| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Principles of Consolidation . The accompanying consolidated financial statements include the accounts of AlerisLife Inc, formerly known as Five Star Senior Living Inc., and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Estimates and Assumptions. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that may affect the amounts reported in these consolidated financial statements and related notes. Significant estimates in our consolidated financial statements relate to revenue recognition, including contractual allowances, the allowance for doubtful accounts, self-insurance reserves and estimates concerning our provision for income taxes or valuation allowance related to deferred tax assets. Our actual results could differ from our estimates. We periodically review estimates and assumptions and we reflect the effects of changes, if any, in the consolidated financial statements in the period that they are determined. Fair Value of Financial Instruments. Our financial instruments are limited to cash and cash equivalents, accounts receivable, debt and equity investments, accounts payable and a mortgage note payable. Except for our mortgage note payable, the fair value of these financial instruments was not materially different from their carrying values at December 31, 2021 and 2020. We estimate the fair values of our mortgage note payable using market quotes when available, discounted cash flow analyses and current prevailing interest rates. Our assets recorded at fair value have been categorized based on a fair value hierarchy. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels. Level 1 - Inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. Level 2 - Inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments and quoted prices in inactive markets. Level 3 - Inputs are generated from model-based techniques that use significant assumptions that are not observable in the market. Segment Information. Operating segments are components of an enterprise that engage in business activities and for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in determining the allocation of resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We operate in two reportable segments: (1) residential (formerly known as senior living) and (2) lifestyle services (formerly known as rehabilitation and wellness services). At December 31, 2021, we changed the name of our segments to better describe the business and operations of those segments. There were no changes in the composition of the segments. In the residential reportable segment, we manage for the account of others and operate for our own account, primarily independent living communities and assisted living communities that are subject to centralized oversight through our Five Star division. In the lifestyle services segment, we primarily provide a comprehensive suite of rehabilitation and wellness services, including physical, occupational, speech and other specialized therapy services, in inpatient and outpatient clinics through our Ageility division. Corporate and other amounts excluded from our reportable segments' performance are separately stated and include amounts related to functional areas such as finance, information technology, legal and human resources. We allocate corporate and other amounts to our residential and lifestyle services segments to assist in determining the allocation of resources and assessing the performance of our segments. Corporate and other allocation amounts are determined by applying an estimated cost rate to the revenues of each division within the reportable segments. Estimated cost rates used to allocate corporate and other amounts vary by division. All of our operations and assets are located in the United States, except for the operations of our captive insurance company subsidiary, which is organized in the Cayman Islands. We do not allocate assets to operating segments and, therefore, no asset information is provided for reportable segments. See Note 4 for more information. Net Income (Loss) Per Share. We calculate basic net income (loss) per common share, or EPS, by dividing net income (loss) by the weighted average number of common shares outstanding during the year. We calculate diluted EPS using the more dilutive of the two-class method or the treasury stock method. See Note 7 for more information. Cash and Cash Equivalents and Restricted Cash and Cash Equivalents. Cash and cash equivalents as of December 31, 2021 and 2020, consisting of short-term, highly liquid investments and money market funds with original maturities of three months or less at the date of purchase, are carried at cost, which approximates market. Certain cash account balances exceed Federal Deposit Insurance Corporation insurance limits of $250 per account and, as a result, there is a concentration of credit risk related to amounts in excess of the insurance limits. We regularly monitor the financial stability of the financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents. Restricted cash and cash equivalents as of December 31, 2021 and 2020 include cash we deposited as security for obligations arising from our self-insurance programs and other amounts for which we are required to establish escrows, including real estate taxes and capital expenditures, as required by our mortgage and certain resident security deposits. Our restricted cash and cash equivalents consist of the following: As of December 31, 2021 2020 Current Long-Term Current Long-Term Workers’ compensation letter of credit collateral $ 22,899 $ — $ 21,561 $ — Insurance reserves and other restricted amounts 356 982 644 1,369 Health deposit-imprest cash 1,103 — 1,103 — Real estate taxes and certain capital expenditures as required by our mortgage 612 — 569 — Total $ 24,970 $ 982 $ 23,877 $ 1,369 Concentrations of Credit Risk. Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments and accounts receivable. We have investment policies that, among other things, limit investments to investment-grade securities. We hold our cash and cash equivalents and investments with high-quality financial institutions and we monitor the credit ratings of those institutions. We perform ongoing credit evaluations of our customers, and the risk with respect to accounts receivable is further mitigated by the diversity, both by geography and by industry, of the customer base. As of December 31, 2021, payments due from Medicare and Medicaid represented 32.1% and 1.8%, respectively, of our gross consolidated accounts receivable balance. As of December 31, 2020, payments due from Medicare and Medicaid represented 32.0% and 1.2%, respectively, of our gross consolidated accounts receivable balance. The Company does not believe there are significant credit risks associated with the receivables from these governmental programs. We derive our residential management fees from DHC. As of December 31, 2021 and 2020, we had net $37,866 and $89,911 due from DHC, respectively, which are included in due from related persons and due to related persons on our consolidated balance sheets. See Note 15 for more information. The balance due at December 31, 2020 included deferred payroll taxes of $22,194 under the CARES Act which was paid in September 2021, described more fully in Note 18, as well as liabilities incurred on behalf of DHC of $30,090, which is also included in accrued expenses and other current liabilities on our consolidated balance sheets. Accounts Receivable and Allowance for Doubtful Accounts. We record accounts receivable net of an allowance for doubtful accounts to represent the Company's estimate of expected losses. The adequacy of the allowance for doubtful accounts is reviewed on an ongoing basis using historical payment trends, write-off experience, analyses of accounts receivable portfolios by payor source and the age of the receivable as well as a review of specific accounts, the terms of the agreements, the residents’ or third party payers’ stated intent to pay, the payers’ financial capacity to pay and other factors. Billings for services under third-party payer programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicare or Medicaid are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known. The allowance for doubtful accounts reflects estimates that we periodically review and revise based on new information, to which revisions may be material. Our allowance for doubtful accounts consists of the following: Allowance for Doubtful Accounts Balance at Beginning of Period Provision for Doubtful Accounts Recoveries Write-offs Balance at End of Period December 31, 2020 $ 4,664 $ 1,450 $ 156 $ (3,121) $ 3,149 December 31, 2021 $ 3,149 $ 2,089 $ 323 $ (2,711) $ 2,850 Equity and Debt Investments. Equity investments are carried at fair value with changes in fair value recorded in earnings. At December 31, 2021, these equity investments had a fair value of $13,033 and a net unrealized holding gain of $4,105. At December 31, 2020, these equity investments had a fair value of $12,439 and a net unrealized holding gain of $3,376. Debt investments, which are classified as available for sale, are carried at fair value, with unrealized gains and losses reported as a separate component of shareholders’ equity within accumulated other comprehensive income and “other than temporary impairment” losses recorded through earnings. Realized gains and losses on debt investments are recognized based on specific identification. Restricted debt investments are kept as security for obligations arising from our self-insurance programs. At December 31, 2021, these debt investments had a fair value of $10,375 and a net unrealized holding gain of $296. At December 31, 2020, these debt investments had a fair value of $12,310 and a net unrealized holding gain of $756. In 2021 and 2020, our debt and equity investments generated interest and dividend income of $358 and $757, respectively, which is included in interest, dividend and other income in our consolidated statements of operations. The following table summarizes the fair value and gross unrealized losses related to our debt investments, aggregated by length of time that individual securities have been in a continuous unrealized loss position for the years ended: Debt Investments Less than 12 months Greater than 12 months Total Fair Value Unrealized Fair Value Unrealized Fair Value Unrealized December 31, 2021 $ 2,474 $ 10 $ — $ — $ 2,474 $ 10 December 31, 2020 $ 291 $ 4 $ — $ — $ 291 $ 4 We routinely evaluate our debt investments to determine if they have been impaired. If the fair value of a debt investment is less than its book or carrying value and we expect that situation to continue for a more than temporary period, we will record an “other than temporary impairment” loss in our consolidated statements of operations. We evaluate the fair value of our debt investments by reviewing each investment’s current market price, the ratings of the investment, the financial condition of the issuer and our intent and ability to retain the investment during temporary market price fluctuations or until maturity. In evaluating the factors described above, we presume a decline in value to be an “other than temporary impairment” if the quoted market price of the investment is below the investment’s cost basis for an extended period, which we