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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 June 30, 2020
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)
Delaware
20-3068069
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer Identification No.)
111 Westwood Place,
Suite 400,
Brentwood,
Tennessee
37027
(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 class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share
BKD
New 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 filer
 
Accelerated filer
 
 
Non-accelerated filer
 
Smaller 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.

1




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 August 6, 2020, 183,240,758 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding restricted shares and restricted stock units).

2



TABLE OF CONTENTS
BROOKDALE SENIOR LIVING INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020
 
PAGE
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
June 30,
2020
 
December 31,
2019
Assets
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
452,441

 
$
240,227

Marketable securities
109,873

 
68,567

Restricted cash
28,397

 
26,856

Accounts receivable, net
120,503

 
133,613

Assets held for sale
37,397

 
42,671

Prepaid expenses and other current assets, net
89,416

 
84,241

Total current assets
838,027

 
596,175

Property, plant and equipment and leasehold intangibles, net
5,256,368

 
5,109,834

Operating lease right-of-use assets
1,030,505

 
1,159,738

Restricted cash
41,292

 
34,614

Investment in unconsolidated ventures
5,601

 
21,210

Goodwill
154,131

 
154,131

Other assets, net
98,619

 
118,731

Total assets
$
7,424,543

 
$
7,194,433

Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Current portion of long-term debt
$
222,572

 
$
339,413

Current portion of financing lease obligations
44,667

 
63,146

Current portion of operating lease obligations
183,300

 
193,587

Trade accounts payable
61,780

 
104,721

Accrued expenses
259,499

 
266,703

Refundable fees and deferred revenue
158,608

 
79,402

Total current liabilities
930,426

 
1,046,972

Long-term debt, less current portion
3,469,793

 
3,215,710

Financing lease obligations, less current portion
558,307

 
771,434

Operating lease obligations, less current portion
1,226,242

 
1,277,178

Line of credit
166,381

 

Deferred tax liability
144

 
15,397

Other liabilities
133,361

 
169,017

Total liabilities
6,484,654

 
6,495,708

Preferred stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2020 and December 31, 2019; no shares issued and outstanding

 

Common stock, $0.01 par value, 400,000,000 shares authorized at June 30, 2020 and December 31, 2019; 198,447,200 and 199,593,343 shares issued and 187,919,675 and 192,128,586 shares outstanding (including 4,733,385 and 7,252,459 unvested restricted shares), respectively
1,984

 
1,996

Additional paid-in-capital
4,180,436

 
4,172,099

Treasury stock, at cost; 10,527,525 and 7,464,757 shares at June 30, 2020 and December 31, 2019, respectively
(102,774
)
 
(84,651
)
Accumulated deficit
(3,142,089
)
 
(3,393,088
)
Total Brookdale Senior Living Inc. stockholders' equity
937,557

 
696,356

Noncontrolling interest
2,332

 
2,369

Total equity
939,889

 
698,725

Total liabilities and equity
$
7,424,543

 
$
7,194,433

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
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Revenue and other operating income
 
 
 
 
 
 
 
Resident fees
$
731,629

 
$
801,863

 
$
1,514,336

 
$
1,611,342

Management fees
6,076

 
15,449

 
114,791

 
31,192

Reimbursed costs incurred on behalf of managed communities
101,511

 
202,145

 
224,228

 
418,967

Other operating income
26,693

 

 
26,693

 

Total revenue and other operating income
865,909

 
1,019,457

 
1,880,048

 
2,061,501

 
 
 
 
 
 
 
 
Expense
 
 
 
 
 
 
 
Facility operating expense (excluding facility depreciation and amortization of $86,971, $86,070, $171,272, and $174,897, respectively)
606,034

 
590,246

 
1,194,516

 
1,176,340

General and administrative expense (including non-cash stock-based compensation expense of $6,119, $6,030, $12,076, and $12,386, respectively)
52,518

 
57,576

 
107,113

 
113,887

Facility operating lease expense
62,379

 
67,689

 
126,860

 
136,357

Depreciation and amortization
93,154

 
94,024

 
183,892

 
190,912

Asset impairment
10,290

 
3,769

 
88,516

 
4,160

Loss (gain) on facility lease termination and modification, net

 
1,797

 

 
2,006

Costs incurred on behalf of managed communities
101,511

 
202,145

 
224,228

 
418,967

Total operating expense
925,886

 
1,017,246

 
1,925,125

 
2,042,629

Income (loss) from operations
(59,977
)
 
