CONCENTRATION OF CREDIT RISK

12 Months Ended

Dec. 31, 2023

NOTE 3 – CONCENTRATION OF CREDIT RISK

As of December 31, 2023, Atria Senior Living, Inc. (together with its subsidiaries, including Holiday Retirement (“Holiday”), “Atria”), Sunrise Senior Living, LLC (together with its subsidiaries, “Sunrise”), Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale”), Ardent Health Partners, LLC (together with its subsidiaries, “Ardent”) and Kindred Healthcare, LLC (together with its subsidiaries, “Kindred”) contributed approximately 20.1%, 4.5%, 7.7%, 6.9% and 6.9%, respectively, of our total NOI. 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, Ardent and Kindred.

Based on total NOI, our SHOP, outpatient medical and research portfolio triple-net leased properties segments contributed 37.0%, 30.0% and 31.4%, respectively. Our consolidated properties were located in 47 states, the District of Columbia, seven Canadian provinces and the United Kingdom as of December 31, 2023, with properties in one state (California) accounting for more than 10% of our total consolidated revenues and NOI for each of the years ended December 31, 2023, 2022 and 2021. See “Non-GAAP Financial Measures” included elsewhere in this Annual Report 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 triple-net leased to Brookdale, Ardent and Kindred accounted for a significant portion of total revenues and total NOI for the years ended December 31, 2023, 2022 and 2021. Refer to Item 1A. Risk Factors. 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,
	2023		2022		2021
Contribution as a Percentage of Total Revenues (1):
Brookdale (2)	3.3	%	3.6	%	3.9	%
Ardent	3.0		3.2		3.3
Kindred	2.9		3.2		3.8
Contribution as a Percentage of Total NOI:
Brookdale (2)	7.7	%	8.1	%	8.6	%
Ardent	6.9		7.1		7.4
Kindred	6.9		7.3		7.8

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(1)Total revenues include third party capital management revenues, income from loans and investments and interest and other income.

(2)2023, 2022 and 2021 results include $42.6 million, $42.6 million and $42.6 million, respectively, of amortization of up-front consideration received in 2020 from a revised master lease agreement with Brookdale.

Each of our leases with Brookdale, 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, Ardent and Kindred leases is guaranteed by a corporate parent.

Kindred Lease

As of December 31, 2023, we leased 29 properties to Kindred pursuant to a single, triple-net master lease agreement (together with certain other agreements related to such master lease, collectively, the “Kindred Lease”). As of December 31, 2023, the Kindred Lease represented approximately 6.9% of the Company’s Total NOI.

Pursuant to the Kindred Lease, the 29 properties are divided into two groups. The first group is composed of six properties (“Group 1”) and the second group is composed of 23 properties (“Group 2”). The existing term of the Kindred Lease expires on April 30, 2028 for Group 1 and April 30, 2025 for Group 2. Kindred has the option to renew all of the properties (but not less than all) (a) within Group 1 for two 5-year extensions; and (b) within Group 2 for three 5-year extensions, in each case at the greater of escalated rent and fair market rent by providing written notice no later than one year prior to the applicable expiration date. Kindred currently has the option to renew all of the properties (but not less than all) within Group 2 for one such 5-year extension by providing written notice to us before May 1, 2024. The Kindred Lease is guaranteed by a parent company.

The COVID-19 pandemic led to elevated volumes and financial performance at the properties leased to Kindred. As the pandemic receded, the financial performance has declined. While we believe that Kindred has taken and is taking targeted actions to attempt to improve the performance of the properties, there can be no assurance that Kindred will be able to do so or that such financial performance will not affect Kindred’s ability to perform their obligations to us or impact any of their decisions related to the renewal of their lease. See also “Part I—Item 1A. Risk Factors—Risks Related to Our Business Operations and Strategy—If we need to replace any of our tenants or managers, we may be unable to do so on as favorable terms, if at all, and we could be subject to delays, limitations and expenses, which could adversely affect our business, financial condition and results of operations.”, “Part I—Item 1A. Risk Factors—Risks Related to Our Business Operations and Strategy—A significant portion of our revenues and operating income is dependent on a limited number of tenants and managers, including Brookdale, Ardent, Kindred, Atria and Sunrise.” and “Part I—Item 1A. Risk Factors—Risks Related to Our Business Operations and Strategy—We face potential adverse consequences from the bankruptcy, insolvency or financial deterioration of our tenants, managers, borrowers and other obligors.” included in Part I, Item 1A of this Annual Report.

