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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-32641

BROOKDALE SENIOR LIVING INC.
(Exact name of registrant as specified in its charter)
Delaware20-3068069
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)
111 Westwood Place,Suite 400,Brentwood,Tennessee37027
(Address of principal executive offices)(Zip Code)

(Registrant's telephone number, including area code)                    (615) 221-2250

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareBKDNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No

As of May 5, 2021, 185,166,149 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding restricted stock and restricted stock units).

2


TABLE OF CONTENTS
BROOKDALE SENIOR LIVING INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2021
PAGE
PART I.
Item 1.
Condensed Consolidated Statements of Equity -
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 6.


3


PART I.   FINANCIAL INFORMATION

Item 1.  Financial Statements
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except stock amounts)
March 31,
2021
December 31,
2020
Assets(Unaudited)
Current assets
Cash and cash equivalents$303,952 $380,420 
Marketable securities134,933 172,905 
Restricted cash26,503 28,059 
Accounts receivable, net52,588 109,221 
Assets held for sale247,627 16,061 
Prepaid expenses and other current assets, net90,949 66,937 
Total current assets856,552 773,603 
Property, plant and equipment and leasehold intangibles, net5,018,409 5,068,060 
Operating lease right-of-use assets743,346 788,138 
Restricted cash71,468 56,669 
Investment in unconsolidated ventures4,972 4,898 
Goodwill27,321 154,131 
Other assets, net24,085 56,259 
Total assets$6,746,153 $6,901,758 
Liabilities and Equity
Current liabilities
Current portion of long-term debt$224,890 $68,885 
Current portion of financing lease obligations20,083 19,543 
Current portion of operating lease obligations140,339 146,226 
Trade accounts payable65,278 71,233 
Liabilities held for sale116,142  
Accrued expenses264,117 287,851 
Refundable fees and deferred revenue68,113 96,995 
Total current liabilities898,962 690,733 
Long-term debt, less current portion3,664,901 3,847,103 
Financing lease obligations, less current portion539,071 543,764 
Operating lease obligations, less current portion797,311 819,429 
Deferred tax liability9,876 9,557 
Other liabilities140,925 188,443 
Total liabilities6,051,046 6,099,029 
Preferred stock, $0.01 par value, 50,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding
  
Common stock, $0.01 par value, 400,000,000 shares authorized at March 31, 2021 and December 31, 2020; 197,757,065 and 198,331,663 shares issued and 187,229,540 and 187,804,138 shares outstanding (including 2,063,391 and 4,349,421 unvested restricted shares), respectively
1,978 1,983 
Additional paid-in-capital4,213,095 4,212,409 
Treasury stock, at cost; 10,527,525 shares at March 31, 2021 and December 31, 2020
(102,774)(102,774)
Accumulated deficit(3,419,469)(3,311,184)
Total Brookdale Senior Living Inc. stockholders' equity692,830 800,434 
Noncontrolling interest2,277 2,295 
Total equity695,107 802,729 
Total liabilities and equity$6,746,153 $6,901,758 
See accompanying notes to condensed consolidated financial statements.

4


BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31,
20212020
Revenue
Resident fees$664,350 $782,707 
Management fees8,566 108,715 
Reimbursed costs incurred on behalf of managed communities65,794 122,717 
Other operating income10,735  
Total revenue and other operating income 749,445 1,014,139 
Expense
Facility operating expense (excluding facility depreciation and amortization of $77,274 and $84,301, respectively)
556,312 588,482 
General and administrative expense (including non-cash stock-based compensation expense of $4,783 and $5,957, respectively)
49,943 54,595 
Facility operating lease expense44,418 64,481 
Depreciation and amortization83,891 90,738 
Asset impairment10,677 78,226 
Costs incurred on behalf of managed communities65,794 122,717 
Total operating expense811,035 999,239 
Income (loss) from operations(61,590)14,900 
Interest income421 1,455 
Interest expense:
Debt(35,351)(41,763)
Financing lease obligations(11,383)(13,282)
Amortization of deferred financing costs and debt discount(1,873)(1,315)
Gain (loss) on debt modification and extinguishment, net 19,181 
Equity in earnings (loss) of unconsolidated ventures(531)(1,008)
Gain (loss) on sale of assets, net1,112 372,839 
Other non-operating income (loss)1,644 2,662 
Income (loss) before income taxes(107,551)353,669 
Benefit (provision) for income taxes(752)15,828 
Net income (loss)(108,303)369,497 
Net (income) loss attributable to noncontrolling interest18 18 
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders$(108,285)$369,515 
Net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders:
Basic$(0.59)$2.01 
Diluted$(0.59)$2.00 
Weighted average common shares outstanding:
Basic184,011 184,186 
Diluted184,011 184,522 
See accompanying notes to condensed consolidated financial statements.