2,211

 
(45,077
)
 
18,872

 
 
 
 
 
 
 
 
Interest income
2,243

 
2,813

 
3,698

 
5,897

Interest expense:
 
 
 
 
 
 
 
Debt
(38,974
)
 
(45,193
)
 
(80,737
)
 
(90,836
)
Financing lease obligations
(11,892
)
 
(16,649
)
 
(25,174
)
 
(33,392
)
Amortization of deferred financing costs and debt discount
(1,556
)
 
(986
)
 
(2,871
)
 
(1,965
)
Gain (loss) on debt modification and extinguishment, net
(157
)
 
(2,672
)
 
19,024

 
(2,739
)
Equity in earnings (loss) of unconsolidated ventures
438

 
(991
)
 
(570
)
 
(1,517
)
Gain (loss) on sale of assets, net
(1,029
)
 
2,846

 
371,810

 
2,144

Other non-operating income (loss)
988

 
3,199

 
3,650

 
6,187

Income (loss) before income taxes
(109,916
)
 
(55,422
)
 
243,753

 
(97,349
)
Benefit (provision) for income taxes
(8,504
)
 
(633
)
 
7,324

 
(1,312
)
Net income (loss)
(118,420
)
 
(56,055
)
 
251,077

 
(98,661
)
Net (income) loss attributable to noncontrolling interest
19

 
585

 
37

 
596

Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders
$
(118,401
)
 
$
(55,470
)
 
$
251,114

 
$
(98,065
)
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.65
)
 
$
(0.30
)
 
$
1.37

 
$
(0.53
)
Diluted
$
(0.65
)
 
$
(0.30
)
 
$
1.37

 
$
(0.53
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
183,178

 
186,140

 
183,682

 
186,442

Diluted
183,178

 
186,140

 
183,862

 
186,442


See accompanying notes to condensed consolidated financial statements.

5



BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Total equity, balance at beginning of period
$
1,052,230

 
$
917,597

 
$
698,725

 
$
1,018,413

 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
Balance at beginning of period
$
1,985

 
$
2,000

 
$
1,996

 
$
1,968

Issuance of common stock under Associate Stock Purchase Plan

 
1

 
1

 
2

Restricted stock, net
(1
)
 
(3
)
 
(7
)
 
32

Shares withheld for employee taxes

 

 
(6
)
 
(4
)
Balance at end of period
$
1,984

 
$
1,998

 
$
1,984

 
$
1,998

Additional paid-in-capital:
 
 
 
 
 
 
 
Balance at beginning of period
$
4,174,356

 
$
4,154,790

 
$
4,172,099

 
$
4,151,147

Compensation expense related to restricted stock grants
6,119

 
6,030

 
12,076

 
12,386

Issuance of common stock under Associate Stock Purchase Plan

 
299

 
168

 
597

Restricted stock, net
1

 
3

 
7

 
(32
)
Shares withheld for employee taxes
(59
)
 
(108
)
 
(3,951
)
 
(3,101
)
Other, net
19

 
31

 
37

 
48

Balance at end of period
$
4,180,436

 
$
4,161,045

 
$
4,180,436

 
$
4,161,045

Treasury stock:
 
 
 
 
 
 
 
Balance at beginning of period
$
(102,774
)
 
$
(70,940
)
 
$
(84,651
)
 
$
(64,940
)
Purchase of treasury stock

 
(8,157
)
 
(18,123
)
 
(14,157
)
Balance at end of period
$
(102,774
)
 
$
(79,097
)
 
$
(102,774
)
 
$
(79,097
)
Accumulated deficit:
 
 
 
 
 
 
 
Balance at beginning of period
$
(3,023,688
)
 
$
(3,167,752
)
 
$
(3,393,088
)
 
$
(3,069,272
)
Cumulative effect of change in accounting principle (Note 2)

 

 
(115
)
 
(55,885
)
Net income (loss)
(118,401
)
 
(55,470
)
 
251,114

 
(98,065
)
Balance at end of period
$
(3,142,089
)
 
$
(3,223,222
)
 
$
(3,142,089
)
 
$
(3,223,222
)
Noncontrolling interest:
 
 
 
 
 
 
 
Balance at beginning of period
$
2,351

 
$
(501
)
 
$
2,369

 
$
(490
)
Net income (loss) attributable to noncontrolling interest
(19
)
 