Brookdale Lease

As of December 31, 2023, we leased 121 properties (excluding ten properties managed by Brookdale pursuant to long-term management agreements and included in the SHOP segment) to Brookdale pursuant to a single, triple-net master lease agreement (together with certain other agreements related to such master lease, collectively, the “Brookdale Lease”).

Under the terms of the Brookdale Lease, base rent escalates annually at 3% per annum, which escalation commenced on January 1, 2022. The existing term of the Brookdale Lease expires December 31, 2025 and Brookdale has the option to renew the Brookdale lease with respect to all (but not less than all) of the properties for two, 10-year extensions. Base rent for the first year of each extension is the greater of (a) 103% of prior full year's base rent; and (b) fair market rent, capped at a 10% increase. Subsequent to the first year of any such renewal, base rent would continue to escalate by 3% per annum over the prior full year’s base rent. Brookdale currently has the option to renew the Brookdale Lease for its next 10-year extension by providing written notice to us after June 30, 2024 and on or before November 30, 2024. The Brookdale Lease is guaranteed by Brookdale Senior Living, Inc.

In addition, we hold warrants for 16.3 million shares of Brookdale Senior Living, Inc. common stock, which are exercisable at any time prior to December 31, 2025 and have an exercise price of $3.00 per share. The warrants are classified within other assets on our Consolidated Balance Sheets and measured at fair value with changes in fair value being recognized within other expense in our Consolidated Statements of Income.

Ardent Lease

As of December 31, 2023, we leased 11 properties (excluding 19 outpatient medical buildings leased to Ardent under separate leases included in our outpatient medical and research portfolio segment) to Ardent pursuant to a single, triple-net master lease agreement (together with certain other agreements related to such master lease, collectively, the “Ardent Lease”). The existing term of the Ardent Lease expires August 31, 2035 and Ardent has the option to renew such term for one, 10-year extension at contractual escalated rent. The Ardent Lease is guaranteed by the Ardent parent company.

Future Contractual Rents

The following table sets forth the future contracted minimum rentals, excluding contingent rent escalations, assuming no renewal but including straight-line rent adjustments where applicable, under the existing lease for all of our consolidated triple-net and outpatient medical and research building leases as of December 31, 2023 (excluding properties classified as held for sale as of December 31, 2023, dollars in thousands):


	Brookdale Senior Living		Ardent		Kindred		Other		Total
2024	$	149,045	$	149,470	$	134,372	$	771,947	$	1,204,834
2025	148,586		149,470		62,124		679,068		1,039,248
2026	—		148,927		25,839		611,042		785,808
2027	—		147,839		25,839		509,668		683,346
2028	—		147,839		8,613		414,148		570,600
Thereafter	—		968,188		—		1,435,066		2,403,254
Total	$	297,631	$	1,711,733	$	256,787	$	4,420,939	$	6,687,090

Senior Housing Operating Portfolio

As of December 31, 2023, Atria and Sunrise, collectively, provided comprehensive property management and accounting services with respect to 308 of our 587 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 December 31, 2023, Atria and its subsidiaries, including Holiday, managed a pool of 216 senior housing communities for Ventas. Ventas has the right to terminate the management contract for 67 of the communities on short notice.

As of December 31, 2023, Sunrise managed 92 communities for Ventas pursuant to multiple management agreements (collectively, the “Sunrise Management Agreements”). Our Sunrise Management Agreements have initial terms expiring between 2035 and 2040. Ventas has the ability to terminate some or all of the Sunrise Management Agreements under certain circumstances with or without the payment of a fee.

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, transition and restructuring 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.