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Variable Interest Entities | 12 Months Ended
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Dec. 31, 2020
Variable Interest Entities |
Variable Interest Entities | Variable Interest Entities Unconsolidated Variable Interest Entities At December 31, 2020, the Company had investments in: (i) two properties leased to a VIE tenant, (ii) four unconsolidated VIE joint ventures, (iii) marketable debt securities of one VIE, and (iv) one loan to a VIE borrower. The Company determined it is not the primary beneficiary of and therefore does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact their economic performance. Except for the Company’s equity interest in the unconsolidated joint ventures (CCRC OpCo, development investments, and the LLC investment discussed below), it has no formal involvement in these VIEs beyond its investments. VIE Tenant. The Company leases two properties to one tenant that has been identified as a VIE (“VIE tenant”). The VIE tenant is a “thinly capitalized” entity that relies on the operating cash flows generated from the senior housing facilities to pay operating expenses, including the rent obligations under its leases. CCRC OpCo. The Company holds a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operates senior housing properties in a RIDEA structure and has been identified as a VIE. The equity members of CCRC OpCo “lack power” because they share certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consist of the CCRCs that it owns and leases, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily consist of operating lease obligations to CCRC PropCo, debt service payments, capital expenditures, accounts payable, and expense accruals. Assets generated by the operations of CCRC OpCo (primarily rents from CCRC residents) of CCRC OpCo may only be used to settle its contractual obligations (primarily from debt service payments, capital expenditures, and rental costs and operating expenses incurred to manage such facilities). Refer to Note 3 for additional discussion related to transactions impacting CCRC OpCo. LLC Investment. The Company holds a limited partner ownership interest in an unconsolidated LLC that has been identified as a VIE. The Company’s involvement in the entity is limited to its equity investment as a limited partner and it does not have any substantive participating rights or kick-out rights over the general partner. The assets and liabilities of the entity primarily consist of those associated with its senior housing real estate and development activities. Any assets generated by the entity may only be used to settle its contractual obligations (primarily development expenses and debt service payments). Development Investments. The Company holds investments (consisting of mezzanine debt and/or preferred equity) in two senior housing development joint ventures. The joint ventures are also capitalized by senior loans from a third party and equity from the third party managing-member, but are considered to be “thinly capitalized” as there is insufficient equity investment at risk. Debt Securities Investment. The Company holds commercial mortgage-backed securities (“CMBS”) issued by Federal Home Loan Mortgage Corporation (commonly referred to as Freddie MAC) through a special purpose entity that has been identified as a VIE because it is “thinly capitalized.” The CMBS issued by the VIE are backed by mortgage debt obligations on real estate assets. Seller Financing Loan. The Company provided seller financing of $10 million related to its sale of seven senior housing triple-net facilities. The financing was provided in the form of a secured five-year mezzanine loan to a “thinly capitalized” borrower created to acquire the facilities. The classification of the related assets and liabilities and the maximum loss exposure as a result of the Company’s involvement with these VIEs at December 31, 2020 was as follows (in thousands):
VIE Type |  | Asset/Liability Type |  | Maximum Loss Exposure and Carrying Amount(1)
Continuing operations: |  |  |  |
Unconsolidated joint ventures |  | Loans receivable, net and Investments in unconsolidated joint ventures |  | $ | 22,113 |
Loan - Seller Financing |  | Loans receivable, net |  | 2,288 |
CMBS and LLC investment |  | Marketable debt and LLC investment |  | 35,453 |
Discontinued operations: |  |  |  |
VIE tenant - operating leases(2) |  | Lease intangibles, net and straight-line rent receivables |  | $ | 186 |
_______________________________________ (1)The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest). (2)The Company’s maximum loss exposure may be mitigated by re-leasing the underlying properties to new tenants upon an event of default. As of December 31, 2020, the Company had not provided, and is not required to provide, financial support through a liquidity arrangement or otherwise, to its unconsolidated VIEs, including under circumstances in which it could be exposed to further losses (e.g., cash shortfalls). See Notes 3, 4, 5, 6, 7, 8, and 9 for additional descriptions of the nature, purpose, and operating activities of the Company’s unconsolidated VIEs and interests therein. Consolidated Variable Interest Entities The Company's consolidated total assets and total liabilities at December 31, 2020 and December 31, 2019 include certain assets of VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to the Company. Total assets and total liabilities include VIE assets and liabilities as follows (in thousands):
|  | December 31,