(585
)
 
(37
)
 
(596
)
Noncontrolling interest contribution

 
6,566

 

 
6,566

Balance at end of period
$
2,332

 
$
5,480

 
$
2,332

 
$
5,480

Total equity, balance at end of period
$
939,889

 
$
866,204

 
$
939,889

 
$
866,204

 
 
 
 
 
 
 
 
Common stock share activity
 
 
 
 
 
 
 
Outstanding shares of common stock:
 
 
 
 
 
 
 
Balance at beginning of period
188,012

 
194,573

 
192,129

 
192,356

Issuance of common stock under Associate Stock Purchase Plan

 
46

 
61

 
96

Restricted stock grants, net
(75
)
 
(214
)
 
(579
)
 
3,320

Shares withheld for employee taxes
(17
)
 
(16
)
 
(628
)
 
(450
)
Purchase of treasury stock

 
(1,278
)
 
(3,063
)
 
(2,211
)
Balance at end of period
187,920

 
193,111

 
187,920

 
193,111


See accompanying notes to condensed consolidated financial statements.

6



BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Six Months Ended June 30,
 
2020
 
2019
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
251,077

 
$
(98,661
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Loss (gain) on debt modification and extinguishment, net
(19,024
)
 
2,739

Depreciation and amortization, net
186,763

 
192,877

Asset impairment
88,516

 
4,160

Equity in (earnings) loss of unconsolidated ventures
570

 
1,517

Distributions from unconsolidated ventures from cumulative share of net earnings

 
1,530

Amortization of entrance fees
(925
)
 
(772
)
Proceeds from deferred entrance fee revenue
85

 
1,739

Deferred income tax (benefit) provision
(15,253
)
 
470

Operating lease expense adjustment
(14,954
)
 
(8,812
)
Loss (gain) on sale of assets, net
(371,810
)
 
(2,144
)
Loss (gain) on facility lease termination and modification, net

 
2,006

Non-cash stock-based compensation expense
12,076

 
12,386

Non-cash management contract termination gain

 
(640
)
Other
(1,800
)
 
(4,401
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
12,995

 
(3,997
)
Prepaid expenses and other assets, net
20,162

 
30,823

Prepaid insurance premiums financed with notes payable
(11,664
)
 
(12,090
)
Trade accounts payable and accrued expenses
(18,692
)
 
(43,385
)
Refundable fees and deferred revenue
80,688

 
(17,226
)
Operating lease assets and liabilities for lessor capital expenditure reimbursements
10,509

 
1,000

Net cash provided by (used in) operating activities
209,319

 
59,119

Cash Flows from Investing Activities
 
 
 
Change in lease security deposits and lease acquisition deposits, net
3,304

 
(83
)
Purchase of marketable securities
(149,236
)
 
(98,059
)
Sale and maturities of marketable securities
108,750

 
55,000

Capital expenditures, net of related payables
(112,863
)
 
(122,297
)
Acquisition of assets, net of related payables and cash received
(446,688
)
 

Investment in unconsolidated ventures
(356
)
 
(4,204
)
Distributions received from unconsolidated ventures

 
5,305

Proceeds from sale of assets, net
300,539

 
52,430

Proceeds from notes receivable
1,140

 
31,609

Net cash provided by (used in) investing activities
(295,410
)
 
(80,299
)
Cash Flows from Financing Activities
 
 
 
Proceeds from debt
473,460

 
158,231

Repayment of debt and financing lease obligations
(303,920
)
 
(238,036
)
Proceeds from line of credit
166,381

 

Purchase of treasury stock, net of related payables
(18,123
)
 
(18,401
)
Payment of financing costs, net of related payables
(7,469
)
 
(3,342
)
Payments of employee taxes for withheld shares
(3,951
)
 
(3,105
)
Other
146

 
574

Net cash provided by (used in) financing activities
306,524

 
(104,079
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
220,433

 
(125,259
)
Cash, cash equivalents, and restricted cash at beginning of period
301,697

 
450,218

Cash, cash equivalents, and restricted cash at end of period
$
522,130

 
$
324,959


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.

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, 2019 filed with the SEC on February 19, 2020. Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's condensed consolidated financial position or results of operations.

