| Significant Accounting Policies | 2. Summary of Significant Accounting Policies The summary of significant accounting policies presented below is designed to assist in understanding our accompanying condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements. Basis of Presentation Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries in which we have control, as well as any VIEs in which we are the primary beneficiary. We evaluate our ability to control an entity, and whether the entity is a VIE and we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance. We operate and intend to co ntinue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We ar e the sole general partner of our operating partnership, and as of both September 30, 2020 and December 31, 2019, we owned greater than a 99.99% general partnership interest therein. Our advisor is a limited partner, and as of both September 30, 2020 and December 31, 2019, owned less than a 0.01% noncontrolling limited partnership interest in our operating partnership. Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our accompanying condensed consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation. Interim Unaudited Financial Data Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the United States Securities and Exchange Commission, or SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to the SEC’s rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable. In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2019 Annual Report on Form 10-K, as filed with the SEC on March 26, 2020. Use of Estimates The preparation of our accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the initial and recurring valuation of certain assets acquired and liabilities assumed through property acquisitions, revenues and grant income, allowance for credit losses, impairment of long-lived assets and contingencies. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions. Revenue Recognition — Resident Fees and Services Revenue Disaggregation of Resident Fees and Services Revenue The following tables disaggregate our resident fees and services revenue by line of business, according to whether such revenue is recognized at a point in time or over time: Three Months Ended September 30, 2020 2019 Point in Time Over Time Total Point in Time Over Time Total Integrated senior health campuses $ 48,841,000 $ 193,873,000 $ 242,714,000 $ 53,215,000 $ 203,833,000 $ 257,048,000 Senior housing — RIDEA(1) 673,000 20,544,000 21,217,000 737,000 16,015,000 16,752,000 Total resident fees and services $ 49,514,000 $ 214,417,000 $ 263,931,000 $ 53,952,000 $ 219,848,000 $ 273,800,000 Nine Months Ended September 30, 2020 2019 Point in Time Over Time Total Point in Time Over Time Total Integrated senior health campuses $ 150,122,000 $ 593,218,000 $ 743,340,000 $ 158,948,000 $ 605,855,000 $ 764,803,000 Senior housing — RIDEA(1) 2,181,000 62,953,000 65,134,000 2,183,000 47,568,000 49,751,000 Total resident fees and services $ 152,303,000 $ 656,171,000 $ 808,474,000 $ 161,131,000 $ 653,423,000 $ 814,554,000 The following tables disaggregate our resident fees and services revenue by payor class: Three Months Ended September 30, 2020 2019 Integrated Senior Housing — RIDEA(1) Total Integrated Senior Housing — RIDEA(1) Total Private and other payors $ 112,601,000 $ 20,815,000 $ 133,416,000 $ 125,337,000 $ 16,741,000 $ 142,078,000 Medicare 79,688,000 — 79,688,000 81,965,000 — 81,965,000 Medicaid 50,425,000 402,000 50,827,000 49,746,000 11,000 49,757,000 Total resident fees and services $ 242,714,000 $ 21,217,000 $ 263,931,000 $ 257,048,000 $ 16,752,000 $ 273,800,000 Nine Months Ended September 30, 2020 2019 Integrated Senior Housing — RIDEA(1) Total Integrated Senior Housing — RIDEA(1) Total Private and other payors $ 353,126,000 $ 63,894,000 $ 417,020,000 $ 372,455,000 $ 49,706,000 $ 422,161,000 Medicare 237,853,000 — 237,853,000 250,923,000 — 250,923,000 Medicaid 152,361,000 1,240,000 153,601,000 141,425,000 45,000 141,470,000 Total resident fees and services $ 743,340,000 $ 65,134,000 $ 808,474,000 $ 764,803,000 $ 49,751,000 $ 814,554,000 ___________ (1) Includes fees for basic housing and assisted living care. We record revenue when services are rendered at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered. Accounts Receivable, Net — Resident Fees and Services Revenue The beginning and ending balances of accounts receivable, net — resident fees and services are as follows: Private Medicare Medicaid Total Beginning balance — January 1, 2020 $ 46,543,000 $ 32,127,000 $ 26,366,000 $ 105,036,000 Ending balance — September 30, 2020 38,593,000 29,054,000 18,232,000 85,879,000 Decrease $ (7,950,000) $ (3,073,000) $ (8,134,000) $ (19,157,000) Deferred Revenue — Resident Fees and Services Revenue The beginning and ending balances of deferred revenue — resident fees and services, almost all of which relates to private and other payors, are as follows: Total Beginning balance — January 1, 2020 $ 13,518,000 Ending balance — September 30, 2020 11,977,000 Decrease $ (1,541,000) In addition to the deferred revenue above, we received approximately $52,322,000 of Medicare advance payments through an expanded program of the Centers for Medicare & Medicaid Services, or CMS. Such amounts will be recognized as resident fees and services revenue for actual services performed and Medicare claims billed once our recoupment period commences in 2021. See Note 11, Commitments and Contingencies — Impact of the COVID-19 Pandemic, for a further discussion. Government Grants We have been granted stimulus funds through various federal and state government programs, such as through