|  | 2020 |  | 2019
Assets |  |  |  |
Buildings and improvements |  | $ | 2,988,599 |  |  | $ | 2,498,524 |
Development costs and construction in progress |  | 85,595 |  |  | 67,244 |
Land |  | 433,574 |  |  | 410,903 |
Accumulated depreciation and amortization |  | (602,491) |  |  | (534,339) |
Net real estate |  | 2,905,277 |  |  | 2,442,332 |
Accounts receivable, net |  | 12,009 |  |  | 9,508 |
Cash and cash equivalents |  | 16,550 |  |  | 35,726 |
Restricted cash |  | 7,977 |  |  | 9,895 |
Intangible assets, net |  | 179,027 |  |  | 167,022 |
Assets held for sale and discontinued operations, net |  | 704,966 |  |  | 880,362 |
Right-of-use asset, net |  | 95,407 |  |  | 92,664 |
Other assets, net |  | 59,063 |  |  | 48,119 |
Total assets |  | $ | 3,980,276 |  |  | $ | 3,685,628 |
Liabilities |  |  |  |
Mortgage debt |  | $ | 39,085 |  |  | $ | 44,199 |
Intangible liabilities, net |  | 56,467 |  |  | 39,545 |
Liabilities related to assets held for sale and discontinued operations, net |  | 190,919 |  |  | 187,544 |
Lease liability |  | 97,605 |  |  | 90,875 |
Accounts payable, accrued liabilities, and other liabilities |  | 102,391 |  |  | 112,301 |
Deferred revenue |  | 90,183 |  |  | 94,538 |
Total liabilities |  | $ | 576,650 |  |  | $ | 569,002 |
Total assets and liabilities related to assets held for sale and discontinued operations include VIE assets and liabilities as follows (in thousands):
|  | December 31,
|  | 2020 |  | 2019
Assets |  |  |  |
Buildings and improvements |  | $ | 639,759 |  |  | $ | 737,581 |
Development costs and construction in progress |  | 68 |  |  | 41 |
Land |  | 106,209 |  |  | 115,673 |
Accumulated depreciation and amortization |  | (57,235) |  |  | (34,235) |
Net real estate |  | 688,801 |  |  | 819,060 |
Accounts receivable, net |  | 1,700 |  |  | 2,478 |
Cash and cash equivalents |  | 6,306 |  |  | 11,301 |
Restricted cash |  | 3,124 |  |  | 3,700 |
Intangible assets, net |  | — |  |  | 39,817 |
Right-of-use asset, net |  | 1,391 |  |  | — |
Other assets, net |  | 3,644 |  |  | 4,006 |
Total assets |  | $ | 704,966 |  |  | $ | 880,362 |
Liabilities |  |  |  |
Mortgage debt |  | $ | 176,702 |  |  | $ | 174,567 |
Lease liability |  | 1,392 |  |  | — |
Accounts payable, accrued liabilities, and other liabilities |  | 11,003 |  |  | 10,531 |
Deferred revenue |  | 1,822 |  |  | 2,446 |
Total liabilities |  | $ | 190,919 |  |  | $ | 187,544 |
Ventures V, LLC. The Company holds a 51% ownership interest in and is the managing member of a joint venture entity formed in October 2015 that owns and leases MOBs (“Ventures V”). The Company classifies Ventures V as a VIE due to the non-managing member lacking substantive participation rights in the management of Ventures V or kick-out rights over the managing member. The Company consolidates Ventures V as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of Ventures V primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by Ventures V may only be used to settle its contractual obligations (primarily from capital expenditures). Life Science JVs. The Company holds a 99% ownership interest in multiple joint venture entities that own and lease life science assets (the "Life Science JVs"). The Life Science JVs are VIEs as the members share in control of the entities, but substantially all of the activities are performed on behalf of the Company. The Company consolidates the Life Science JVs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Life Science JVs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Life Science JVs may only be used to settle their contractual obligations (primarily from capital expenditures). MSREI MOB JV. The Company holds a 51% ownership interest in, and is the managing member of, a joint venture entity formed in August 2018 that owns and leases MOBs (the “MSREI JV”). The MSREI JV is a VIE due to the non-managing member lacking substantive participation rights in the management of the joint venture or kick-out rights over the managing member. The Company consolidates the MSREI JV as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of the MSREI JV primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by the MSREI JV may only be used to settle its contractual obligations (primarily from capital expenditures). Consolidated Lessees. The Company leases seven senior housing properties to lessee entities under cash flow leases through which the Company receives monthly rent equal to the residual cash flows of the properties. The lessee entities are classified as VIEs as they are "thinly capitalized" entities. The Company consolidates the lessee entities as it has the ability to control the activities that most significantly impact the economic performance of the lessee entities. The lessee entities’ assets primarily consist of leasehold interests in senior housing facilities (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease payments to the Company and operating expenses of the senior housing facilities (accounts payable and accrued expenses). Assets generated by the senior housing operations (primarily from senior housing resident rents) may only be used to settle contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facility and debt costs). DownREITs. The Company holds a controlling ownership