Except for the changes for the impact of the recently adopted accounting pronouncements discussed in this Note, the Company has consistently applied its accounting policies to all periods presented in these condensed consolidated financial statements.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Investments in affiliated companies that the Company does not control, but has the ability to exercise significant influence over governance and operations, are accounted for by the equity method. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying condensed consolidated financial statements. Noncontrolling interest represents the share of consolidated entities owned by third parties. Noncontrolling interest is adjusted for the noncontrolling holder's share of additional contributions, distributions, and the proportionate share of the net income or loss of each respective entity.

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 and 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 estimated utilizing the index

8



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 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 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 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 continues to recognize the assets within property, plant and equipment and leasehold intangibles, net and continues to depreciate the asset over its useful life. 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.

Gain (Loss) on Sale of Assets

The Company regularly enters into real estate transactions which may include the disposition of certain communities, including the associated real estate. The Company recognizes gain or loss from real estate sales when the transfer of control is complete.


9



The Company recognizes gain or loss from the sale of equity method investments when the transfer of control is complete and the Company has no continuing involvement with the transferred financial assets.

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.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted this standard effective January 1, 2020 and recognized the cumulative effect of the adoption as an immaterial adjustment to beginning accumulated deficit as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which amends the former accounting principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. The Company adopted these lease accounting standards effective January 1, 2019 and recognized the cumulative effect of the adoption as a $55.9 million adjustment to beginning accumulated deficit as of January 1, 2019. See Footnote 2, Summary of Significant Accounting Policies, in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for more details regarding the adoption of this accounting pronouncement.

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 nation’s economy, the senior living industry, and the Company’s business. Although a significant portion of the Company’s corporate support associates began working from home in March 2020, the Company continues to serve and care for seniors through the pandemic. 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.

Due to the pandemic, in March 2020 the Company began restricting visitors at all its communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing 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

10



requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. Upon confirmation of positive COVID-19 exposure at a community, the Company follows government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents. These restrictions were in place across the Company’s portfolio for the three months ended June 30, 2020.

The pandemic and response efforts of senior living communities have significantly disrupted demand for senior living communities and the sales process. The Company cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees the Company is able to collect from its residents.

The pandemic and the Company’s response efforts began to adversely impact the Company’s occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. Further deterioration of the Company's resident fee revenue will result from lower move-in activity and the resident attrition inherent in its business, which may increase due to the impacts of COVID-19. The Company’s home health average daily census also began to decrease in March 2020 due to lower occupancy in its communities and fewer elective medical procedures and hospital discharges.

Facility operating expense for the three and six months ended June 30, 2020 includes $60.6 million and $70.6 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation costs, increased labor expense, increased workers compensation and health plan expense, increased insurance premiums and retentions, consulting and professional services costs, and costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. The Company is not able to reasonably predict the total amount of costs it will incur related to the pandemic, and such costs are likely to be substantial. As described further in Note 6, the Company also recorded non-cash impairment charges in its operating results of $10.3 million and $87.0 million for the three and six months ended June 30, 2020, respectively, for its operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities for which assets were impaired.

The Company has taken, and continues to take, actions to enhance and preserve its liquidity in response to the pandemic. The Company drew $166.4 million on its revolving credit facility in March 2020, and suspended repurchases under the Company’s existing share repurchase program. During the three months ended June 30, 2020, the Company accepted $33.5 million of cash for grants under the Public Health and Social Services Emergency Fund (the “Emergency Fund”) and $85.0 million of accelerated/advanced Medicare payments, and the Company deferred $26.5 million of the employer portion of social security payroll taxes. Each of these programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below. The Company also has delayed or canceled a number of elective capital expenditure projects resulting in an approximate $50 million reduction to its pre-pandemic full-year 2020 capital expenditure plans. On July 26, 2020, the Company entered into definitive agreements with Ventas, Inc. ("Ventas") to restructure its 120 community triple-net master lease arrangements as further described in Note 17. Pursuant to the multi-part transaction, among other things, the Company paid a $119.2 million one-time cash payment to Ventas, reduced its initial annual minimum rent under the amended and restated master lease to $100 million effective July 1, 2020, and removed the prior requirements that the Company satisfy financial covenants and that the Company maintain a security deposit with Ventas. The annual minimum rent under the amended and restated master lease reflects a reduction of approximately $86 million over the next twelve months.

As of June 30, 2020, the Company’s total liquidity was $600.2 million, consisting of $452.4 million of unrestricted cash and cash equivalents, $109.9 million of marketable securities, and $37.9 million of additional availability on its revolving credit facility. As of June 30, 2020, $166.4 million of borrowings were outstanding on the revolving credit facility. The Company continues to seek opportunities to enhance and preserve its liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate its financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic.