typically define as greater than twelve months. However, this presumption may be overcome if there is persuasive evidence indicating the value decline is temporary in nature, such as when the operating performance of the obligor is strong or if the market price of the investment is historically volatile. Additionally, there may be instances in which impairment losses are recognized even if the decline in value does not meet the criteria described above, such as if we plan to sell the investment in the near term and the fair value is below our cost basis. When we believe that a change in fair value of a debt investment is temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains and losses. When we determine that impairment in the fair value of a debt investment is an “other than temporary impairment”, we record a charge to earnings. We did not record such an impairment charge for the years ended December 31, 2021 and 2020. Deferred Financing Costs. We capitalize issuance costs related to our secured revolving credit facility, or our credit facility, and amortize the deferred costs over the term of the agreement governing our credit facility, or our credit agreement. In June 2019, we entered into a new credit agreement to replace our prior credit facility with our $65,000 secured revolving credit facility, or the Credit Facility. See Note 9 for more information on our Credit Facility. Our unamortized balance of deferred finance costs was $75 and $288 at December 31, 2021 and 2020, respectively, which was included in prepaid expenses and other current assets on our consolidated balance sheets. The Credit Facility was terminated on January 27, 2022. Property and Equipment. Property and equipment are recorded at cost and depreciated using the straight-line basis over their estimated useful lives, which are typically as follows: Asset Class Estimated Useful Life Buildings 40 Building and land improvements 3-15 Equipment 7 Computer equipment and software 5 Furniture and fixtures 7 Network Development 10 Vehicles 5 We routinely perform an assessment of long-lived assets to determine if indicators of impairment are present. An indicator that the carrying amount of a long-lived asset, or asset group, is not recoverable exists if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group), or if other events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. If we conclude that an impairment exists, we determine the amount of impairment loss by comparing the historical carrying value of the asset, or group of assets, to their estimated fair value. We determine estimated fair value based on input from market participants, our experience selling similar assets, market conditions and internally developed cash flow models that our assets or asset groups are expected to generate, and we consider these estimates to be a Level 3 fair value measurement. Commitments and Contingencies. We have been, are currently, and expect in the future to be involved in claims, lawsuits, and regulatory and other government audits, investigations and proceedings arising in the ordinary course of our business, some of which may involve material amounts. The defense and resolution of these claims, lawsuits, and regulatory and other government audits, investigations and proceedings may require us to incur significant expense. Loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined as additional information becomes known. Accordingly, we are often initially unable to develop a best estimate of loss and therefore, the estimated minimum loss amount, which could be zero, is recorded; then, as information becomes known, the minimum loss amount is updated, as appropriate. Occasionally, a minimum or best estimate amount may be increased or decreased when events result in a changed expectation. Self-Insurance. We partially self-insure up to certain limits for workers’ compensation, professional and general liability and automobile insurance programs. Claims that exceed these limits are insured up to contractual limits, over which we are self-insured. We fully self-insure all health-related claims for our covered employees. We have established an offshore captive insurance company subsidiary that participates in our workers’ compensation, professional and general liability and automobile insurance programs. Determining reserves for the casualty, liability, workers’ compensation and healthcare losses and costs that we have incurred as of the end of a reporting period involves significant judgments based upon our experience and our expectations of future events, including projected settlements for pending claims, known incidents that we expect may result in claims, estimates of incurred but not yet reported claims, expected changes in premiums for insurance provided by insurers whose policies provide for retroactive adjustments, estimated litigation costs and other factors. Since these reserves are based on estimates, the actual expenses we incur may differ from the amount reserved. We regularly adjust these estimates to reflect changes in the foregoing factors, our actual claims experience, recommendations from our professional consultants, changes in market conditions and other factors; it is possible that such adjustments may be material. Lease Accounting. At the inception of a contract, we, as lessee, evaluate and determine whether such a contract is or contains a lease based on whether such contract conveys the right to control the use of the identified asset. We apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. We have elected to apply the portfolio approach where possible in assessing our leases and performed an assessment of all our leases. In