5


BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, in thousands)
Three Months Ended
March 31,
20212020
Total equity, balance at beginning of period$802,729 $698,725 
Common stock:
Balance at beginning of period$1,983 $1,996 
Issuance of common stock under Associate Stock Purchase Plan— 1 
Restricted stock and restricted stock units, net2 (6)
Shares withheld for employee taxes(7)(6)
Balance at end of period$1,978 $1,985 
Additional paid-in-capital:
Balance at beginning of period$4,212,409 $4,172,099 
Non-cash stock-based compensation expense4,783 5,957 
Issuance of common stock under Associate Stock Purchase Plan224 168 
Restricted stock and restricted stock units, net(2)6 
Shares withheld for employee taxes(4,322)(3,892)
Other, net3 18 
Balance at end of period$4,213,095 $4,174,356 
Treasury stock:
Balance at beginning of period$(102,774)$(84,651)
Purchase of treasury stock— (18,123)
Balance at end of period$(102,774)$(102,774)
Accumulated deficit:
Balance at beginning of period$(3,311,184)$(3,393,088)
Cumulative effect of change in accounting principle— (115)
Net income (loss)(108,285)369,515 
Balance at end of period$(3,419,469)$(3,023,688)
Noncontrolling interest:
Balance at beginning of period$2,295 $2,369 
Net income (loss) attributable to noncontrolling interest(18)(18)
Balance at end of period$2,277 $2,351 
Total equity, balance at end of period$695,107 $1,052,230 
Common stock share activity
Outstanding shares of common stock:
Balance at beginning of period187,804 192,129 
Issuance of common stock under Associate Stock Purchase Plan43 61 
Restricted stock and restricted stock units, net127 (504)
Shares withheld for employee taxes(744)(611)
Purchase of treasury stock— (3,063)
Balance at end of period187,230 188,012 

See accompanying notes to condensed consolidated financial statements.

6


BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended March 31,
20212020
Cash Flows from Operating Activities
Net income (loss)$(108,303)$369,497 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (gain) on debt modification and extinguishment, net (19,181)
Depreciation and amortization, net85,764 92,053 
Asset impairment10,677 78,226 
Equity in (earnings) loss of unconsolidated ventures531 1,008 
Amortization of entrance fees(364)(377)
Proceeds from deferred entrance fee revenue670 343 
Deferred income tax (benefit) provision319 (21,767)
Operating lease expense adjustment(4,664)(6,733)
Loss (gain) on sale of assets, net(1,112)(372,839)
Non-cash stock-based compensation expense4,783 5,957 
Other(1,416)(1,460)
Changes in operating assets and liabilities:
Accounts receivable, net(5,768)(2,033)
Prepaid expenses and other assets, net(6,769)(1,696)
Prepaid insurance premiums financed with notes payable(12,985)(17,434)
Trade accounts payable and accrued expenses(500)(47,919)
Refundable fees and deferred revenue7,717 (2,254)
Operating lease assets and liabilities for lessor capital expenditure reimbursements7,563 4,088 
Net cash provided by (used in) operating activities(23,857)57,479 
Cash Flows from Investing Activities
Change in lease security deposits and lease acquisition deposits, net(62)3,211 
Purchase of marketable securities(79,932)(89,414)
Sale and maturities of marketable securities117,995 50,000 
Capital expenditures, net of related payables(40,361)(69,385)
Acquisition of assets, net of related payables and cash received (446,688)
Investment in unconsolidated ventures(5,206)(268)
Proceeds from sale of assets, net3,760 304,617 
Net cash provided by (used in) investing activities(3,806)(247,927)
Cash Flows from Financing Activities
Proceeds from debt18,575 471,785 
Repayment of debt and financing lease obligations(49,924)(263,226)
Proceeds from line of credit 166,381 
Purchase of treasury stock, net of related payables (18,123)
Payment of financing costs, net of related payables(87)(5,815)
Payments of employee taxes for withheld shares(4,329)(3,898)
Other203 146 
Net cash provided by (used in) financing activities(35,562)347,250 
Net increase (decrease) in cash, cash equivalents, and restricted cash(63,225)156,802 
Cash, cash equivalents, and restricted cash at beginning of period465,148 301,697 
Cash, cash equivalents, and restricted cash at end of period$401,923 $458,499 

See accompanying notes to condensed consolidated financial statements.

7


BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Description of Business

Brookdale Senior Living Inc. ("Brookdale" or the "Company") is an operator of senior living communities throughout the United States. The Company is committed to providing senior living solutions primarily within properties that are designed, purpose-built, and operated to provide quality service, care, and living accommodations for residents. The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). The Company also offers a range of home health, hospice, and outpatient therapy services to residents of many of its communities and to seniors living outside of its communities.