During March 2020, the Company completed its financing plans in the regular course of business, including closing three non-recourse mortgage debt financing transactions totaling $208.5 million with the proceeds used to refinance the majority of the Company’s 2020 maturities and to partially fund the Company’s acquisitions of 26 communities completed during the three months ended March 31, 2020. As of June 30, 2020, the Company’s remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million and $254.1 million, respectively, which are primarily non-recourse mortgage debt maturities.


11



As described further in Note 10, availability under the Company’s revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the Company's consolidated fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, the Company would be required to repay the difference to restore the outstanding balance to the new borrowing base. Due primarily to the impacts of the COVID-19 pandemic, and based upon the Company’s current estimate of cash flows, the Company has determined that it is probable that it will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on the Company’s part. Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and the Company being required to repay the $166.4 million of borrowings outstanding on the revolving credit facility.

Based upon the Company’s current liquidity and estimated cash flows, the Company has estimated that it would be unable to repay a portion of the 2021 maturities and the borrowings outstanding on the revolving credit facility as they become due without refinancing these maturities or obtaining additional financing proceeds. The Company has continued efforts on its plan to refinance the assets currently securing the credit facility and to refinance the substantial majority of the remaining 2020 and 2021 maturities with non-recourse mortgage debt. The Company currently anticipates that it is probable that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on its revolving credit facility and terminate the facility without payment of a premium or penalty and to pay the Company’s contractual obligations as they come due over the next twelve months. However, there is no assurance that debt financing will continue to be available on terms consistent with the Company’s expectations or at all, in which case the Company would expect to take other mitigating actions prior to the maturity dates.
 
In response to the pandemic, on March 27, 2020, the President signed the CARES Act into law, which was amended and expanded by the Paycheck Protection Program and Health Care Enhancement Act signed into law on April 24, 2020. The legislation provides liquidity and financial relief to certain businesses, among other things. The impacts to the Company of certain provisions of the CARES Act are summarized below.

During the three months ended June 30, 2020, the Company accepted $33.5 million of cash for grants from the Emergency Fund, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. Approximately $28.8 million of the grants were made available pursuant to the Emergency Fund's general distribution, with grant amounts based primarily on the Company's relative share of aggregate 2019 Medicare fee-for-service reimbursements and generally related to home health, hospice, outpatient therapy, and skilled nursing care provided through the Company's Health Care Services and CCRCs segments. Approximately $4.7 million of the grants were made available pursuant to the Emergency Fund's targeted allocation for certified skilled nursing facilities, with amounts determined using a per-facility and per-bed model. During July 2020, the Company applied for additional grants pursuant to the Emergency Fund's Medicaid and CHIP allocation. The amount of such grants are expected to be based on 2% of a portion of the Company's 2018 gross revenues from patient care.

The grants are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19. During the three months ended June 30, 2020, the Company recognized $26.4 million of the grants as other operating income based upon the Company’s estimates of its satisfaction of the conditions of the grants during such period. As of June 30, 2020, $7.1 million of unrecognized grants were included in refundable fees and deferred revenue within the Company's condensed consolidated balance sheets. The $33.5 million of grants accepted from the Emergency Fund during the six months ended June 30, 2020 has been presented within net cash provided by (used in) operating activities within the Company’s condensed consolidated statement of cash flows.

During three months ended June 30, 2020, the Company received $85.0 million under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act. Under the program, the Company requested acceleration/advancement of 100% of its Medicare payment amount for a three-month period. Recoupment of accelerated/advanced payments are required to begin 120 days after their issuance through offsets of new Medicare claims, and all accelerated/advanced payments are due 210 days following their issuance. Such amount has been presented within net cash provided by operating activities within the Company’s condensed consolidated statement of cash flows.

Under the CARES Act, the Company has elected to defer payment of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. As of June 30, 2020, the Company has deferred payment of $26.5 million of payroll taxes and presented such amount within other liabilities within the Company's condensed consolidated balance sheets.


12



The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefits the Company’s Health Care Services segment.

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 the Company’s 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 and availability 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, 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, and other expenses; the impact of COVID-19 on the Company’s ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in the Company’s debt and lease documents; increased regulatory requirements, including unfunded, mandatory testing; increased enforcement actions resulting from COVID-19, including those that may limit the Company’s collection 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.  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 and restricted stock units.