the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, passed by the federal government on March 27, 2020, which were established for eligible healthcare providers to preserve liquidity in response to lost revenues and/or increased healthcare expenses (as such terms are defined in the applicable regulatory guidance) associated with the COVID-19 pandemic. Such grants are not loans and, as such, are not required to be repaid, subject to certain conditions. We recognize government grants as grant income or as a reduction of property operating expenses, as applicable, in our accompanying condensed consolidated statements of operations and comprehensive income (loss) when there is reasonable assurance that the grants will be received and all conditions to retain the funds will be met. We adjust our estimates and assumptions based on the applicable guidance provided by the government and the best available information that we have. Any stimulus or other relief funds received that are not expected to be used in accordance with such terms and conditions will be returned to the government, and any related deferred income will not be recognized. For the three and nine months ended September 30, 2020, we recognized government grants of $740,000 and $30,730,000, respectively, as grant income, and $0 and $276,000, respectively, as a reduction of property operating expenses. As of September 30, 2020, we deferred approximately $20,735,000 of grant money received until such time as it is earned. Such deferred amounts are included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheet. As of and for the three and nine months ended September 30, 2019, we did not recognize any government grants. Tenant and Resident Receivables and Allowances On January 1, 2020, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 326, Financial Instruments Credit Losses , or ASC Topic 326. We adopted ASC Topic 326 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2020. Resident receivables are carried net of an allowance for credit losses. An allowance is maintained for estimated losses resulting from the inability of residents and payors to meet the contractual obligations under their lease or service agreements. Substantially all of such allowances are recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the residents’ financial condition, security deposits, cash collection patterns by payor and by state, current economic conditions, future expectations in estimating credit losses and other relevant factors. Tenant receivables and unbilled deferred rent receivables are reduced for uncollectible amounts, which are recognized as direct reductions of real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2020 and December 31, 2019, we had $10,527,000 and $11,435,000, respectively, in allowances, which were determined necessary to reduce receivables by our expected future credit losses. For the nine months ended September 30, 2020 and 2019, we increased allowances by $9,841,000 and $8,065,000, respectively, and reduced allowances for collections or adjustments by $5,942,000 and $1,773,000, respectively. For the nine months ended September 30, 2020 and 2019, $4,807,000 and $4,610,000, respectively, of our receivables were written off against the related allowances. Impairment of Long-Lived Assets We periodically evaluate our long-lived assets, primarily consisting of investments in real estate that we carry at our historical cost less accumulated depreciation, for impairment when events or changes in circumstances indicate that its carrying value may not be recoverable. Indicators we consider important and that we believe could trigger an impairment review include, among others, the following: • significant negative industry or economic trends; • a significant underperformance relative to historical or projected future operating results; and • a significant change in the extent or manner in which the asset is used or significant physical change in the asset. For the nine months ended September 30, 2020, we determined that one skilled nursing facility and one medical office building were impaired and recognized an aggregate impairment charge of $5,616,000, which reduced the total aggregate carrying value of such assets to $7,040,000. The fair values of such impaired properties were based on their projected sales prices obtained from an independent third party using comparable market information and adjusted for anticipated selling costs of such properties, which were considered Level 2 measurements within the fair value hierarchy. We disposed of such impaired medical office building in July 2020 for a contract sales price of $3,500,000 and recognized a net gain on sale of $15,000. We did not recognize impairment charges on long-lived assets for both the three and nine months ended September 30, 2019. Properties Held for Sale A property or a group of properties is required to be reported in discontinued operations in the statements of operations and comprehensive income (loss) for current and prior periods if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when either: (i) the component has been disposed of or (ii) is classified as held for sale. At such time as a property is held for sale, such property is carried at the lower of: (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. For the nine months ended September 30, 2020, we determined that the fair values of two integrated senior health campuses that were held for sale were lower than their carrying amounts, and as such, we recognized an aggregate impairment charge of $2,719,000, which reduced the total aggregate carrying value of such assets to $807,000. The fair values of such properties were based on their