and 2018,
income from DFLs was $17 million and $24 million (recognized in income (loss)
from discontinued operations), respectively, and cash payments received were $16
million and $20 million, respectively.
Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due
under DFLs at December 31, 2020 (in thousands):
Year Amount
2021 $ 8,601
2022 1,203
2023 -
2024 -
2025 -
Thereafter -
Undiscounted minimum lease payments receivable 9,804
Less: imputed interest -
Present value of minimum lease payments receivable $ 9,804
Residual Value Risk
Quarterly, the Company reviews the estimated unguaranteed residual value of
assets under DFLs to determine if there have been any material changes compared
to the prior quarter. As needed, the Company and/or the related tenants will
invest necessary funds to maintain the residual value of each asset.
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Operating Leases
Future Minimum Rents
The following table summarizes future minimum lease payments to be received,
excluding future minimum lease payments from assets classified as discontinued
operations, from tenants under non-cancelable operating leases as of
December 31, 2020 (in thousands):
Year Amount(1)
2021 $ 969,519
2022 929,437
2023 869,628
2024 774,641
2025 669,289
Thereafter 2,431,032
$ 6,643,546
_______________________________________
(1)Excludes future minimum lease payments from assets classified as discontinued
operations.
Tenant Purchase Options
Certain leases, including DFLs, contain purchase options whereby the tenant may
elect to acquire the underlying real estate. Annualized base rent from leases
subject to purchase options, summarized by the year the purchase options are
exercisable, excluding leases related to assets classified as discontinued
operations, are as follows (dollars in thousands):
Annualized Number of
Year Base Rent(1)(2) Properties
2021 $ 29,394 12
2022 11,187 3
2023 - -
2024 3,190 1
2025 9,065 13
Thereafter 5,815 2
$ 58,651 31
_______________________________________
(1)Represents the most recent month's base rent including additional rent floors and cash income from DFLs annualized for 12 months. Base rent does not include tenant recoveries, additional rents in excess of floors, and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest and deferred revenues). (2)Excludes tenant purchase options related to assets classified as discontinued operations. During the fourth quarter of 2019, one of the Company's tenants exercised its option to acquire from the Company an acute care hospital and adjacent land parcel located inIrvine, California for $226 million. The sale is scheduled to close during the first half of 2021. The annualized base rent associated with the assets covered by this purchase option is included in the table above for 2021. Lease Costs The following tables provide information regarding the Company's leases to which it is the lessee, such as corporate offices and ground leases, excluding lease costs related to assets classified as discontinued operations (dollars in thousands): Year Ended December 31, Lease Expense Information: 2020 2019 2018 Total lease expense(1) $ 13,601 $ 11,852 $ 10,569
_______________________________________
(1)Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company's consolidated statements of operations.
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Year Ended December 31,
Supplemental Cash Flow Information: 2020 2019 2018
Cash paid for amounts included in the measurement of lease liability: Operating cash flows for operating leases
$ 9,940 $ 8,158 $ 7,326
Right-of-use asset obtained in exchange for new lease
liability:
Operating leases $ 32,208 $ 5,733 $ -
December 31, December 31,
Weighted Average Lease Term and Discount Rate: 2020 2019
Weighted average remaining lease term (years):
Operating leases 57 51
Weighted average discount rate:
Operating leases 4.26 % 4.36 %
The following table summarizes future minimum lease payments under
non-cancelable ground and other operating leases included in the Company's lease
liability, excluding future minimum lease payments related to assets classified
as held for sale or discontinued operations, as of December 31, 2020 (in
thousands):
Year Amount(1)
2021 $ 11,106
2022 11,262
2023 11,445
2024 10,246
2025 8,886
Thereafter 469,453Undiscounted minimum lease payments included in the lease liability
522,398
Less: imputed interest
(342,503)
Present value of lease liability
$ 179,895
_______________________________________
(1)Excludes future minimum lease payments under non-cancelable ground and other
operating leases from assets classified as discontinued operations.
Depreciation Expense
While the Company leases the majority of its property, plant, and equipment to
various tenants under operating leases and DFLs, in certain situations, the
Company owns and operates certain property, plant, and equipment for general
corporate purposes. Corporate assets are recorded within other assets, net
within the Company's consolidated balance sheets and depreciation expense for
those assets is recorded in general and administrative expenses in the Company's
consolidated statements of operations. Included within other assets, net as of
December 31, 2020 and December 31, 2019 is $6 million and $4 million,
respectively, of accumulated depreciation related to corporate assets. Included
within general and administrative expenses for the years ended December 31,
2020, 2019, and 2018 is $2 million, $2 million and $4 million, respectively, of
depreciation expense related to corporate assets.