The Company has five reportable segments: Independent Living; Assisted Living and Memory Care; CCRCs; Health Care Services; and Management Services. The Company expects to sell 80% of its equity in its Health Care Services segment, as described in Note 4.

2.  Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, results of operations, and cash flows of the Company for all periods presented. Certain information and footnote disclosures included in annual financial statements have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests. The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting.

Use of Estimates

The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, other operating income, asset impairments, self-insurance reserves, performance-based compensation, the allowance for credit losses, depreciation and amortization, leasing transactions, income taxes, and other contingencies. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the original estimates.

Lease Accounting

The Company, as lessee, recognizes a right-of-use asset and a lease liability on the Company's condensed consolidated balance sheet for its community, office, and equipment leases. As of the commencement date of a lease, a lease liability and corresponding right-of-use asset is established on the Company's condensed consolidated balance sheet at the present value of future minimum lease payments. The Company's community leases generally contain fixed annual rent escalators or annual rent escalators based on an index, such as the consumer price index. The future minimum lease payments recognized on the condensed consolidated balance sheet include fixed payments (including in-substance fixed payments) and variable payments

8


estimated utilizing the index or rate on the lease commencement date. The Company recognizes lease expense as incurred for additional variable payments. For the Company's leases that do not contain an implicit rate, the Company utilizes its estimated incremental borrowing rate to determine the present value of lease payments based on information available at commencement of the lease. The Company's estimated incremental borrowing rate reflects the fixed rate at which the Company could borrow a similar amount for the same term on a collateralized basis. The Company elected the short-term lease exception policy which permits leases with an initial term of 12 months or less to not be recorded on the Company's condensed consolidated balance sheet and instead to be recognized as lease expense as incurred.

The Company, as lessee, makes a determination with respect to each of its community, office, and equipment leases as to whether each should be accounted for as an operating lease or financing lease. The classification criteria is based on estimates regarding the fair value of the leased asset, minimum lease payments, effective cost of funds, economic life of the asset, and certain other terms in the lease agreements.

Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of right-of-use assets are assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset, calculated utilizing the lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates and estimated lease coverage ratios (Level 3).

Operating Leases

The Company recognizes operating lease expense for actual rent paid, generally plus or minus a straight-line adjustment for estimated minimum lease escalators if applicable. The right-of-use asset is generally reduced each period by an amount equal to the difference between the operating lease expense and the amount of expense on the lease liability utilizing the effective interest method. Subsequent to the impairment of an operating lease right-of-use asset, the Company recognizes operating lease expense consisting of the reduction of the right-of-use asset on a straight-line basis over the remaining lease term and the amount of expense on the lease liability utilizing the effective interest method.

Financing Leases

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold intangibles, net on the Company's condensed consolidated balance sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term unless the lease contains an option to purchase the underlying asset that the Company is reasonably certain to exercise. If the Company is reasonably certain to exercise the purchase option, the asset is amortized over the useful life.

Sale-Leaseback Transactions

For transactions in which an owned community is sold and leased back from the buyer (sale-leaseback transactions), the Company recognizes an asset sale and lease accounting is applied if the Company has transferred control of the community. For such transactions, the Company removes the transferred assets from the condensed consolidated balance sheet and a gain or loss on the sale is recognized for the difference between the carrying amount of the asset and the transaction price for the sale transaction.

For sale‑leaseback transactions in which the Company has not transferred control of the underlying asset, the Company does not recognize an asset sale or derecognize the underlying asset until control is transferred. For such transactions, the Company recognizes the underlying assets within assets under financing leases as a component of property, plant and equipment and leasehold intangibles, net on the condensed consolidated balance sheets and continues to depreciate the assets over their useful lives.

Additionally, the Company accounts for any amounts received as a financing lease liability and the Company recognizes interest expense on the financing lease liability utilizing the effective interest method with the interest expense limited to an amount that is not greater than the cash payments on the financing lease liability over the term of the lease.


9


Property, Plant and Equipment and Leasehold Intangibles, Net

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, the Company is required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value, with any amount in excess of fair value recognized as an expense in the current period. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods, and estimated capitalization rates (Level 3).

Goodwill

The Company tests goodwill for impairment annually during the fourth quarter or more frequently if indicators of impairment arise. Factors the Company considers important in its analysis of whether an indicator of impairment exists include a significant decline in the Company's stock price or market capitalization for a sustained period since the last testing date, significant underperformance relative to historical or projected future operating results, and significant negative industry or economic trends. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If so, the Company performs a quantitative goodwill impairment test based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying amount. The fair values used in the quantitative goodwill impairment test are estimated using Level 3 inputs based upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of estimates and assumptions such as revenue and expense growth rates, capitalization rates, and discount rates. The Company also considers market-based measures such as earnings multiples in its analysis of estimated fair values of its reporting units. If the quantitative goodwill impairment test results in a reporting unit's carrying amount exceeding its estimated fair value, an impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit.