projected sales prices obtained from an independent third party using comparable market information and adjusted for anticipated selling costs of such properties, which were considered Level 2 measurements within the fair value hierarchy. In August 2020, we disposed of one such integrated senior health campus included in properties held for sale for a contract sales price of $10,000,000 and recognized a net gain on sale of $1,022,000. We did not recognize impairment charges on properties held for sale for both the three and nine months ended September 30, 2019. Debt Security Investment, Net We classify our marketable debt security investment as held-to-maturity because we have the positive intent and ability to hold the security to maturity, and we have not recorded any unrealized holding gains or losses on such investment. Our held-to-maturity security is recorded at amortized cost and adjusted for the amortization of premiums or discounts through maturity. Prior to the adoption of ASC Topic 326, a loss was recognized in earnings when we determined declines in the fair value of marketable securities were other-than-temporary. For both the three and nine months ended September 30, 2019, we did not incur any such losses. Effective January 1, 2020, we evaluated our debt security investment for expected future credit loss in accordance with ASC Topic 326. There was no net cumulative effect adjustment to retained earnings as of January 1, 2020. See Note 4, Debt Security Investment, Net, for a further discussion. Other Assets, Net Other assets, net consist of investments in unconsolidated entities, inventory, prepaid expenses and deposits, deferred financing costs related to our lines of credit and term loans, deferred rent receivables, deferred tax assets, derivative financial instruments, lease inducements and lease commissions. We report investments in unconsolidated entities using the equity method of accounting when we have the ability to exercise significant influence over the operating and financial policies. Under the equity method, our share of the investee’s earnings or losses is included in our accompanying condensed consolidated statements of operations and comprehensive income (loss). We generally discontinue recognition of equity method losses when our share of the investee’s losses equals or exceeds our equity method investment balance plus any advances for such investee, unless we have committed to provide such investee additional financial support or guaranteed its obligations. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. We have elected to follow the cumulative earnings approach when classifying distributions received from equity method investments in our condensed consolidated statements of cash flows, whereby any distributions received up to the amount of cumulative equity earnings will be considered a return on investment and classified in operating activities and any excess distributions would be considered a return of investment and classified in investing activities. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded. For the three and nine months ended September 30, 2020 and 2019, we did not incur any impairment losses from unconsolidated entities. Inventory consists primarily of pharmaceutical and medical supplies and is stated at the lower of cost (first-in, first-out) or market. Deferred financing costs related to our lines of credit and term loans include amounts paid to lenders and others to obtain such financing. Such costs are amortized using the straight-line method over the term of the related loan, which approximates the effective interest rate method. Amortization of deferred financing costs related to our lines of credit and term loans is included in interest expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Lease commissions are amortized using the straight-line method over the term of the related lease. Prepaid expenses are amortized over the related contract periods. See Note 6, Other Assets, Net, for a further discussion. Accounts Payable and Accrued Liabilities As of September 30, 2020 and December 31, 2019, accounts payable and accrued liabilities primarily includes reimbursement of payroll-related costs to the managers of our senior housing — RIDEA facilities and integrated senior health campuses of $43,555,000 and $24,118,000, respectively, insurance reserves of $33,489,000 and $35,581,000, respectively, accrued developments and capital expenditures to unaffiliated third parties of $30,500,000 and $25,019,000, respectively, accrued property taxes of $17,872,000 and $14,501,000, respectively, and accrued distributions of $0 and $9,974,000, respectively. Income Taxes We qualified, and elected to be taxed, as a REIT under the Code for federal income tax purposes beginning with our taxable year ended December 31, 2014, and we intend to continue to qualify to be taxed as a REIT. To maintain our qualification as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute to our stockholders a minimum of 90.0% of our annual taxable income, excluding net capital gains. Such distributions are required to be paid at least 20.0% in cash and 80.0% in stock. In May 2020, in response to the COVID-19 pandemic, the Internal Revenue Service, or IRS, temporarily reduced the cash distribution requirement to a minimum of 10.0%, which is applicable with respect to the aggregate distributions declared on or after April 1, 2020 until December 31, 2020. As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders. If we fail to maintain our qualification as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our net income and net cash available for distribution to our stockholders. We