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Variable Interest Entities | 12 Months Ended
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Dec. 31, 2021
Variable Interest Entities |
Variable Interest Entities | Variable Interest Entities Unconsolidated Variable Interest Entities At December 31, 2021, the Company had investments in: (i) two unconsolidated VIE joint ventures and (ii) marketable debt securities of one VIE. 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 (the LLC investment and Needham Land Parcel JV discussed below), it has no formal involvement in these VIEs beyond its investments. 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. These securities are classified as held-to-maturity because the Company has the intent and ability to hold the securities until maturity. 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). Needham Land Parcel JV. In December 2021, the Company acquired a 38% interest in a life science development joint venture in Needham, Massachusetts for $13 million. Current equity at risk is not sufficient to finance the joint venture’s activities. The assets and liabilities of the entity primarily consist of real estate and debt service obligations. Any assets generated by the entity may only be used to settle its contractual obligations (primarily development expenses and debt service payments). Loan Receivable. The Company provided seller financing 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. In September 2021, the Company sold this loan receivable (see Note 8). VIE Tenant. As of December 31, 2020, the Company leased two properties to one tenant that was identified as a VIE (the “VIE tenant”). The VIE tenant was a “thinly capitalized” entity that relied on the operating cash flows generated from the senior housing facilities to pay operating expenses, including the rent obligations under its leases. In June 2021, the Company sold these two properties as part of the Sunrise Senior Housing Portfolio (see Note 5). CCRC OpCo. As of December 31, 2020, the Company held a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operated senior housing properties and had been identified as a VIE. The equity members of CCRC OpCo “lacked power” because they shared certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consisted of the CCRCs that it owned and leased, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily consisted 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. In May 2021, the CCRC JV sold the two remaining CCRCs. Development Investments. As of December 31, 2020, the Company held investments (consisting of mezzanine debt and/or preferred equity) in two senior housing development joint ventures. The joint ventures were also capitalized by senior loans from a third party and equity from the third party managing-member, but were considered to be “thinly capitalized” as there was insufficient equity investment at risk. In April 2021, the Company sold two mezzanine loans and two preferred equity investments as part of the Discovery SHOP Portfolio disposition (see Note 5). 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, 2021 was as follows (in thousands):
VIE Type |  | Asset Type |  | Maximum Loss Exposure and Carrying Amount(1)
Continuing operations: |  |  |  |
CMBS and LLC investment |  | Other assets, net |  | $ | 36,101 |
Needham Land Parcel JV |  | Investments in and advances to unconsolidated joint ventures |  | 13,566 |
_______________________________________ (1)The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest). As of December 31, 2021, 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, 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, 2021 and 2020 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. 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). Refer to Note 13 for a discussion of certain put options associated with the Life Science JVs. 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 leased certain senior housing properties to lessee entities under cash flow leases through which the Company received monthly rent equal to the residual cash flows of the properties. The lessee entities were classified as VIEs as they were "thinly capitalized" entities. The Company consolidated the lessee entities as it had the ability to control the activities that most significantly impacted the economic performance of the lessee entities. The lessee entities’ assets primarily consisted of leasehold interests in senior housing facilities (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consisted 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) could only be used to settle contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facility and debt costs). During the year ended December 31, 2021, the Company sold these senior housing properties. 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, 2021, the Company acquired two MOBs (the “acquired properties”) using reverse like-kind exchange structures pursuant to Section 1031 of the Code (a “reverse 1031 exchange”). As of December 31, 2021, 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 were classified as VIEs as they were “thinly capitalized” entities. The Company consolidated the EATs because it had the ability to control the activities that most significantly impacted the economic performance of the EATs and was, therefore, the primary beneficiary of the EATs. The properties held by the EATs were reflected as real estate with a carrying value of $77 million as of December 31, 2021. The assets of the EATs primarily consisted of leased properties (net real estate, including intangibles), rents receivable, and cash and cash equivalents; their obligations primarily consisted of capital expenditures for the properties. Assets generated by the EATs may only be used to settle its contractual obligations (primarily from capital expenditures). Additionally, during the year ended December 31, 2020, the Company acquired seven MOBs, one hospital, and three life science facilities (the “acquired properties”) using reverse 1031 exchanges. 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 EATs. The properties held by the EATs were reflected as real estate with a carrying value of $813 million as of December 31, 2020. The reverse 1031 exchanges described above were completed in April 2021. Total assets and total liabilities include VIE assets and liabilities as follows (in thousands):
|  | December 31,
|  | 2021 |  | 2020
Assets |  |  |  |
Buildings and improvements |  | $ | 2,303,920 |  |  | $ | 2,988,599 |
Development costs and construction in progress |  | 82,303 |  |  | 85,595 |
Land |  | 548,168 |  |  | 433,574 |
Accumulated depreciation and amortization |  | (551,097) |  |  | (602,491) |
Net real estate |  | 2,383,294 |  |  | 2,905,277 |
Accounts receivable, net |  | 5,455 |  |  | 12,009 |
Cash and cash equivalents |  | 22,295 |  |  | 16,550 |
Restricted cash |  | 114 |  |  | 7,977 |
Intangible assets, net |  | 117,180 |  |  | 179,027 |
Assets held for sale and discontinued operations, net |  | 754 |  |  | 704,966 |
Right-of-use asset, net |  | 107,993 |  |  | 95,407 |
Other assets, net |  | 62,886 |  |  | 59,063 |
Total assets |  | $ | 2,699,971 |  |  | $ | 3,980,276 |
Liabilities |  |  |  |
Mortgage debt |  | $ | 144,350 |  |  | $ | 39,085 |
Intangible liabilities, net |  | 23,909 |  |  | 56,467 |
Liabilities related to assets held for sale and discontinued operations, net |  | 1,677 |  |  | 190,919 |
Lease liability |  | 99,213 |  |  | 97,605 |
Accounts payable, accrued liabilities, and other liabilities |  | 58,440 |  |  | 102,391 |
Deferred revenue |  | 21,546 |  |  | 90,183 |
Total liabilities |  | $ | 349,135 |  |  | $ | 576,650 |
Total assets and liabilities related to assets held for sale and discontinued operations include VIE assets and liabilities as follows (in thousands):
|  | December 31,
|  | 2021 |  | 2020
Assets |  |  |  |
Buildings and improvements |  | $ | — |  |  | $ | 639,759 |
Development costs and construction in progress |  | — |  |  | 68 |
Land |  | — |  |  | 106,209 |
Accumulated depreciation and amortization |  | — |  |  | (57,235) |
Net real estate |  | — |  |  | 688,801 |
Accounts receivable, net |  | 62 |  |  | 1,700 |
Cash and cash equivalents |  | 59 |  |  | 6,306 |
Restricted cash |  | — |  |  | 3,124 |
Right-of-use asset, net |  | — |  |  | 1,391 |
Other assets, net |  | 633 |  |  | 3,644 |
Total assets |  | $ | 754 |  |  | $ | 704,966 |
Liabilities |  |  |  |
Mortgage debt |  | $ | — |  |  | $ | 176,702 |
Lease liability |  | — |  |  | 1,392 |
Accounts payable, accrued liabilities, and other liabilities |  | 1,677 |  |  | 11,003 |
Deferred revenue |  | — |  |  | 1,822 |
Total liabilities |  | $ | 1,677 |  |  | $ | 190,919 |

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