3.  COVID-19 Pandemic

The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the senior living industry and the Company's business. Due to the average age and prevalence of chronic medical conditions among the Company's residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19. The health and wellbeing of the Company's residents, patients, and associates is and has been its highest priority as it continues to serve and care for seniors through the pandemic.

Community Restrictions. To help protect the Company's residents, patients, and associates from contracting COVID-19, the Company imposed significant restrictions at its communities beginning in March 2020, including closing its communities to visitors and prospective residents, and in some cases restricting new resident move-ins, suspending group outings, modifying communal dining and programming to comply with social distancing and other regulatory guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. The Company has adopted a framework for determining when to ease restrictions at each of its communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the presence of current confirmed COVID-19 positive cases. The Company may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities. As of April 30, 2021, 100% of the Company's communities have opened for visitors and new prospects.

Pandemic-Related Expenses. The Company incurred $27.3 million of facility operating expense during the first quarter of 2021 for incremental direct costs to respond to the pandemic. Such costs include those for: acquisition of additional PPE, medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers compensation, and health plan expense; increased expense for general liability claims; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. On a cumulative basis, the Company has incurred $152.9 million of pandemic related facility operating expense since the beginning of fiscal 2020. The Company recorded non-cash impairment charges in its operating results of $9.0 million for the three months ended March 31, 2021, for its operating lease right-of-use assets, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.

10



Liquidity. As of March 31, 2021, the Company's total liquidity was $438.9 million, consisting of $304.0 million of unrestricted cash and cash equivalents and $134.9 million of marketable securities. The Company's cash flows from operations, excluding management agreement termination fees and the impact of the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") funding, have been insufficient to cover its operating expenses, capital expenditures, and required interest and lease payments during the pandemic. However, the Company was able to satisfy its liquidity needs over such period utilizing a portion of its preexisting liquidity, together with CARES Act funding. The Company currently estimates that its cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of the equity in its Health Care Services segment will be sufficient to fund its liquidity needs for at least the next 12 months. The Company continues to seek opportunities to enhance and preserve its liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate its financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the pandemic. There is no assurance that debt financing will continue to be available on terms consistent with the Company's expectations or at all, that its efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with the Company's expectations, or at all, or generate cash proceeds to the Company in the amount it anticipates.

Financial Relief. The CARES Act, signed into law on March 27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other things. Certain impacts of such programs are provided below.

During the first quarter of 2021, the Company accepted $0.8 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S. Department of Health and Human Services ("HHS"), under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. The grants represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to the Company's skilled nursing care provided through its CCRCs. HHS continues to evaluate future allocations under the Provider Relief Fund and the regulation and guidance regarding grants made under the Provider Relief Fund. The Company intends to pursue additional funding that may become available. There can be no assurance that the Company will qualify for, or receive, such future grants in the amount it expects, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which it qualifies.

During the year ended December 31, 2020, the Company received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, $75.2 million of which related to its Health Care Services segment and $12.3 million related to its CCRCs segment. Recoupment of advanced payments will begin one year after payments were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months. Any outstanding balance of advanced payments will be due following such recoupment period. Pursuant to the Purchase Agreement providing for the sale of 80% of the Company's equity in its Health Care Services segment (as described below), its net cash proceeds at closing will include a reduction for the then outstanding balance of such advanced payments related to its Health Care Services segment.

During fiscal 2020, the Company deferred payment of $72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. Pursuant to the Purchase Agreement providing for the sale of 80% of the Company's equity in its Health Care Services segment, its net cash proceeds at closing will include a reduction for the $8.9 million of deferred payroll tax payments related to its Health Care Services segment. The Company expects to pay approximately $32 million of the deferred payments in both December 2021 and 2022.

The Company is eligible to claim the employee retention credit for certain of its associates under the CARES Act. The credit for 2020 is available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee. During the first quarter of 2021, the Company recognized $9.0 million of employee retention credits on wages paid from March 12, 2020 through September 30, 2020 within other operating income. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and the Company is assessing its eligibility to claim such credit. There can be no assurance that the Company will qualify for, or receive, credits in the amount or on the timing it expects.


11


In addition to the grants described above, during the three months ended March 31, 2021, the Company has received and recognized $0.9 million of other operating income from grants from other government sources.

The Company cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on its business, results of operations, cash flow, and liquidity, and its response efforts may continue to delay or negatively impact its strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in the Company's markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and the Company's ability to adapt its sales and marketing efforts to meet that demand; the impact of COVID-19 on the Company's residents’ and their families’ ability to afford its resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of the Company's new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in the Company's communities; the duration and costs of the Company's response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses; the impact of COVID-19 on the Company's ability to complete financings and refinancings of various assets, or other transactions (including dispositions and the pending sale of 80% of the equity in the Company's Health Care Services segment) or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in its debt and lease documents; increased regulatory requirements, including unfunded, mandatory testing; increased enforcement actions resulting from COVID-19; government action that may limit the Company's collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company's response efforts.

