CONCENTRATION OF CREDIT RISK

9 Months Ended

Sep. 30, 2022

NOTE 3—CONCENTRATION OF CREDIT RISK

As of September 30, 2022, Atria, Sunrise, Brookdale Senior Living, Ardent and Kindred managed or operated approximately 26.7%, 9.8%, 7.8%, 5.3% and 0.8%, respectively, of our consolidated real estate investments based on gross book value (excluding properties classified as held for sale as of September 30, 2022). 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 12.6% and 53.8% of our consolidated real estate investments were senior housing communities included in the triple-net leased properties and SHOP reportable business segments, respectively (excluding properties classified as held for sale as of September 30, 2022). MOBs, life science, research and innovation centers, inpatient rehabilitation facilities (“IRFs”) and long-term acute care facilities (“LTACs”), health systems, skilled nursing facilities (“SNFs”) and secured loans receivable and investments collectively comprised the remaining 33.6%. Our consolidated properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of September 30, 2022, with properties in one state (California) accounting for more than 10% of our total consolidated revenues and net operating income (“NOI”) for the three months then ended. NOI is defined as total revenues, less interest and other income, property-level operating expenses and office building and other services costs. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.

Triple-Net Leased Properties

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. 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 Three Months Ended September 30,
	2022		2021
Revenues (1):
Brookdale Senior Living	3.6	%	3.8	%
Ardent	3.1		3.3
Kindred	3.3		3.4
NOI (2):
Brookdale Senior Living	8.0	%	8.2	%
Ardent	7.0		7.1
Kindred	7.4		7.4

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

(2)See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosure and a reconciliation of net income attributable to common stockholders, as computed in accordance with GAAP, to NOI.

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.

In December 2021, Kindred Healthcare, LLC was acquired and began operating under a new healthcare system called ScionHealth. As of September 30, 2022, we leased 29 LTACs to Kindred pursuant to a master lease agreement. Pursuant to the master lease, the 29 LTACs are divided into two renewal groups. The first renewal group is composed of 6 LTACs (“Group 1”) and the second renewal group is composed of 23 LTACs (“Group 2”). In the second quarter of 2022, we and Kindred amended the master lease to, among other things, extend the lease term of Group 1 through April 30, 2028. The lease term for Group 2 ends on April 30, 2025. Although Kindred has the right to renew each of Group 1 and Group 2 for additional lease terms, we cannot assure you that Kindred will exercise any renewal options for either pool, or if the lease term is renewed, amended or extended, the terms thereof.

Senior Housing Operating Portfolio

As of September 30, 2022, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 347 of our 549 consolidated senior housing communities, for which we pay annual management fees pursuant to long-term management agreements.

On July 30, 2021, Atria acquired the management services division of Holiday, which at the time managed a pool of 26 communities for Ventas. As of September 30, 2022, Atria and its subsidiaries, including Holiday, managed a pool of 255 senior housing communities for Ventas. Ventas has the ongoing right to terminate the management contract for 91 of the communities with short term notice.

As of September 30, 2022, Sunrise managed a pool of 96 senior housing communities for Ventas. Subsequent to March 31, 2022, Ventas and Sunrise Senior Living entered into a revised management agreement for 92 communities with a term expiring May 31, 2035. Under the new management agreement, Sunrise will receive a management fee based on a percentage of revenue and net operating income generated by the applicable communities. Sunrise is also entitled to certain incentive fees if specified performance targets are met. Ventas has the right to freely terminate the management agreement as to all communities if certain performance metrics are not met and may freely terminate the management agreement as to certain specified communities at any time. In addition, Ventas may also terminate the management agreement as it relates to three communities per year subject to the payment of a fee and an aggregate cap on such terminations over the term of the agreement.

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 on or before January 2, 2022. ESL ceased operation of its management business in early 2022 following completion of the transitions. We incurred certain one-time transition costs and expenses in connection with the transitions, which were recognized within transaction expenses and deal costs in our Consolidated Statements of Income.

We rely on our managers’ personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our senior housing operating portfolio 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.