addition, we have elected the practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. As lessee, we lease senior living communities and our headquarters, and enter into contracts for the use and maintenance of various equipment that contain a lease. We have determined that an equipment lease has met the criteria to be classified as a finance lease. The remaining leases are operating leases. We have determined that our leases for the use and maintenance of equipment and for our Ageility outpatient rehabilitation clinics are short-term leases, except for the equipment lease that is classified as a finance lease. We have made an accounting policy election for our leases, which are determined to be short-term leases, whereby we recognize the lease payments on a straight-line basis over the lease term and variable lease payments in the period in which the obligations for those payments are incurred. Expenses related to these leases are recognized in the consolidated statement of operations in other residential operating expenses, lifestyle services expenses and general and administrative expenses and are not material to our consolidated financial statements. We have determined that our leases for senior living communities, our headquarters and the equipment finance lease are long-term leases. A lessee is required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Accordingly, we have recorded a right-of-use asset and lease liability for all of our long-term leases. We determined that the discount rate implicit in the leases was not readily available, and therefore, we determined our incremental borrowing rate, or IBR, to calculate the right-of-use assets and lease liabilities, except for the equipment finance lease where we used the discount rate implicit in the lease. For purposes of determining the lease term, we concluded that it is not reasonably certain that our lease extensions will be exercised and, therefore, we included payments required to be made under the committed lease term in calculating the right-of-use assets and lease liabilities. In the consolidated statement of operations, expenses related to the leases for senior living communities are recognized in other senior living operating expenses, expenses related to our headquarters are recorded in general and administrative expenses and expenses related to our equipment finance lease are recognized in depreciation and amortization and interest and other expense. There were no variable lease payments in 2021 and 2020. Our leases have remaining lease terms of up to ten years. Our lease terms may include options to extend or terminate the lease. The options are included in the lease term when it is determined that it is reasonably certain the option will be exercised. The Company recorded right-of-use assets and lease liabilities, which are presented on the Consolidated Balance Sheet. At December 31, 2021, the weighted average remaining lease term was approximately eight years with a weighted average discount rate of 4.9%. The following table presents supplemental information related to operating and finance leases: Lease No. Number of Properties Remaining Renewal Options Right-of-Use Asset Future Minimum Rents IBR (1) Lease Liability 2022 2023 2024 2025 There after Total Headquarters lease (December 31, 2031) (2) 1 N/A $ 9,197 $ 1,046 $ 1,087 $ 1,128 $ 1,169 $ 7,858 $ 12,288 3.88% $ 10,065 Equipment lease N/A 5 year renewal option 3,467 1,140 1,140 1,140 1,140 — 4,560 7.60% 3,922 Total $ 12,664 $ 2,186 $ 2,227 $ 2,268 $ 2,309 $ 7,858 $ 16,848 4.90% $ 13,987 _______________________________________ (1) For the equipment lease, this represents the discount rate. (2) On January 10, 2022, we entered into a third amendment which reduced our headquarters leased space from approximately 41,000 square feet to approximately 30,000 square feet. Operating lease expenses consist of monthly rent costs, certain utilities and real estate taxes. For the years ended December 31, 2021 and 2020, we recognized $2,041 and $2,762 of operating lease expenses in other residential operating expenses, $2,431 and $2,356 in lifestyle services expenses and $2,082 and $1,760 in general and administrative expenses within our consolidated statements of operations, respectively. For the years ended December 31, 2021 and 2020, we recognized finance lease expenses of $1,256 and $323, consisting of amortization of the right-of-use asset of $924 and $230 and interest expense on the lease liability of $332 and $93, respectively, which are recorded in our consolidated statements of operations in depreciation and amortization and interest and other expenses, respectively. We lease our headquarters from a subsidiary of ABP Trust. On February 24, 2021, we and the ABP Trust subsidiary renewed the lease through December 31, 2031. The annual lease payment will range from $1,026 to $1,395 over the period of the lease. The lease also provides us with an improvements allowance from ABP Trust not to exceed $2,667. Our rent expense for our headquarters, including utilities and real estate taxes that we pay as additional rent, was $2,082 and $1,760 for the year ended December 31, 2021 and 2020, which amounts are included in general and administrative expenses. As a result of renewing this lease, we increased each of our right-of-use asset and lease liability noted below on our consolidated balance sheets by $9,746 to reflect the terms of the amendment. We recognized a right-of-use asset and lease liability, which amounts were $10,065 and $496 for the lease liability and $9,197 and $452 for the right-of-use asset as of December 31, 2021 and December 31, 2020, respectively, with respect to our headquarters