4.  Acquisitions, Dispositions and Other Transactions

During the period from January 1, 2020 through March 31, 2021, the Company acquired 27 communities that the Company formerly leased, disposed of eight owned communities (including the conveyance of five communities to Ventas, Inc. ("Ventas")), and sold its ownership interest in its unconsolidated entry fee CCRC Venture (the "CCRC Venture") with Healthpeak Properties, Inc. ("Healthpeak"), and the Company's triple-net lease obligations on five communities were terminated.

The Company expects to sell 80% of its equity in its Health Care Services segment, as described below. Additionally, one unencumbered community in the Assisted Living and Memory Care segment and one unencumbered community in the CCRCs segment were classified as held for sale, resulting in $14.0 million being recorded as assets held for sale within the condensed consolidated balance sheet for senior housing communities as of March 31, 2021.

The closings of the various pending and expected transactions described within this note are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Completed Dispositions of Owned Communities

During the three months ended March 31, 2021, the Company completed the sale of one owned community for cash proceeds of $2.7 million, net of transaction costs, and recognized a net gain on sale of assets of $0.5 million.

In addition to the conveyance of five communities to Ventas, during the year ended December 31, 2020, the Company completed the sale of two owned communities for cash proceeds of $38.1 million, net of transaction costs, and recognized a net gain on sale of assets of $2.7 million. These dispositions included the sale of one owned community during the three months ended March 31, 2020 for which the Company received cash proceeds of $5.5 million, net of transaction costs, and recognized a net gain on sale of assets of $0.2 million.

Pending Sale of Health Care Services

On February 24, 2021, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc., providing for the sale of 80% of the Company’s equity in its Health Care Services segment for a purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction

12


for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment, which were $75.2 million and $8.9 million respectively, as of March 31, 2021. The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser. The closing of the sale transaction is anticipated to occur in the early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at closing of the transaction, the Company will retain a 20% equity interest in the business.

The assets and liabilities of the Health Care Services segment are included within assets held for sale and liabilities held for sale, respectively, within the Company’s condensed consolidated balance sheet as of March 31, 2021. As of March 31, 2021, assets held for sale and liabilities held for sale of the Health Care Services segment consisted of the following:

(in thousands)
Accounts receivable, net$62,401 
Property, plant and equipment and leasehold intangibles, net1,964 
Operating lease right-of-use assets9,688 
Goodwill126,810 
Prepaid expenses and other assets, net32,722 
Assets held for sale$233,585 
Trade accounts payable$1,201 
Accrued expenses30,030 
Refundable fees and deferred revenue75,223 
Operating lease obligations9,688 
Liabilities held for sale$116,142 
Refer to Note 16 for selected financial data for the Health Care Services segment.

5.  Fair Value Measurements

Marketable Securities

As of March 31, 2021, marketable securities of $134.9 million are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

Debt

The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding long-term debt with a carrying amount of approximately $3.9 billion as of both March 31, 2021 and December 31, 2020. Fair value of the long-term debt approximates carrying amount in all periods presented. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.


13


Asset Impairment Expense

The following is a summary of asset impairment expense.
Three Months Ended
March 31,
(in millions)20212020
Operating lease right-of-use assets$9.0 $65.7 
Property, plant and equipment and leasehold intangibles, net
1.7 11.0 
Investment in unconsolidated ventures 1.5 
Asset impairment$10.7 $78.2 

6.  Revenue

Disaggregation of Revenue

The Company disaggregates its revenue from contracts with customers by payor source as the Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Resident fee revenue by payor source and reportable segment is as follows:
Three Months Ended March 31, 2021
(in thousands)Independent LivingAssisted Living and Memory CareCCRCsHealth Care ServicesTotal
Private pay$118,322 $370,494 $52,213 $337 $541,366 
Government reimbursement460 16,444 12,487 67,465 96,856 
Other third-party payor programs  7,079 19,049 26,128 
Total resident fee revenue$118,782 $386,938 $71,779 $86,851 $664,350 
Three Months Ended March 31, 2020
(in thousands)Independent LivingAssisted Living and Memory CareCCRCsHealth Care ServicesTotal
Private pay$135,290 $440,613 $64,703 $170 $640,776 
Government reimbursement572 16,866 19,405 73,689 110,532 
Other third-party payor programs  10,439 20,960 31,399 
Total resident fee revenue$135,862 $457,479 $94,547 $94,819 $782,707 

Contract Balances

The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source, although terms generally include payment to be made within 30 days. Resident fee revenue for recurring and routine monthly services is generally billed monthly in advance under the Company's independent living, assisted living, and memory care residency agreements. Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears. A portion of the Company's reimbursement from Medicare for certain healthcare services is billed near the start of each period of care, and cash is generally received before all services are rendered. The amount of revenue recognized for periods of care which are incomplete at period end is based on the Company's historical average percentage of days complete on each period of care and any unearned amounts are deferred and recognized when the service is performed. Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements. Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.