The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the condensed consolidated statements of operations:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
Income attributable to common shareholders:
 
 
 
 
 
 
 
Net income (loss)
$
(118,401
)
 
$
(55,470
)
 
$
251,114

 
$
(98,065
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
183,178

 
186,140

 
183,682

 
186,442

Effect of dilutive securities - Unvested restricted stock and restricted stock units

 

 
180

 

Weighted average shares outstanding - diluted
183,178

 
186,140

 
183,862

 
186,442

 
 
 
 
 
 
 
 
Basic earnings (loss) per common share:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders
$
(0.65
)
 
$
(0.30
)
 
$
1.37

 
$
(0.53
)
 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders
$
(0.65
)
 
$
(0.30
)
 
$
1.37

 
$
(0.53
)


For the three months ended June 30, 2020, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock and restricted stock units were antidilutive for the period and were not included in the computation of diluted weighted average shares. The weighted average restricted stock and restricted stock units excluded from the calculation of diluted net loss per share was 9.1 million for the three months ended June 30, 2020. For the six months ended June 30, 2020, the calculation

13



of diluted weighted average shares excludes 7.1 million of non-performance-based restricted stock and restricted stock units, as the inclusion of such award would have been antidilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date. For the six months ended June 30, 2020, the calculation of diluted weighted average shares excludes 1.8 million of performance-based restricted stock and restricted stock units. During the three and six months ended June 30, 2019, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock and restricted stock units were antidilutive for the periods and were not included in the computation of diluted weighted average shares. The weighted average restricted stock and restricted stock units excluded from the calculation of diluted net loss per share was 7.8 million and 7.5 million for the three and six months ended June 30, 2019, respectively.

5.  Acquisitions, Dispositions and Other Transactions

During the period from January 1, 2019 through June 30, 2020, the Company acquired 26 communities that the Company formerly leased, disposed of 15 owned communities, 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 12 communities were terminated. The acquisitions of formerly leased communities include the 18 communities acquired from Healthpeak described below and eight communities acquired pursuant to the exercise of a purchase option for a purchase price of $39.3 million, all of which occurred during the three months ended March 31, 2020.

As of June 30, 2020, the Company owned 355 communities, leased 305 communities, managed 77 communities, and two unencumbered communities in the CCRCs segment were classified as held for sale, resulting in $37.4 million being recorded as assets held for sale. 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. However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Dispositions of Owned Communities

During the six months ended June 30, 2020, the Company completed the sale of one owned community for cash proceeds of $5.5 million, net of transaction costs, and recognized a net gain on sale of assets of $0.2 million.

During the year ended December 31, 2019, the Company completed the sale of 14 owned communities for cash proceeds of $85.4 million, net of transaction costs, and recognized a net gain on sale of assets of $5.5 million. The Company utilized a portion of the cash proceeds from the asset sales to repay approximately $5.1 million of associated mortgage debt and debt prepayment penalties. These dispositions included the sale of eight communities during the six months ended June 30, 2019 for which the Company received cash proceeds of $44.1 million, net of transaction costs.

Healthpeak CCRC Venture and Master Lease Transactions

On October 1, 2019, the Company entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak. The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of the Company's interest in the CCRC Venture (rather than removing the community from the CCRC Venture for joint marketing and sale). The components of the multi-part transaction include:

CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired the Company's 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs, for a purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). The $289.2 million of cash received from Healthpeak is presented within net cash used in investing activities for the six months ended June 30, 2020. The Company recognized a $369.8 million gain on sale of assets for the six months ended June 30, 2020, and the Company derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the Company's existing management agreements with the 14 entry fee CCRCs, Healthpeak paid the Company a $100.0 million management agreement termination fee, and the Company transitioned operations of the entry fee CCRCs to a new operator. The Company recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities expected to occur in 2021. Subsequent to these transactions, the Company will have exited substantially all of its entry fee CCRC operations.


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Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated the existing master lease pursuant to which the Company continues to lease 25 communities from Healthpeak, and the Company acquired 18 formerly leased communities from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, the Company paid $405.5 million to acquire such communities and to reduce its annual rent under the amended and restated master lease. The $405.5 million of cash paid to Healthpeak and $1.7 million of direct acquisition costs are presented within net cash used in investing activities for the six months ended June 30, 2020. The Company funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak has agreed to terminate the lease for one leased community. With respect to the continuing 24 communities, the Company's amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two extension options at the Company's election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak has agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition transaction, the Company recognized a $19.7 million gain on debt extinguishment and derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were previously subject to sale-leaseback transactions in which the Company was deemed to have continuing involvement.