COVID-19 Rent Deferrals
During the second and third quarters of 2020, the Company agreed to defer rent
from certain tenants in the medical office segment, with the requirement that
all deferred rent be repaid by the end of 2020. Under this program, through
December 31, 2020, approximately $6 million of rent was deferred for the medical
office segment, substantially all of which had been collected as of December 31,
2020.
Additionally, through December 31, 2020, the Company granted approximately
$1 million of rent deferrals to certain tenants in the life science segment, all
of which had been collected as of December 31, 2020.
The rent deferrals granted do not impact the pattern of revenue recognition or
amount of revenue recognized (refer to Note 2 for additional information).
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NOTE 8. Loans Receivable
The following table summarizes the Company's loans receivable (in thousands):
December 31,
2020 2019
Secured mortgage loans(1) $ 161,530 $ 161,964
Mezzanine and other 44,347 27,752
Unamortized discounts, fees, and costs (222) 863
Reserve for loan losses (10,280) -
Loans receivable, net $ 195,375 $ 190,579
_______________________________________
(1)At December 31, 2020, the Company had $11 million remaining of commitments to fund $81 million of senior housing development and redevelopment projects. At December 31, 2019, the Company had $25 million remaining of commitments to fund $174 million of senior housing development and redevelopment projects. 2020 Loans Receivable Transactions For certain residents that qualify, CCRCs may offer to lend residents the necessary funds to satisfy the entrance fee requirements so that they are able to move into a community while still continuing the process of selling their previous home. The loans are due upon sale of the previous residence. Upon completing the CCRC Acquisition (see Note 3) in January 2020, the Company began consolidating 13 CCRCs, which held approximately $30 million of such notes receivable from various community residents at the time of acquisition. At December 31, 2020, the Company held $23 million of such receivables, which are included in mezzanine and other in the table above. In November 2020, the Company sold one mezzanine loan with a $10 million principal balance for $8 million, resulting in a $2 million loss. In December 2020, the Company sold one secured mortgage loan with a $115 million principal balance for $109 million, resulting in a $6 million loss. SHOP Seller Financing In December 2020, in conjunction with the sale of four SHOP facilities in the Atria SHOP Portfolio for $94 million (see Note 5), the Company provided the buyer with financing of $61 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in the four properties. In conjunction with the sale of 32 SHOP facilities in the Sunrise Senior Housing Portfolio for $664 million in January 2021 (see Note 5), the Company provided the buyer with financing of $410 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in each property. In conjunction with the sale of 16 additional SHOP facilities for $230 million in January 2021 (see Note 5), the Company provided the buyer with financing of $150 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in each property. In December 2019, the Company sold two SHOP facilities inFlorida for $56 million and provided the buyer with initial financing of $45 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company agreed to provide up to $10 million of redevelopment funding (80% of the estimated cost of redevelopment), $7 million of which has been funded as of December 31, 2020. The initial and redevelopment financings are secured by the buyer's equity ownership in the property. Loans Receivable Internal Ratings In connection with the Company's quarterly review process or upon the occurrence of a significant event, loans receivable are reviewed and assigned an internal rating of Performing,Watch List , or Workout. Loans that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List Loans are defined as loans that do not meet the definition of Performing or Workout. Workout Loans are defined as loans in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment. 104 -------------------------------------------------------------------------------- Table of Contents The following table summarizes, by year of origination, the Company's internal ratings for loans receivables, net of reserves for loan losses, as of December 31, 2020 (dollars in thousands): Year of
Origination
Investment Type 2020 2019 2018 2017 2016 Total
Secured mortgage loans
Risk rating:
Performing loans $ 95,800 $ 61,772 $ - $ - $ - $ 157,572
Watch list loans - - - - - -
Workout loans - - - - - -
Total secured mortgage loans $ 95,800 $ 61,772 $ - $ - $ - $ 157,572
Mezzanine and other
Risk rating:
Performing loans $ 23,263 $ 12,252 $ - $ - $ - $ 35,515
Watch list loans - - - - 2,288 2,288
Workout loans - - - - - -
Total mezzanine and other $ 23,263 $ 12,252 $ - $ - $ 2,288 $ 37,803
Real Estate Secured Loans
The following table summarizes the Company's loans receivable secured by real
estate at December 31, 2020 (dollars in thousands):
Final Number
Maturity of Principal Carrying
Date Loans Payment Terms Amount(1) Amount
Monthly interest-only payments, accrues interest at