lease, using an incremental borrowing rate of 3.9%. The right-of-use asset has been reduced by the amount of accrued lease payments, which amounts are not material to our consolidated financial statements. On January 10, 2022, we entered into the third amendment to the lease for our Corporate headquarters which reduced the leased space from approximately 41,000 square feet to approximately 30,000 square feet. Commencing on July 1, 2022, the annual lease payment will range from $770 to $1,007 over the period of the lease. As a result of amending the lease we will decrease the right of use asset and lease liability by $2,629 and $2,658, respectively. ASC Topic 842, Leases, or ASC Topic 842, provides lessors with a practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component if certain conditions are met. In addition, ASC Topic 842 clarifies which ASC Topic (ASC Topic 842 or FASB ASC Topic 606, Revenue from Contracts with Customers , or ASC Topic 606) applies for the combined component. Specifically, if the non-lease components associated with the lease component are the predominant component of the combined components, the lessor should account for the combined component in accordance with ASC Topic 606. Otherwise, the lessor should account for the combined component as an operating lease. We have elected this practical expedient and recognized revenue under our resident agreements at our independent living and assisted living communities based upon the predominant component rather than allocating the consideration and separately accounting for it under ASC Topic 842 and ASC Topic 606. We have concluded that the non-lease components of the agreements with respect to our independent and assisted living communities are the predominant component of the leases and, therefore, we recognize revenue for these agreements under ASC Topic 606. Stock-Based Compensation. We have a stock-based compensation plan under which we grant equity-based awards. We measure the compensation cost of award recipients’ services received in exchange for an award of equity instruments based on the grant date fair value of the underlying award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. The impact of forfeitures are recognized as they occur. Income Taxes. Our income tax expense includes U.S. income taxes. Certain items of income and expense are not reported in tax returns and financial statements in the same year. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences to be included in our financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, while the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent, we believe that we are more likely than not that all or a portion of deferred tax assets will not be realized, we establish a valuation allowance to reduce the deferred tax assets to the appropriate valuation. To the extent we establish a valuation allowance or increase or decrease this allowance in a given period, we include the related tax expense or tax benefit within the tax provision in the consolidated statement of operations in that period. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. In the future, if we determine that we would be able to realize our deferred tax assets in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance and record an income tax benefit within the tax provision in the consolidated statement of operations in that period. We pay franchise taxes in certain states in which we have operations. We have included franchise taxes in general and administrative in our consolidated statements of operations. Revenue Recognition. We recognize revenue from contracts with customers using the practical expedient that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts on our consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within such portfolio. The five-step model requires us to: (i) identify our contracts with customers; (ii) identify our performance obligations under those contracts; (iii) determine the transaction prices of those contracts; (iv) allocate the transaction prices to our performance obligations in those contracts; and (v) recognize revenue when each performance obligation under those contracts is satisfied. Revenue recognition occurs when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. Residential and Lifestyle Services Revenues. A substantial portion of our revenue from our independent living and assisted living communities relates to contracts with residents for housing services that are generally short term in nature and initially are subject to ASC Topic 842. As noted earlier, we have concluded that the non-lease components of these agreements are the predominant components of the contracts; therefore, we recognize revenue for these agreements under ASC Topic 606. We also provide our residents and others with lifestyle services at our senior living communities as well as at outpatient rehabilitation clinics located separately from our senior living communities. Our contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short term in nature. We have determined that services performed under those contracts are considered one performance obligation as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when our performance obligation is satisfied by transferring control of the service provided to the resident or customer, which are generally when the services are provided over time. Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services provided are not material to our consolidated financial statements. Some of our senior living communities require payment of an upfront entrance fee in advance of a resident moving into the community; substantially all of |