6.  Fair Value Measurements

Marketable Securities

As of June 30, 2020, marketable securities of $109.9 million are stated at fair value based on valuation provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

Debt

The Company had outstanding long-term debt obligations, including $166.4 million of borrowings outstanding on the revolving credit facility as of June 30, 2020, with a carrying value of $3.9 billion and $3.6 billion as of June 30, 2020 and December 31, 2019, respectively. Fair value of the long-term debt approximates carrying value in all periods presented. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.

Asset Impairment Expense

The following is a summary of asset impairment expense.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in millions)
2020
 
2019
 
2020
 
2019
Property, plant and equipment and leasehold intangibles, net
$
3.7

 
$
1.2

 
$
14.7

 
$
1.2

Operating lease right-of-use assets
6.6

 

 
72.3

 

Investment in unconsolidated ventures

 

 
1.5

 

Other intangible assets, net

 
2.6

 

 
2.6

Other assets, net

 

 

 
0.4

Asset impairment
$
10.3

 
$
3.8

 
$
88.5

 
$
4.2



Although the Company cannot predict with reasonable certainty the ultimate impacts of the COVID-19 pandemic, the Company concluded that the impacts of the pandemic have adversely affected the Company’s projections of revenue, expense, and cash flow for its senior housing community long-lived assets and constitute an indicator of potential impairment. Accordingly, the Company assessed its long-lived assets for recoverability. Refer to Note 3 for additional information on the COVID-19 pandemic.

In estimating the recoverability of asset groups for purposes of the Company’s long-lived asset impairment testing during the six months ended June 30, 2020, the Company utilized future cash flow projections that are generally developed internally. Any estimates of future cash flow projections necessarily involve predicting unknown future circumstances and events and require significant management judgments and estimates. In arriving at the cash flow projections, the Company considers its estimates of the impacts of the pandemic, historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset holding periods, and other factors.


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As of March 31, 2020 and June 30, 2020, there was a wide range of possible outcomes as a result of the pandemic, as there was a high degree of uncertainty about its ultimate impacts. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as further described in Note 3. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

Operating Lease Right-of-Use Assets

As a result of the COVID-19 pandemic during the six months ended June 30, 2020, the Company evaluated operating lease right-of-use assets for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their carrying amount for these identified communities and recorded an impairment charge for the excess of carrying amount over fair value. The Company recognized the right-of-use assets for the operating leases for 35 communities on the condensed consolidated balance sheets as of March 31, 2020 at the estimated fair value of $106.7 million. Additionally, during the three months ended June 30, 2020, the Company recognized the right-of-use assets for the operating leases for nine communities on the condensed consolidated balance sheets at the estimated fair value of $10.3 million. As a result, the Company recorded non-cash impairment charges for the operating lease right-of-use assets of $6.6 million and $72.3 million for the three and six months ended June 30, 2020, respectively.

The fair values of the operating lease right-of-use assets of these communities were estimated utilizing a discounted cash flow approach based upon historical and projected community cash flows and market data, including management fees and a market supported lease coverage ratio, all of which are considered Level 3 inputs within the valuation hierarchy. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The range of discount rates utilized was 11.2% to 12.3%, depending upon the property type, geographical location, and the quality of the respective community. These impairment charges are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

Property, Plant and Equipment and Leasehold Intangibles, Net

During the six months ended June 30, 2020, the Company evaluated property, plant and equipment and leasehold intangibles for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their carrying amount for these identified communities and recorded an impairment charge for the excess of carrying amount over fair value. The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $3.7 million and $14.7 million for the three and six months ended June 30, 2020, respectively. The fair values of the property, plant and equipment of these communities were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market capitalization rates. These fair value measurements are considered Level 3 measurements within the valuation hierarchy. These impairment charges are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

7.  Stock-Based Compensation

Grants of restricted stock units and stock awards under the Company's 2014 Omnibus Incentive Plan were as follows:
(in thousands, except for per share and unit amounts)
Restricted Stock Units and Stock Awards Granted
 
Weighted Average Grant Date Fair Value
 
Total Grant Date Fair Value
Three months ended March 31, 2020
4,438

 
$
7.06

 
$
31,341

Three months ended June 30, 2020
78

 
$
3.91

 
$
303



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 June 30, 2020 and December 31, 2019.