interest in and is the managing member of seven DownREITs. The Company classifies the DownREITs as VIEs due to the non-managing members lacking substantive participation rights in the management of the DownREITs or kick-out rights over the managing member. The Company consolidates the DownREITs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the DownREITs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the DownREITs (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures). Other Consolidated Real Estate Partnerships. The Company holds a controlling ownership interest in and is the general partner (or managing member) of multiple partnerships that own and lease real estate assets (the “Partnerships”). The Company classifies the Partnerships as VIEs due to the limited partners (non-managing members) lacking substantive participation rights in the management of the Partnerships or kick-out rights over the general partner (managing member). The Company consolidates the Partnerships as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Partnerships primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Partnerships (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures). Exchange Accommodation Titleholder. During the year ended December 31, 2020, the Company acquired seven MOBs, one hospital, and three life science facilities (the "acquired properties") using reverse like-kind exchange structures pursuant to Section 1031 of the Code (a "reverse 1031 exchange"). As of December 31, 2020, the Company had not completed the reverse 1031 exchanges and as such, the acquired properties remained in the possession of Exchange Accommodation Titleholders ("EATs"). The EATs are classified as VIEs as they are “thinly capitalized” entities. The Company consolidates the EATs because it has the ability to control the activities that most significantly impact the economic performance of the EATs and is, therefore, the primary beneficiary of the EATs. The properties held by the EATs are reflected as real estate with a carrying value of $813 million as of December 31, 2020. The assets of the EATs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of capital expenditures for the properties. Assets generated by the EATs may only be used to settle their contractual obligations (primarily from capital expenditures). U.K. Bridge Loan. In 2016, the Company provided a £105 million ($131 million at closing) bridge loan to MMCG to fund the acquisition of a portfolio of seven care homes in the U.K. MMCG created a special purpose entity to acquire the portfolio and funded it entirely using the Company’s bridge loan. As such, the special purpose entity had historically been identified as a VIE because it was “thinly capitalized.” The Company retained a three-year call option to acquire all the shares of the special purpose entity, which it could only exercise upon the occurrence of certain events. During the quarter ended March 31, 2018, the Company concluded that the conditions required to exercise the call option had been met and initiated the call option process to acquire the special purpose entity. In conjunction with initiating the process to legally exercise its call option and the satisfaction of required contingencies, the Company concluded that it was the primary beneficiary of the special purpose entity and therefore, should consolidate the entity. As such, during the quarter ended March 31, 2018, the Company derecognized the previously outstanding loan receivable, recognized the special purpose entity’s assets and liabilities at their respective fair values, and recognized a £29 million ($41 million) loss on consolidation, net of a tax benefit of £2 million ($3 million), to account for the difference between the carrying value of the loan receivable and the fair value of net assets and liabilities assumed. The loss on consolidation was recognized within other income (expense), net and the tax benefit was recognized within income tax benefit (expense). The fair value of net assets and liabilities consolidated during the first quarter of 2018 consisted of £81 million ($114 million) of net real estate, £4 million ($5 million) of intangible assets, and £9 million ($13 million) of net deferred tax liabilities. In June 2018, the Company completed the exercise of the above-mentioned call option and formally acquired full ownership of the special purpose entity. As such, the Company reconsidered whether the special purpose entity was a VIE and concluded that it was no longer “thinly capitalized” as the previously outstanding bridge loan converted to equity at risk and, therefore, was no longer a VIE. The real estate assets held by the special purpose entity were contributed to the U.K. JV formed by the Company in June 2018 (see Note 5). In December 2019, the Company sold its remaining interest in the U.K. JV (see Note 9).

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- Definition The entire disclosure for variable interest entities, including description of the terms of arrangements and categorized by: (1) VIEs consolidated because the entity is the primary beneficiary, (2) VIEs not consolidated because the entity is not the primary beneficiary, and (3) VIEs or potential VIEs that are not consolidated because necessary information is not available. + References No definition available. + Details
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