Concentration of Credit Risk

12 Months Ended

Dec. 31, 2021

NOTE 3 – CONCENTRATION OF CREDIT RISK

As of December 31, 2021, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred managed or operated approximately 19.8%, 10.0%, 7.8%, 4.7% and 1.0%, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of December 31, 2021). Because Atria and Sunrise manage our properties in exchange for a management fee from us, we are not directly exposed to their credit risk in the same manner or to the same extent as triple-net tenants like Brookdale Senior Living, Ardent and Kindred.

Based on gross book value, approximately 13.0% and 54.4% of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and senior living operations reportable business segments, respectively (excluding properties classified as held for sale as of December 31, 2021). MOBs, life science, research and innovation centers, IRFs and LTACs, health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining 32.6%. Our consolidated properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of December 31, 2021, with properties in one state (California) accounting for more than 10% of our total consolidated revenues and net operating income (“NOI,” which is defined as total revenues, excluding interest and other income, less property-level operating expenses and office building and other services costs) for each of the years ended December 31, 2021, 2020 and 2019.

Triple-Net Leased Properties

The following table reflects the concentration risk related to our triple-net leased properties including assets held for sale for the periods presented:


	For the Years Ended December 31,
	2021		2020		2019
Revenues (1):
Brookdale Senior Living (2)	3.9	%	4.4	%	4.7	%
Ardent	3.3		3.2		3.1
Kindred	3.8		3.5		3.3
NOI:
Brookdale Senior Living (2)	8.6	%	9.0	%	8.7	%
Ardent	7.4		6.6		5.8
Kindred	7.8		7.1		6.3

(1)Total revenues include office building and other services revenue, income from loans and investments and interest and other income.

(2)2021 and 2020 results include $42.6 million and $21.3 million, respectively, of amortization of up-front consideration received in 2020 from the Brookdale Lease.

Each of our leases with Brookdale Senior Living, Ardent and Kindred is a triple-net lease that obligates the tenant to pay all property-related expenses, including maintenance, utilities, repairs, taxes, insurance and capital expenditures, and to

comply with the terms of the mortgage financing documents, if any, affecting the properties. In addition, each of our Brookdale Senior Living, Ardent and Kindred leases has a corporate guaranty.

The properties we lease to Brookdale Senior Living, Ardent and Kindred accounted for a significant portion of our triple-net leased properties segment revenues and NOI for the years ended December 31, 2021, 2020 and 2019. Refer to Item 1A. Risk Factors.

Eclipse Senior Living and Operator Transitions

We successfully transitioned the operations of 90 senior living communities owned by us and operated under management agreements with Eclipse Senior Living, Inc. (“ESL”) to seven experienced managers by the start of January 2022. ESL is expected to cease operation of its management business in 2022 following completion of the transitions. We incurred certain one-time transition costs and expenses in connection with the transitions, which was recognized within transaction expenses and deal costs in our Consolidated Statements of Income.

Kindred and Related Transactions

In June 2021, Kindred and LifePoint Health announced that they entered into a definitive agreement pursuant to which Kindred would be acquired (the “Kindred Acquisition”). This transaction closed in December 2021. In connection with the Kindred Transaction, Kindred began operating under a new healthcare system called ScionHealth. Under our agreements with Kindred, we earned a fee of $13.1 million in connection with this transaction, which was recognized within interest and other income in our Consolidated Statements of Income.

Brookdale Transactions

In July 2020, we entered into a revised master lease agreement (the “Brookdale Lease”) and certain other agreements (together with the Brookdale Lease, the “Agreements”) with Brookdale Senior Living. The Agreements modify our current arrangements with Brookdale Senior Living as follows:

We received up-front consideration of $235 million, which is being amortized over the remaining lease term and consisted of: (a) $162 million in cash including $47 million from the transfer to Ventas of deposits under the Brookdale Lease; (b) a $45 million note; (c) $28 million in warrants exercisable for 16.3 million shares of Brookdale Senior Living common stock, which are exercisable at any time prior to December 31, 2025 and have an exercise price of $3.00 per share. In October 2021, we received full repayment of the note from Brookdale.

Base cash rent under the Brookdale Lease is set at $100 million per annum starting in July 2020, with three percent annual escalators commencing on January 1, 2022. The Brookdale Lease is guaranteed by Brookdale Senior Living.

The warrants are classified within other assets on our Consolidated Balance Sheets. These warrants are measured at fair value with changes in fair value being recognized within other expense in our Consolidated Statements of Income.

Also in July 2020, Brookdale Senior Living transferred fee ownership of five senior living communities to us, in full satisfaction and repayment of a $78 million loan to Brookdale Senior Living from us that was secured by the five communities. Brookdale Senior Living manages those communities for us under a terminable management agreement.

Holiday Transaction

In April 2020, we completed a transaction with affiliates of Holiday Retirement (collectively, “Holiday”), including (a) entry into a new, terminable management agreement with Holiday Management Company for our 26 independent living assets previously subject to a triple-net lease (the “Holiday Lease”) with Holiday; (b) termination of the Holiday Lease; and (c) our receipt from Holiday of $33.8 million in cash from the transfer to us of deposits under the Holiday Lease and $66.0 million in principal amount of secured notes. As a result of the Holiday Lease termination, we recognized $50.2 million within triple-net leased rental income, composed of $99.8 million of cash and notes received less $49.6 million from the write-off of accumulated straight-line receivable.

Future Contractual Rents

The following table sets forth the future contracted minimum rentals, excluding contingent rent escalations, but including straight-line rent adjustments where applicable, for all of our consolidated triple-net and office building leases as of December 31, 2021 (excluding properties classified as held for sale as of December 31, 2021, dollars in thousands):


	Brookdale Senior Living		Ardent		Kindred		Other		Total
2022	$	147,951	$	130,834	$	135,262	$	700,544	$	1,114,591
2023	147,693		130,834		114,356		648,401		1,041,284
2024	147,709		130,834		104,083		597,681		980,307
2025	147,725		130,834		36,015		514,305		828,879
2026	—		130,370		1,921		439,705		571,996
Thereafter	—		1,122,180		2,444		1,592,355		2,716,979
Total	$	591,078	$	1,775,886	$	394,081	$	4,492,991	$	7,254,036

Senior Living Operations

As of December 31, 2021, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 256 of our 545 consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.

On July 30, 2021, Atria, which at the time managed a pool of 165 communities for Ventas, acquired the management services division of Holiday Retirement, which at the time managed a pool of 26 communities for Ventas. Following such transaction, Atria and Holiday each continued to manage their respective pools of communities under their own distinct management contracts with Ventas. On September 21, 2021, Ventas consummated the acquisition of New Senior Investment Group, Inc., whose portfolio included 21 Atria-managed communities and 65 Holiday-managed communities. As of December 31, 2021, Atria managed a pool of 162 communities and Holiday managed a pool of 91 communities for Ventas under their own distinct management contracts. Ventas has the ongoing right to terminate the management contract for 91 of the Holiday-managed communities with short term notice. As disclosed and presented herein, (a) references to communities managed by Atria means all communities subject to our management contracts with Atria, including the Atria-managed New Senior communities, but excluding the Holiday-managed communities; and (b) references to communities managed by Holiday means all communities subject to our management contracts with Holiday, including the Holiday-managed New Senior communities, but excluding the Atria-managed communities.

We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior living operations efficiently and effectively. We also rely on our managers to set appropriate resident fees, provide accurate property-level financial results in a timely manner and otherwise operate our senior housing communities in compliance with the terms of our management agreements and all applicable laws and regulations.