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During the six months ended June 30, 2020, the Company identified indicators of impairment of goodwill, including the COVID-19 pandemic and a significant decline in the Company's stock price and market capitalization for a sustained period. Refer to Note 3 for additional information on the COVID-19 pandemic.

As a result of the COVID-19 pandemic, the Company performed an interim quantitative goodwill impairment test as of March 31, 2020. The Company’s quantitative goodwill impairment test as of March 31, 2020 included reduced estimates of projected future cash flows as a result of changes to significant assumptions using information known or knowable about the COVID-19 pandemic, including current industry and economic trends, changes in business plans, and changes in expected revenue and facility operating expense growth rates. Additionally, the Company considered the additional risk within the future cash flow estimates when selecting risk-adjusted discount rates. The Company determined no impairment of goodwill was necessary for the six months ended June 30, 2020.

Determining the fair value of the Company’s reporting units involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, changes in reimbursement rates from Medicare for healthcare services, and changes in healthcare reform. Significant adverse changes in the Company’s future revenues and/or operating margins, significant changes in the market for senior housing or the valuation of the real estate of senior living communities, as well as other events and circumstances, including but not limited to increased competition, changes in reimbursement rates from Medicare for healthcare services, and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that goodwill is impaired.

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

As of June 30, 2020 and December 31, 2019, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:
(in thousands)
June 30, 2020
 
December 31, 2019
Land
$
507,336

 
$
450,894

Buildings and improvements
5,257,530

 
4,790,769

Furniture and equipment
935,755

 
859,849

Resident and leasehold operating intangibles
316,704

 
317,111

Construction in progress
60,653

 
80,729

Assets under financing leases and leasehold improvements
1,548,305

 
1,847,493

Property, plant and equipment and leasehold intangibles
8,626,283

 
8,346,845

Accumulated depreciation and amortization
(3,369,915
)
 
(3,237,011
)
Property, plant and equipment and leasehold intangibles, net
$
5,256,368

 
$
5,109,834



Assets under financing leases and leasehold improvements includes $0.4 billion and $0.6 billion of financing lease right-of-use assets, net of accumulated amortization, as of June 30, 2020 and December 31, 2019, respectively. Refer to Note 11 for further information on the Company's financing leases.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $93.2 million for both the three months ended June 30, 2020 and 2019, and $183.9 million and $189.3 million for the six months ended June 30, 2020 and 2019, respectively.

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. Refer to Note 6 for additional information on impairment expense for property, plant and equipment and leasehold intangibles.


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10.  Debt

Long-term debt as of June 30, 2020 and December 31, 2019 consists of the following:
(in thousands)
June 30, 2020
 
December 31, 2019
Mortgage notes payable due 2020 through 2047; weighted average interest rate of 4.08% for the six months ended June 30, 2020, less debt discount and deferred financing costs of $21.8 million and $17.0 million as of June 30, 2020 and December 31, 2019, respectively (weighted average interest rate of 4.72% in 2019)
$
3,681,795

 
$
3,496,735

Other notes payable, weighted average interest rate of 4.56% for the six months ended June 30, 2020 (weighted average interest rate of 5.77% in 2019) and maturity dates ranging from 2020 to 2021
10,570

 
58,388

Total long-term debt
3,692,365

 
3,555,123

Current portion
222,572

 
339,413

Total long-term debt, less current portion
$
3,469,793

 
$
3,215,710



The $166.4 million of borrowings outstanding on the revolving credit facility as of June 30, 2020 are excluded from the table above and are further described below.

Credit Facilities

The Company's Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender and swingline lender and the other lenders from time to time parties thereto (the "Credit Agreement"), provides commitments for a $250 million revolving credit facility with a $60 million sublimit for letters of credit and a $50 million swingline feature. The Company has a one-time right under the Credit Agreement to increase commitments on the revolving credit facility by an additional $100 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The Credit Agreement provides the Company a one-time right to reduce the amount of the revolving credit commitments, and the Company may terminate the revolving credit facility at any time, in each case without payment of a premium or penalty. The Credit Agreement matures on January 3, 2024. Amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.25% margin at utilization equal to or lower than 35%, a 2.75% margin at utilization greater than 35% but less than or equal to 50%, and a 3.25% margin at utilization greater than