The Company had total deferred revenue (included within refundable fees and deferred revenue, liabilities held for sale, and other liabilities within the condensed consolidated balance sheets) of $146.0 million and $138.3 million, including $30.1

14


million and $21.1 million of monthly resident fees billed and received in advance, as of March 31, 2021 and December 31, 2020, respectively. Such amount of total deferred revenue as of both March 31, 2021 and December 31, 2020 also included $87.5 million received in the year ended December 31, 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by CMS. Refer to Note 3 for additional information on such program. For the three months ended March 31, 2021 and 2020, the Company recognized $30.8 million and $48.3 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2021 and 2020, respectively.

7.  Property, Plant and Equipment and Leasehold Intangibles, Net

As of March 31, 2021 and December 31, 2020, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:
(in thousands)March 31, 2021December 31, 2020
Land$504,698 $505,298 
Buildings and improvements5,222,741 5,215,460 
Furniture and equipment953,773 945,783 
Resident and leasehold operating intangibles305,960 307,071 
Construction in progress64,003 61,491 
Assets under financing leases and leasehold improvements1,534,468 1,523,055 
Property, plant and equipment and leasehold intangibles8,585,643 8,558,158 
Accumulated depreciation and amortization(3,567,234)(3,490,098)
Property, plant and equipment and leasehold intangibles, net$5,018,409 $5,068,060 

Assets under financing leases and leasehold improvements includes $0.4 billion of financing lease right-of-use assets, net of accumulated amortization, as of both March 31, 2021 and December 31, 2020. Refer to Note 10 for further information on the Company's financing leases.

Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise. The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $83.9 million and $90.7 million for the three months ended March 31, 2021 and 2020, respectively.

8.  Goodwill

The Company's Independent Living and Health Care Services segments had a carrying value of goodwill of $27.3 million and $126.8 million, respectively, as of both March 31, 2021 and December 31, 2020. The goodwill of the Health Care Services segment is included within assets held for sale within the Company’s condensed consolidated balance sheet as of March 31, 2021.



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9.  Debt

Long-term debt consists of the following:
(in thousands)March 31, 2021December 31, 2020
Fixed mortgage notes payable due 2022 through 2047; weighted average interest rate of 4.17% and 4.18% as of March 31, 2021 and December 31, 2020, respectively
$2,334,151 $2,366,996 
Variable mortgage notes payable due 2022 through 2030, weighted average interest rate of 2.46% and 2.49% as of March 31, 2021 and December 31, 2020, respectively
1,524,496 1,529,935 
Other notes payable due 2021 to 2025; weighted average interest rate of 7.79% and 8.98% as of March 31, 2021 and December 31, 2020, respectively
57,468 46,557 
Debt discount and deferred financing costs, net(26,324)(27,500)
Total long-term debt3,889,791 3,915,988 
Current portion224,890 68,885 
Total long-term debt, less current portion$3,664,901 $3,847,103 

As of March 31, 2021, 97.9%, or $3.8 billion of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of March 31, 2021, $69.9 million of letters of credit and no cash borrowings were outstanding under the Company's $80.0 million secured credit facility. The Company also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of March 31, 2021 under which $13.6 million had been issued as of that date.

Financial Covenants

Certain of the Company's debt documents contain restrictions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. In addition, the Company's debt documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

The Company's failure to comply with applicable covenants could constitute an event of default under the applicable debt documents. Many of the Company's debt documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, the Company's debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of March 31, 2021, the Company is in compliance with the financial covenants of its debt agreements.

10.  Leases

As of March 31, 2021, the Company operated 301 communities under long-term leases (235 operating leases and 66 financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases. An event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs, including repairs, property taxes, and insurance. The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the

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Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of March 31, 2021, the Company is in compliance with the financial covenants of its long-term leases.