7.5% and secured by a senior housing facility under
2021 1 development in Texas $ 2,250 $ 2,250
Monthly interest-only payments, accrues interest at
7.5% and secured by a senior housing facility under
2021 1 development in Florida 8,289 8,289
Monthly interest-only payments, accrues interest at
3.5% and secured by senior housing facilities in
2021 4 Florida and California 61,018 57,861
Monthly interest-only payments, accrues interest at
5.5% and secured by equity interests in 11 senior
2022 1 housing facilities in California 25,000 24,462
Monthly interest-only payments, accrues interest at
the greater of 2% or LIBOR, plus 4.25% and secured
by a senior housing facility under development in
2026 1 Florida 51,716 51,233
Monthly interest-only payments, accrues interest at
the greater of 2% or LIBOR, plus 4.25% and secured
by a senior housing facility under development in
2026 1 California 13,257 13,477
9 $ 161,530 $ 157,572
_______________________________________
(1)Represents future contractual principal payments to be received on loans
receivable secured by real estate.
During the years ended December 31, 2020, 2019, and 2018, the Company recognized
$13 million, $6 million, and $5 million, respectively, of interest income
related to loans secured by real estate.
Reserve for Loan Losses
The Company evaluates the liquidity and creditworthiness of its borrowers on a
quarterly basis. The Company's evaluation considers industry and economic
conditions, individual and portfolio property performance, credit enhancements,
liquidity, and other factors. The Company's borrowers furnish property,
portfolio, and guarantor/operator-level financial statements, among other
information, on a monthly or quarterly basis, which the Company utilizes to
calculate the debt service coverages used in its assessment of internal ratings,
which is a primary credit quality indicator. Debt service coverage information
is evaluated together with other property, portfolio, and operator performance
information, including revenue, expense, net operating income, occupancy, rental
rates, capital expenditures, and EBITDA (defined as earnings before interest,
tax, and depreciation and amortization), along with other liquidity measures.
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In its assessment of current expected credit losses for loans receivable and
unfunded loan commitments, the Company utilizes past payment history of its
borrowers, current economic conditions, and forecasted economic conditions
through the maturity date of each loan to estimate a probability of default and
a resulting loss for each loan receivable. Future economic conditions are based
primarily on near-term economic forecasts from the Federal Reserve and
reasonable assumptions for long-term economic trends.
The following table summarizes the Company's reserve for loan losses at
December 31, 2020 (in thousands):
December 31, 2020
Secured Mezzanine and
Mortgage Loans Other Total
Reserve for loan losses, December 31, 2019 $ - $ - $ - Cumulative-effect of adopting of ASU 2016-13 to beginning retained earnings
513 907 1,420
Provision for expected loan losses 2,639 6,221 8,860
Reserve for loan losses, December 31, 2020 $ 3,152 $ 7,128 $ 10,280
Additionally, at December 31, 2020, a liability of $1 million related to expected credit losses for unfunded loan commitments was included in accounts payable, accrued liabilities, and other liabilities. Credit loss expenses and recoveries are recorded in impairments and loan loss reserves (recoveries), net. During the year ended December 31, 2020, the net credit loss expense was $18 million. The change in the provision for expected loan losses during the year ended December 31, 2020 is primarily due to the current and anticipated economic impact of COVID-19. Other Secured Loans Tandem Health Care Loan From July 2012 through May 2015, the Company funded, in aggregate, $257 million under a collateralized mezzanine loan facility (the "Mezzanine Loan") to certain affiliates of Tandem Health Care (together with is affiliates, "Tandem"). In March 2018, the Company sold the Mezzanine Loan to a third party for approximately $112 million, which resulted in an impairment recovery, net of transaction costs and fees, of $3 million included in other income (expense), net. The Company holds no further economic interest in the operations of Tandem. U.K. Bridge Loan In 2016, the Company provided a £105 million ($131 million at closing) bridge loan (the "U.K. Bridge Loan ") toMaria Mallaband Care Group Ltd. ("MMCG") to fund the acquisition of a portfolio of seven care homes in theU.K. Under the U.K. Bridge Loan , the Company retained a three-year call option to acquire those seven care homes at a future date for £105 million, subject to certain conditions precedent being met. In March 2018, upon resolution of all conditions precedent, the Company began the process of exercising its call option to acquire the seven care homes and concluded that it should consolidate the real estate. As a result, the Company derecognized the outstanding loan receivable of £105 million and recognized a £29 million ($41 million) loss on consolidation. Refer to Note 19 for further discussion regarding impact of consolidating the seven care homes during the first quarter of 2018. In June 2018, the Company completed the process of exercising the above-mentioned call option. The seven care homes acquired through the call option were included in theU.K. JV transaction (see Note 5). 106 -------------------------------------------------------------------------------- Table of Contents NOTE 9. Investments in and Advances to Unconsolidated Joint Ventures