may be subject to certain state and local income taxes on our income, property or net worth in some jurisdictions, and in certain circumstances we may also be subject to federal excise taxes on undistributed income. In addition, certain activities that we undertake are conducted by subsidiaries, which we elected to be treated as taxable REIT subsidiaries, or TRS, to allow us to provide services that would otherwise be considered impermissible for REITs. Also, we have real estate investments in the United Kingdom, or UK, and Isle of Man, which do not accord REIT status to United States REITs under their tax laws. Accordingly, we recognize an income tax benefit or expense for the federal, state and local income taxes incurred by our TRS and foreign income taxes on our real estate investments in the UK and Isle of Man. We follow ASC Topic 740, Income Taxes, to recognize, measure, present and disclose in our accompanying condensed consolidated financial statements uncertain tax positions that we have taken or expect to take on a tax return. As of and for the three and nine months ended September 30, 2020 and 2019, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements. We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets reflect the impact of the future deductibility of operating loss carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes us to change our judgment about the realizability of the related deferred tax asset, is included in income tax benefit or expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss) when such changes occur. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes us to change our judgment about expected future tax consequences of events, is recorded in income tax benefit or expense in our accompanying condensed consolidated statements of operations and comprehensive income (loss). Deferred tax assets are included in other assets, net, and deferred tax liabilities are included in security deposits, prepaid rent and other liabilities, in our accompanying condensed consolidated balance sheets. See Note 16, Income Taxes, for a further discussion. Recently Issued Accounting Pronouncements In March 2020, the FASB issued Accounting Standards Update, or ASU, 2020-04, Facilitation of the Effects of Reference Rate Reform of Financial Reporting, or ASU 2020-04, which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria. ASU 2020-04 applies to the aforementioned transactions that reference the London Inter-bank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for fiscal years and interim periods beginning after March 12, 2020 and through December 31, 2022. We are currently evaluating this guidance to determine the impact on our disclosures. In April 2020, the FASB issued a question and answer document, or the Lease Modification Q&A, to provide guidance for the application of lease accounting modifications within ASC Topic 842, Leases , or ASC Topic 842, to lease concessions granted by lessors related to the effects of the COVID-19 pandemic. Lease accounting modification guidance in ASC Topic 842 addresses routine changes or enforceable rights and obligations to lease terms as a result of negotiations between the lessor and the lessee; however, the guidance does not take into consideration concessions granted to address sudden liquidity constraints of lessees arising from the COVID-19 pandemic. The underlying premise of ASC Topic 842 requires a modified lease to be accounted for as a new lease if the modified terms and conditions affect the economics of the lease for the remainder of the lease term. Further, a lease modification resulting from lease concessions would require the application of the modification framework pursuant to ASC Topic 842 on a lease-by-lease basis. The potential large volume of contracts to be assessed due to the COVID-19 pandemic may be burdensome and complex for entities to evaluate the lease modification accounting for each lease. Therefore, the Lease Modification Q&A allows entities to elect to account for lease concessions related to the effects of the COVID-19 pandemic as if they were granted under the enforceable rights included in the original contract and are outside of the lease modification framework pursuant to ASC Topic 842. Such election is available for lease concessions that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee (e.g., total payments required by the modified contract being substantially the same as or less than total payments required by the original contract) and is to be applied consistently to leases with similar characteristics and circumstances. As a result of the COVID-19 pandemic, we have granted lease concessions to an insignificant number of tenants within our medical office building segment, such as in the form of rent abatements with lease term extensions and rent payment deferrals requiring payment within one year. Such concessions were not material to our condensed consolidated financial statements, and as such, we elected not to apply the relief from lease modification accounting provided in the Lease Modification Q&A. We evaluate each lease concession granted as a result of the COVID-19 pandemic to determine whether the concession reflects: (i) a resolution of contractual rights in the original lease and is thus outside of the lease modification framework of ASC Topic 842; or (ii) a modification for which we would be required to apply the lease modification framework of ASC Topic 842. The application of the lease modification framework of ASC Topic 842 to lease concessions granted due to the effects of the COVID-19 pandemic did not have a material impact to our condensed consolidated financial statements. |