A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows:
Three Months Ended
March 31,
Operating Leases (in thousands)
20212020
Facility operating expense$4,842 $4,850 
Facility lease expense44,418 64,481 
Operating lease expense49,260 69,331 
Operating lease expense adjustment (1)
4,664 6,733 
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements(7,563)(4,088)
Operating net cash outflows from operating leases$46,361 $71,976 

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

Three Months Ended
March 31,
Financing Leases (in thousands)
20212020
Depreciation and amortization$7,630 $9,144 
Interest expense: financing lease obligations11,383 13,282 
Financing lease expense$19,013 $22,426 
Operating cash flows from financing leases$11,383 $13,282 
Financing cash flows from financing leases4,789 5,087 
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement(1,389)(1,739)
Total net cash outflows from financing leases$14,783 $16,630 


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The aggregate amounts of future minimum lease payments, including community, office, and equipment leases (excluding minimum lease payments related to $9.7 million of operating lease obligations included within liabilities held for sale) recognized on the condensed consolidated balance sheet as of March 31, 2021 are as follows (in thousands):
Year Ending December 31,Operating LeasesFinancing Leases
2021 (nine months)$151,681 $48,807 
2022203,946 65,609 
2023192,625 66,341 
2024193,377 67,553 
2025191,131 57,595 
Thereafter280,960 109,684 
Total lease payments1,213,720 415,589 
Purchase option liability and non-cash gain on future sale of property 413,617 
Imputed interest and variable lease payments(276,070)(270,052)
Total lease obligations$937,650 $559,154 

11.  Litigation

The Company has been and is currently involved in litigation and claims incidental to the conduct of its business, which it believes are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at the Company’s communities and compliance with consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, the Company maintains general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are appropriate, based on the nature and risks of its business, historical experience, availability, and industry standards. The Company's current policies provide for deductibles for each claim and contain various exclusions from coverage. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits.

Similarly, the senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement activities or litigation related to regulatory compliance matters. In addition, as a result of the Company's participation in the Medicare and Medicaid programs, the Company is subject to various governmental reviews, audits and investigations, including but not limited to audits under various government programs, such as the Recovery Audit Contractors (RAC), Zone Program Integrity Contractors (ZPIC), and Unified Program Integrity Contractors (UPIC) programs. The costs to respond to and defend such reviews, audits, and investigations may be significant, and an adverse determination could result in citations, sanctions and other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and/or damage to the Company's business reputation.

In June 2020, the Company and several current and former executive officers were named as defendants in a putative class action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee. The lawsuit asserts that the defendants made material misstatements and omissions concerning the Company's business, operational and compliance policies that caused the Company's stock price to be artificially inflated between August 2016 and April 2020. While the Company cannot predict with certainty the result of this or any other legal proceedings, the Company believes the allegations in the suit are without merit and does not expect this matter to have a material adverse effect on the Company's financial condition, results of operations, or cash flows. In October 2020 and April 2021, alleged stockholders of the Company filed separate stockholder derivative lawsuits in the federal court for the Middle District of Tennessee, asserting claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company. The complaints refer to the securities lawsuit described above and incorporate substantively similar allegations.


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12.  Stock-Based Compensation

Grants of restricted stock and restricted stock units under the Company's 2014 Omnibus Incentive Plan were as follows:
(in thousands, except for per share and unit amounts)Restricted Stock and Restricted Stock Unit GrantsWeighted Average Grant Date Fair ValueTotal Grant Date Fair Value
Three months ended March 31, 20211,961 $5.09 $9,988 

13.  Earnings Per Share

Basic earnings per share ("EPS") is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units, and warrants.

The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the condensed consolidated statement of operations:
Three Months Ended
March 31,
(in thousands, except for per share amounts)20212020
Income attributable to common stockholders:
Net income (loss)
$(108,285)$369,515 
Weighted average shares outstanding - basic184,011 184,186 
Effect of dilutive securities - Unvested restricted stock, restricted stock units, and warrants 336 
Weighted average shares outstanding - diluted184,011 184,522 
Basic earnings (loss) per common share:
Net income (loss) per share attributable to common stockholders$(0.59)$2.01 
Diluted earnings (loss) per common share:
Net income (loss) per share attributable to common stockholders$(0.59)$2.00 


For the purposes of computing diluted EPS, weighted average shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method, and performance-based equity awards are included based on the attainment of the applicable performance metrics as of the end of the reporting period. The following potentially dilutive securities were excluded from the computation of diluted EPS:
Three Months Ended
March 31,
(in millions)
2021(1)
2020
Non-performance-based restricted stock and restricted stock units6.2 6.9 
Performance-based restricted stock and restricted stock units0.4 1.8 
Warrants16.3  

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


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14.  Income Taxes

The difference between the Company's effective tax rate for the three months ended March 31, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020. The impact represented the tax expense recorded on the gain of the sale of the Company's interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $25.2 million as a result of the operating loss for the three months ended March 31, 2021, which was offset by a proportionate increase in the valuation allowance of $25.5 million. The Company recorded an aggregate deferred federal, state, and local tax expense of $90.9 million for the three months ended March 31, 2020. The expense included $93.1 million as a result of the gain on the sale of the Company's interest in the CCRC Venture offset by a benefit of $2.2 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the three months ended March 31, 2020. The expense for the three months ended March 31, 2020 was offset by a reduction in the valuation allowance of $112.6 million.