The Company owns interests in the following entities that are accounted for under the equity method, excluding investments classified as discontinued operations (dollars in thousands):
Carrying Amount
December 31,
Entity(1)(2) Segment Property Count(3) Ownership %(3) 2020 2019
SWF SH JV(4) Other 19 54 $ 357,581 $ 428,258
Life Science JV(5) LS 1 49 24,879 -
Medical Office JVs(6) MOB 3 20 - 67 9,673 9,845
Other JVs(7) Other - 41 - 47 9,157 10,372
CCRC JV(8) CCRC 2 49 1,581 325,830
Advances to unconsolidated joint ventures,
net - 76
$ 402,871 $ 774,381
_______________________________________
(1)These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures. (2)The property count, ownership percentage, and carrying amount at December 31, 2020 excludes the Otay Ranch JV, which is classified as discontinued operations and has an aggregate carrying value of $6 million at December 31, 2020. The carrying amount at December 31, 2019 excludes the Otay Ranch JV, Waldwick JV, MBK JV, and MBK Development JV, which are classified as discontinued operations and had an aggregate carrying value of $51 million at December 31, 2019. The Otay Ranch JV (90% ownership percentage) is the only one of these joint ventures that remains outstanding at December 31, 2020. (3)Property count and ownership percentage are as of December 31, 2020. (4)In December 2019, the Company formed the SWF SH JV with a sovereign wealth fund (see Note 4). (5)In December 2020, the Company acquired a joint venture interest in a life science facility inCambridge, Massachusetts (see Note 4). (6)Includes three unconsolidated medical office joint ventures (and the Company's ownership percentage): (i) Ventures IV (20%); (ii) Ventures III (30%); and (iii) Suburban Properties, LLC (67%). (7)Unconsolidated other joint ventures (and the Company's ownership percentage) include: (i) Discovery Naples JV (41%) and (ii) Discovery Sarasota JV (47%). The Discovery Naples JV and Discovery Sarasota JV are joint ventures that are developing senior housing facilities and the Company's investments in those joint ventures are preferred equity investments earning a 10% per annum fixed-rate return. In January 2020, the Company sold its interest in the remaining K&Y joint venture for $12 million. At December 31, 2019, the K&Y joint venture includes an ownership percentage of 80% and one unconsolidated joint venture. In October 2019, the Company sold its interest in one of the K&Y joint ventures for $4 million. (8)See Note 3 for a discussion of the 2019 MTCA with Brookdale, including the acquisition of Brookdale's interest in 13 of the 15 communities in the CCRC JV in January 2020. At December 31, 2020 and 2019, the aggregate unamortized basis difference of the Company's investments in unconsolidated joint ventures of $33 million and $(63) million, respectively, is primarily attributable to the difference between the amount for which the Company purchased its interest in the entity and the historical carrying value of the net assets of the entity. The difference is being amortized over the remaining useful life of the related assets and is included in equity income (loss) from unconsolidated joint ventures. CCRC JV. In January 2020, the Company, which owned a 49% interest in the CCRC JV, purchased Brookdale's 51% interest in and began consolidating 13 of the 15 communities in the CCRC JV. Refer to Note 3 for a detailed discussion of the 2019 MTCA with Brookdale. During 2019, the CCRC JV recognized an impairment charge of $12 million. Accordingly, the Company recognized its 49% share of the impairment charge ($6 million) through equity income (loss) from unconsolidated joint ventures during the year ended December 31, 2019.U.K. JV. In December 2019, the Company sold its remaining 49% interest in theU.K. JV for proceeds of £70 million ($91 million) and recognized a loss on sale of $7 million (based on exchange rates at the time the transaction was completed), including $1 million of loss in accumulated other comprehensive income (loss) that was reclassified to gain (loss) on sales of real estate. As of December 31, 2019, the Company no longer owned real estate in theU.K. 107 -------------------------------------------------------------------------------- Table of Contents NOTE 10. Intangibles
Intangible assets primarily consist of lease-up intangibles and above market tenant lease intangibles. The following table summarizes the Company's intangible lease assets (dollars in thousands):
December 31,
Intangible lease assets 2020 2019
Gross intangible lease assets $ 761,328 $ 426,967
Accumulated depreciation and amortization (241,411) (166,763)
Intangible assets, net(1) $ 519,917
$ 260,204
Weighted average remaining amortization period in years 5
5
_______________________________________
(1)Excludes intangible assets reported in assets held for sale and discontinued
operations, net of $25 million and $82 million as of December 31, 2020 and
December 31, 2019, respectively.
Intangible liabilities consist of below market lease intangibles. The following
table summarizes the Company's intangible lease liabilities (dollars in
thousands):
December 31,
Intangible lease liabilities 2020 2019
Gross intangible lease liabilities $ 194,565 $ 113,213
Accumulated depreciation and amortization (50,366) (38,222)
Intangible liabilities, net $ 144,199
$ 74,991
Weighted average remaining amortization period in years 8
7
The following table sets forth amortization related to intangible assets, net and intangible liabilities, net (in thousands):
Year Ended December 31,
2020 2019 2018
Depreciation and amortization expense related to
amortization of lease-up intangibles(1) $ 89,301 $ 46,828 $ 43,933 Rental and related revenues related to amortization of net below market lease liabilities(1)
11,717 6,319 5,341
_______________________________________
(1)Excludes amortization related to assets classified as discontinued
operations.
During the year ended December 31, 2020, in conjunction with the Company's
acquisitions of real estate (including the consolidation of 13 CCRCs in which
the Company acquired Brookdale's interest as part of the 2019 Brookdale MTCA -
see Note 3), the Company acquired intangible assets of $352 million and
intangible liabilities of $83 million. The intangible assets and intangible
liabilities acquired have a weighted average amortization period of 7 years and
9 years, respectively.
On January 1, 2019, in conjunction with the adoption of ASU 2016-02 (see Note
2), the Company reclassified $39 million of intangible assets, net and $6
million of intangible liabilities, net related to above and below market ground
leases to right-of-use asset, net.
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The following table summarizes the estimated annual amortization for each of the
five succeeding fiscal years and thereafter, excluding assets classified as
discontinued operations (in thousands):
Rental and Related Depreciation and
Revenues(1)(3) Amortization(2)(3)
2021 $ 18,093 $ 96,094
2022 17,841 89,217
2023 17,119 85,484
2024 16,159 82,647
2025 15,370 72,373
Thereafter 50,514 84,999
$ 135,096 $ 510,814
_______________________________________
(1)The amortization of net below market lease intangibles is recorded as an increase to rental and related revenues. (2)The amortization of lease-up intangibles is recorded to depreciation and amortization expense. (3)Excludes estimated annual amortization from assets classified as discontinued operations. NOTE 11. DebtBank Line of Credit and Term Loans On May 23, 2019, the Company executed a $2.5 billion unsecured revolving line of credit facility (the "Revolving Facility"), which matures on May 23, 2023 and contains two six month extension options, subject to certain customary conditions. Borrowings under the Revolving Facility accrue interest at LIBOR plus a margin that depends on credit ratings of the Company's senior unsecured long-term debt. The Company pays a facility fee on the entire revolving commitment that depends on its credit ratings. Based on those credit ratings at December 31, 2020, the margin on the Revolving Facility was 0.83% and the facility fee was 0.15%. In May 2019, the Company also entered into a $250 million unsecured term loan facility, which the Company fully drew down during the second quarter of 2019 (the "2019 Term Loan" and, together with the Revolving Facility, the "Facilities"). The 2019 Term Loan matures on May 23, 2024. Based on credit ratings for the Company's senior unsecured long-term debt at December 31, 2020, the 2019 Term Loan accrues interest at a rate of LIBOR plus 0.90%, with a weighted average effective interest rate of 1.14%. The Facilities include a feature that allows the Company to increase the borrowing capacity by an aggregate amount of up to $750 million, subject to securing additional commitments. The Facilities also contain certain financial restrictions and other customary requirements, including cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in the agreements: (i) limit the ratio of Enterprise Total Indebtedness to Enterprise Gross Asset Value to 60%; (ii) limit the ratio of Enterprise Secured Debt to Enterprise Gross Asset Value to 40%; (iii) limit the ratio of Enterprise Unsecured Debt to Enterprise Unencumbered Asset Value to 60%; (iv) require a minimum Fixed Charge Coverage ratio of 1.5 times; and (v) require a minimum Consolidated TangibleNet Worth of $7.0 billion. At December 31, 2020, the Company believes it was in compliance with each of these restrictions and requirements of the Facilities. Commercial Paper Program In September 2019, the Company established an unsecured commercial paper program (the "Commercial Paper Program"). Under the terms of the Commercial Paper Program, the Company may issue, from time to time, unsecured short-term debt securities with varying maturities. Amounts available under the Commercial Paper Program may be borrowed, repaid, and re-borrowed from time to time, with the maximum aggregate face or principal amount outstanding at any one time not exceeding $1.0 billion. Amounts borrowed under the Commercial Paper Program will be sold on terms that are customary for theU.S. commercial paper market and will be at least equal in right of payment with all of the Company's other unsecured and unsubordinated indebtedness. The Company intends to use its Revolving Facility as a liquidity backstop for the repayment of unsecured short term debt securities issued under the Commercial Paper Program. At December 31, 2020, the Company had $130 million of notes outstanding under the Commercial Paper Program, with original maturities of one month and a weighted average interest rate of 0.30%. At December 31, 2019, the Company had $93 million of notes outstanding under the Commercial Paper Program, with original maturities of one month and a weighted average interest rate of 2.04%. 109 -------------------------------------------------------------------------------- Table of Contents Senior Unsecured Notes At December 31, 2020, the Company had senior unsecured notes outstanding with an aggregate principal balance of $5.75 billion. The senior unsecured notes contain certain covenants including limitations on debt, maintenance of unencumbered assets, cross-acceleration provisions, and other customary terms. The Company believes it was in compliance with these covenants at December 31, 2020. The following table summarizes the Company's senior unsecured notes issuances for the periods presented (dollars in thousands): Issue Date Amount Coupon Rate
Maturity Date
Year ended December 31, 2020:
June 23, 2020 $ 600,000 2.88 % 2031
Year ended December 31, 2019:
November 21, 2019 $ 750,000 3.00 % 2030
July 5, 2019 $ 650,000 3.25 % 2026
July 5, 2019 $ 650,000 3.50 % 2029
There were no senior unsecured notes issuances for the year ended December 31,
2018.
The following table summarizes the Company's senior unsecured notes payoffs and
repurchases for the periods presented (dollars in thousands):
Payoff Date Amount Coupon Rate Maturity Date
Year ended December 31, 2020:
July 9, 2020(1) $ 300,000 3.15 % 2022
June 24, 2020(2) $ 250,000 4.25 % 2023
Year ended December 31, 2019:
November 21, 2019(3) $ 350,000 4.00 % 2022
July 22, 2019(4) $ 800,000 2.63 % 2020
July 8, 2019(4) $ 250,000 4.00 % 2022
July 8, 2019(4) $ 250,000 4.25 % 2023
Year ended December 31, 2018:
November 8, 2018 $ 450,000 3.75 % 2019
July 16, 2018(5) $ 700,000 5.38 % 2021
_______________________________________
(1)Upon completing the redemption of the 3.15% senior unsecured notes due in
2022, the Company recognized an $18 million loss on debt extinguishment.
(2)Upon repurchasing a portion of the 4.25% senior unsecured notes due in 2023,
the Company recognized a $26 million loss on debt extinguishment.
(3)Upon repurchasing the 4.00% senior unsecured notes due in 2022, the Company
recognized a $22 million loss on debt extinguishment.
(4)Upon completing the redemption of the 2.63% senior unsecured notes due in
2020 and repurchasing a portion of the 4.25% senior unsecured notes due in 2023
and the 4.00% senior unsecured notes due in 2022, the Company recognized a $35
million loss on debt extinguishment.
(5)Upon repurchasing the 5.38% senior unsecured notes due in 2021, the Company
recognized a $44 million loss on debt extinguishment.
From January 1, 2021 through February 8, 2021, the Company repurchased
$112 million aggregate principal amount of its 4.25% senior unsecured notes due
in 2023, $201 million aggregate principal amount of its 4.20% senior unsecured
notes due in 2024, and $469 million aggregate principal amount of its 3.88%
senior unsecured notes due in 2024. Upon completing that repayment, the Company
will recognize a $90 million loss on debt extinguishment during the first
quarter of 2021.
Mortgage Debt
At December 31, 2020 and 2019, the Company had $217 million and $12 million,
respectively, in aggregate principal of mortgage debt outstanding (excluding
mortgage debt on assets held for sale and discontinued operations), which is
secured by six and four healthcare facilities, respectively, with an aggregate
carrying value of $517 million and $38 million, respectively.
During the year ended December 31, 2020, 2019, and 2018 the Company made
aggregate principal repayments of mortgage debt of $18 million, $4 million, and
$5 million, respectively.
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Mortgage debt generally requires monthly principal and interest payments, is
collateralized by real estate assets, and is generally non-recourse. Mortgage
debt typically restricts the transfer of the encumbered assets, prohibits
additional liens, restricts prepayment, requires payment of real estate taxes,
requires maintenance of the assets in good condition, requires insurance on the
assets, and includes conditions to obtain lender consent to enter into or
terminate material leases. Some of the mortgage debt may require tenants or
operators to maintain compliance with the applicable leases or operating
agreements of such real estate assets.
In November 2020, upon consolidating one property as part of a joint venture
dissolution, the Company assumed $36 million of secured mortgage debt
(classified as liabilities related to assets held for sale and discontinued
operations, net) maturing in 2025 and having a weighted averaged interest rate
of 3.87% (see Note 4).
In May 2019, upon acquiring three senior housing assets from Oakmont, the
Company assumed $50 million of secured mortgage debt (classified as liabilities
related to assets held for sale and discontinued operations, net) maturing in
2028 and having a weighted average interest rate of 4.83%. In July 2019, upon
acquiring five additional senior housing assets from Oakmont, the Company
assumed an additional $112 million of secured mortgage debt with maturity dates
ranging from 2027 to 2033 and a weighted average interest rate of 4.89% (see
Note 4).
Debt Maturities
The following table summarizes the Company's stated debt maturities and
scheduled principal repayments at December 31, 2020 (in thousands):
Senior Unsecured Notes(1) Mortgage Debt(2)
Bank Line of Commercial
Year Credit Paper Term Loan Amount Interest Rate Amount Interest Rate Total
2021 $ - $ 129,590 $ - $ - - % $ 13,015 5.26 % $ 142,605
2022 - - - - - % 4,843 - % 4,843
2023 - - - 300,000 4.37 % 89,874 3.80 % 389,874
2024 - - 250,000 1,150,000 4.17 % 3,050 - % 1,403,050
2025 - - - 1,350,000 3.93 % 3,209 - % 1,353,209
Thereafter - - - 2,950,000 3.67 % 102,789 3.57 % 3,052,789
- 129,590 250,000 5,750,000 216,780 6,346,370
(Discounts), premium
and debt costs, net - - (818) (52,414) 4,841 (48,391)
- 129,590 249,182 5,697,586 221,621 6,297,979
Debt on assets held
for sale and
discontinued
operations(3) - - - - 318,876 318,876
$ - $ 129,590 $ 249,182 $ 5,697,586 $ 540,497 $ 6,616,855
_______________________________________
(1)Effective interest rates on the senior notes range from 3.08% to 6.87% with a weighted average effective interest rate of 3.86% and a weighted average maturity of 7 years. (2)Excluding mortgage debt on assets classified as held for sale and discontinued operations, effective interest rates on the mortgage debt range from 3.42% to 5.91% with a weighted average effective interest rate of 3.73% and a weighted average maturity of 5 years. (3)Represents mortgage debt on assets held for sale and discontinued operations with interest rates of 1.34% to 5.13% that mature between 2025 and 2044. NOTE 12. Commitments and Contingencies
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