The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company's valuation allowance as of March 31, 2021 and December 31, 2020 was $406.5 million and $381.0 million, respectively.

The increase in the valuation allowance for the three months ended March 31, 2021 is the result of current operating losses during the three months ended March 31, 2021. The change in the valuation allowance for the three months ended March 31, 2020 was primarily the result of a reduction in the Company’s valuation allowance of $117.6 million as a result of the Healthpeak transaction offset by the anticipated reversal of future tax liabilities offset by future tax deductions.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three months ended March 31, 2021 and 2020 which are included in income tax expense or benefit for the period. As of March 31, 2021, tax returns for years 2017 through 2019 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

15.  Supplemental Disclosure of Cash Flow Information
Three Months Ended
March 31,
(in thousands)20212020
Supplemental Disclosure of Cash Flow Information:
Interest paid$47,129 $59,479 
Income taxes paid, net of refunds904 957 
Capital expenditures, net of related payables:
Capital expenditures - non-development, net$27,450 $60,556 
Capital expenditures - development, net1,521 3,900 
Capital expenditures - non-development - reimbursable8,951 5,827 
Trade accounts payable2,439 (898)
Net cash paid$40,361 $69,385 
Acquisition of communities from Healthpeak:
Property, plant and equipment and leasehold intangibles, net$ $286,734 
Operating lease right-of-use assets (63,285)
Financing lease obligations 129,196 
Operating lease obligations 74,335 
Loss (gain) on debt modification and extinguishment, net (19,731)
Net cash paid$ $407,249 
Acquisition of other assets, net of related payables and cash received:
Property, plant and equipment and leasehold intangibles, net$ $179 
Financing lease obligations 39,260 
Net cash paid$ $39,439 

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Proceeds from sale of CCRC Venture, net:
Investments in unconsolidated ventures$ $(14,848)
Current portion of long-term debt 34,706 
Accrued expenses (5,025)
Other liabilities 60,748 
Loss (gain) on sale of assets, net (370,745)
Net cash received$ $(295,164)
Proceeds from sale of other assets, net:
Prepaid expenses and other assets, net$ $(1,261)
Assets held for sale(2,125)(5,274)
Property, plant and equipment and leasehold intangibles, net(597) 
Other liabilities74 (824)
Loss (gain) on sale of assets, net(1,112)(2,094)
Net cash received$(3,760)$(9,453)
Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:
Healthpeak master lease modification:
Property, plant and equipment and leasehold intangibles, net$ $(57,462)
Operating lease right-of-use assets 88,044 
Financing lease obligations 70,874 
Operating lease obligations (101,456)
Net$ $ 
Other non-cash lease transactions, net:
Property, plant and equipment and leasehold intangibles, net$ $(9,441)
Operating lease right-of-use assets16,721  
Financing lease obligations 9,516 
Operating lease obligations(16,721) 
Other liabilities (75)
Net$ $ 

Restricted cash consists principally of deposits for letters of credit, escrow deposits for real estate taxes, property insurance, and capital expenditures, debt service reserve accounts required by certain lenders under mortgage debt agreements, and deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.
(in thousands)March 31, 2021December 31, 2020
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents$303,952 $380,420 
Restricted cash26,503 28,059 
Long-term restricted cash71,468 56,669 
Total cash, cash equivalents, and restricted cash$401,923 $465,148 

16.  Segment Information

The Company has five reportable segments: Independent Living; Assisted Living and Memory Care; CCRCs; Health Care Services; and Management Services. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.


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Independent Living. The Company's Independent Living segment includes owned or leased communities that are primarily designed for middle to upper income seniors who desire to live in a residential setting that feels like home, without the efforts of ownership. The majority of the Company's independent living communities consist of both independent and assisted living units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior independent and assisted living services to accommodate their changing needs.

Assisted Living and Memory Care. The Company's Assisted Living and Memory Care segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily living for mid-acuity and frail elderly residents. The Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as smaller freestanding, single story communities. The Company also provides memory care services at freestanding memory care communities that are specially designed for residents with Alzheimer's disease and other dementias.

CCRCs. The Company's CCRCs segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate a broad spectrum of physical ability and healthcare needs. Most of the Company's CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus or within the immediate area.

Health Care Services. The Company's Health Care Services segment includes the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities. The Health Care Services segment does not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

Management Services. The Company's Management Services segment includes communities operated by the Company pursuant to management agreements. In some of the cases, the controlling financial interest in the community is held by third parties and, in other cases, the community is owned in a venture structure in which the Company has an ownership interest. Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement of expenses it incurs on behalf of the owners.

The following table sets forth selected segment financial data:
Three Months Ended
March 31,
(in thousands)20212020
Revenue and other operating income: