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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________ 
Commission File Number: 001-36499
New Senior Investment Group Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
80-0912734
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
55 West 46th Street
New York
NY
10036
(Address of principal executive offices)
(Zip Code)
(646)
822-3700
(Registrant’s telephone number, including area code) 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading Symbol:    
 
Name of each exchange on which registered:
Common Stock, $0.01 par value per share
 
SNR
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
ý Yes  No o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Smaller reporting company
Non-accelerated filer 
 
 
Emerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

Common stock, par value $0.01 per share: 82,880,222 shares outstanding as of May 1, 2020.



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of New Senior Investment Group Inc.’s (“New Senior,” the “Company,” “we,” “us” or “our”) investments, the stability of our earnings, and our financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “would,” “should,” “potential,” “intend,” “expect,” “plan,” “endeavor,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

the duration and scope of the novel coronavirus (“COVID-19”) global pandemic, its impact on occupancy rates and on the Company’s operations and the operations of its operators/tenant; actions that local, state and the federal government take in response to the pandemic, including the introduction of public health measures and other regulations that could affect the operations of our properties; the effects of the health and safety measures adopted by us and our operators/tenant related to the pandemic; increased operational costs as a result of health and safety measures related to COVID-19, and the overall impact of COVID-19 on our business, results of operations, financial condition and liquidity, as well as on the price of our common stock;
our ability to comply with the terms of our financings, which depends in part on the performance of our operators;
any increase in our borrowing costs as a result of rising interest rates or other factors;
our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due or as needed to comply with the terms of our covenants or to facilitate our ability to sell assets;
our ability to manage our liquidity and sustain distributions to our stockholders, particularly in light of the cash shortfall described in our risk factors under “Part II, Item 1A”. and under “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”;
our dependence on our property managers and tenant to operate our properties successfully and in compliance with the terms of our agreements with them, applicable law and the terms of our financings;
factors affecting the performance of our properties, such as increases in costs (including, but not limited to, the costs of labor, supplies, insurance and property taxes);
concentration risk with respect to Holiday Retirement (“Holiday”), which, for the three months ended March 31, 2020, accounted for 94.3% of total net operating income (“NOI”) from continuing operations;
risks associated with a change of control in the ownership or senior management of Holiday;
our ability and the ability of our property managers and tenant to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers;
changes of federal, state and local laws and regulations relating to employment, fraud and abuse practices, Medicaid reimbursement and licensure, etc., including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations or our property managers or tenant;
the ability of our property managers and tenant to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to us and third parties, particularly in light of the impacts of the COVID-19 pandemic on their businesses;
the quality and size of our investment pipeline, our ability to execute investments at attractive risk-adjusted prices, our ability to finance our investments on favorable terms, and our ability to deploy investable cash in a timely manner;
our ability to sell properties on favorable terms and to realize the anticipated benefits from any such dispositions, including as a result a reduction of real estate value related to the COVID-19 pandemic;
changes in economic conditions generally and the real estate, senior housing and bond markets specifically, including general economic uncertainty as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth;
our stock price performance and any disruption or lack of access to the capital markets or other sources of financing, including as a result of factors influenced by the COVID-19 pandemic;
the impact of any current or future legal proceedings and regulatory investigations and inquiries on us or our operators;
our reliance on our operators for timely delivery of accurate property-level financial results; and



our ability to maintain our qualification as a Real Estate Investment Trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business.

Although we believe that the expectations reflected in any forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those indicated by any forward-looking statement
 
Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this Quarterly Report on Form 10-Q, and to consider carefully the factors discussed in “Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and “Part I, Item 1A. “Risk Factors” of our 2019 Annual Report on Form 10-K in evaluating these forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.


SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.




NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
FORM 10-Q

INDEX
  
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
 
March 31, 2020
 
December 31, 2019
 
(Unaudited)
 
 
Assets
 
 
 
Real estate investments:
 

 
 

Land
$
134,643

 
$
134,643

Buildings, improvements and other
1,972,758

 
1,970,036

Accumulated depreciation
(368,979
)
 
(351,555
)
Net real estate property
1,738,422

 
1,753,124

Acquired lease and other intangible assets
7,642

 
7,642

Accumulated amortization
(2,327
)
 
(2,238
)
Net real estate intangibles
5,315

 
5,404

Net real estate investments
1,743,737

 
1,758,528

 
 
 
 
Assets from discontinued operations

 
363,489

Cash and cash equivalents
135,103

 
39,614

Receivables and other assets, net
32,148

 
33,078

Total Assets
$
1,910,988

 
$
2,194,709

 
 
 
 
Liabilities, Redeemable Preferred Stock and Equity
 

 
 

Liabilities
 

 
 

Debt, net
$
1,585,936

 
$
1,590,632

Liabilities from discontinued operations

 
267,856

Accrued expenses and other liabilities
62,313

 
59,320

Total Liabilities
1,648,249

 
1,917,808

 
 
 
 
Commitments and contingencies (Note 13)


 


 
 
 
 
Redeemable preferred stock, $0.01 par value with $100 liquidation preference, 400,000 shares authorized, issued and outstanding as of both March 31, 2020 and December 31, 2019
40,500

 
40,506

 
 
 
 
Equity


 


Preferred stock, $0.01 par value, 99,600,000 shares (excluding 400,000 shares of redeemable preferred stock) authorized, none issued or outstanding as of both March 31, 2020 and December 31, 2019

 

Common stock, $0.01 par value, 2,000,000,000 shares authorized, 82,880,222 and 82,964,438 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
829

 
830

Additional paid-in capital
902,288

 
901,889

Accumulated deficit
(666,424
)
 
(660,588
)
Accumulated other comprehensive loss
(14,454
)
 
(5,736
)
Total Equity
222,239

 
236,395

 
 
 
 
Total Liabilities, Redeemable Preferred Stock and Equity
$
1,910,988

 
$
2,194,709


See accompanying notes to consolidated financial statements (unaudited).

1

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)


 
Three Months Ended March 31,
 
2020
 
2019
Revenues
 

 
 

Resident fees and services
$
85,007

 
$
85,749

Rental revenue
1,583

 
1,582

Total revenues
86,590

 
87,331

 
 
 
 
Expenses
 

 
 

Property operating expense
51,065

 
52,939

Interest expense
17,219

 
19,850

Depreciation and amortization
17,536

 
16,994

General and administrative expense
5,846

 
4,978

Acquisition, transaction and integration expense
133

 
492

Loss on extinguishment of debt
5,884

 

Other (income) expense
(105
)
 
1,315

Total expenses
97,578

 
96,568

Loss before income taxes
(10,988
)
 
(9,237
)
Income tax expense
60

 
36

Loss from continuing operations
(11,048
)
 
(9,273
)
Discontinued Operations:
 
 
 
Gain on sale of real estate
19,992

 

Loss from discontinued operations
(3,107
)
 
(1,920
)
Discontinued operations, net
16,885

 
(1,920
)
Net income (loss)
5,837

 
(11,193
)
Deemed dividend on redeemable preferred stock
(598
)
 
(598
)
Net income (loss) attributable to common stockholders
$
5,239

 
$
(11,791
)
 
 
 
 
Basic earnings per common share: (A)
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.14
)
 
$
(0.12
)
Discontinued operations, net
0.20

 
(0.02
)
Net income (loss) attributable to common stockholders
$
0.06

 
$
(0.14
)
 
 
 
 
Diluted earnings per common share:
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.14
)
 
$
(0.12
)
Discontinued operations, net
0.20

 
(0.02
)
Net income (loss) attributable to common stockholders
$
0.06

 
$
(0.14
)
 
 
 
 
Weighted average number of shares of common stock outstanding
 
 
 
Basic and diluted (B)
82,386,622

 
82,203,069

 
 
 
 
Dividends declared and paid per share of common stock
$
0.13

 
$
0.13

 

(A)
Basic earnings per common share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. The outstanding shares used to calculate the weighted average basic shares exclude 493,599 and 800,381 restricted stock awards, net of forfeitures, as of March 31, 2020 and 2019, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic income (loss) per share. Diluted EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period.
(B)
Dilutive share equivalents and options were excluded for the three months ended March 31, 2020 and 2019 as their inclusion would have been anti-dilutive given our loss position.

See accompanying notes to consolidated financial statements (unaudited).

2

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except share data)





 
Three Months Ended March 31,
 
2020
 
2019
Net loss
$
(11,048
)
 
$
(9,273
)
Other comprehensive loss:
 
 
 
Unrealized loss on cash flow hedge
(8,718
)
 

Total other comprehensive loss
(8,718
)
 

Total comprehensive loss
(19,766
)
 
(9,273
)

See accompanying notes to consolidated financial statements (unaudited).



3

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
(dollars in thousands, except share data)


 
 
Three Months Ended March 31, 2020
 
 
 Common Stock
 
Accumulated Deficit
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
 Total Equity
 
 
 Shares
 
 Amount
 
Equity at December 31, 2019
 
82,964,438

 
$
830

 
$
(660,588
)
 
$
901,889

 
$
(5,736
)
 
$
236,395

Equity awards vested
 
23,137

 

 
 
 
 
 
 
 

Shares repurchased and retired to satisfy tax withholding upon vesting
 
(107,353
)
 
(1
)
 

 
(998
)
 

 
(999
)
Amortization of equity-based compensation
 

 

 

 
1,397

 

 
1,397

Dividends declared - common stock ($0.13 per share)
 

 

 
(10,708
)
 

 

 
(10,708
)
Dividends declared - equity awards ($0.13 per share)
 

 

 
(367
)
 

 

 
(367
)
Deemed dividend on redeemable preferred stock
 

 

 
(500
)
 

 

 
(500
)
Dividends declared on redeemable preferred stock
 

 

 
(98
)
 

 

 
(98
)
Other comprehensive loss
 

 

 

 

 
(8,718
)
 
(8,718
)
Net income
 

 

 
5,837

 

 

 
5,837

Equity at March 31, 2020
 
82,880,222

 
$
829

 
$
(666,424
)
 
$
902,288

 
$
(14,454
)
 
$
222,239


 
 
Three Months Ended March 31, 2019
 
 
 Common Stock
 
Accumulated Deficit
 
Additional Paid-in Capital
 
 Total Equity
 
 
 Shares
 
 Amount
Equity at December 31, 2018
 
82,148,869

 
$
821

 
$
(616,504
)
 
$
898,135

 
$
282,452

Amortization of equity-based compensation
 

 

 

 
449

 
449

Directors shares issued
 
60,975

 
1

 

 
274

 
275

Dividends declared - common stock ($0.13 per share)
 

 

 
(10,687
)
 

 
(10,687
)
Dividends declared - equity awards ($0.13 per share)
 

 

 
(104
)
 

 
(104
)
Deemed dividend on redeemable preferred stock
 

 

 
(598
)
 

 
(598
)
Net loss
 

 

 
(11,193
)
 

 
(11,193
)
Equity at March 31, 2019
 
82,209,844

 
$
822


$
(639,086
)
 
$
898,858

 
$
260,594

 

See accompanying notes to consolidated financial statements (unaudited).


4

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)


 
Three Months Ended March 31,
 
2020
 
2019
Cash Flows From Operating Activities
 

 
 

Net income (loss)
$
5,837

 
$
(11,193
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation of tangible assets and amortization of intangible assets
17,536

 
16,994

Amortization of deferred financing costs
742

 
792

Amortization of deferred revenue, net
(64
)
 
616

Non-cash straight-line rental revenue
(134
)
 
(173
)
Loss on extinguishment of debt
5,884

 

Amortization of equity-based compensation
1,397

 
449

Gain on sale of real estate
(19,992
)
 

Other non-cash expense
235

 
1,046

Changes in:
 

 
 

Receivables and other assets, net
(2,505
)
 
(2,110
)
Accrued expenses and other liabilities
(10,072
)
 
(20,244
)
Net cash provided by (used in) operating activities - continuing operations
(1,136
)
 
(13,823
)
Net cash provided by (used in) operating activities - discontinued operations
(3,105
)
 
2,728

Net cash provided by (used in) operating activities
(4,241
)
 
(11,095
)
Cash Flows From Investing Activities
 

 
 

Capital expenditures, net of insurance proceeds
(2,787
)
 
(5,263
)
Net cash provided by (used in) investing activities - continuing operations
(2,787
)
 
(5,263
)
Net cash provided by (used in) investing activities - discontinued operations (A)
373,805

 
(1,384
)
Net cash provided by (used in) investing activities
371,018

 
(6,647
)
Cash Flows From Financing Activities
 

 
 

Principal payments of mortgage notes payable and capital lease obligations
(1,189
)
 
(1,844
)
Proceeds from mortgage notes payable
270,015

 

Proceeds from borrowings on revolving credit facility
100,000

 

Repayments of mortgage notes payable
(368,149
)
 

Payment of exit fee on extinguishment of debt
(4,504
)
 

Payment of deferred financing costs
(4,767
)
 
(588
)
Purchase of interest rate caps
(81
)
 
(35
)
Taxes paid related to net settlement of equity-based compensation awards
(999
)
 

Payment of common stock dividend
(10,708
)
 
(10,687
)
Payment of redeemable preferred stock dividend
(604
)
 

Payment of restricted stock dividend
(191
)
 

Net cash provided by (used in) financing activities - continuing operations
(21,177
)
 
(13,154
)
Net cash provided by (used in) financing activities - discontinued operations (B)
(260,996
)
 
(1,087
)
Net cash provided by (used in) financing activities
(282,173
)
 
(14,241
)
Net increase (decrease) in cash, cash equivalents and restricted cash
84,604

 
(31,983
)
Cash, cash equivalents and restricted cash, beginning of period
63,829

 
92,656

Cash, cash equivalents and restricted cash, end of period
$
148,433

 
$
60,673



(A) For the three months ended March 31, 2020, amount consists primarily of net proceeds from the AL/MC Portfolio Disposition. Refer to “Note 3 - Discontinued Operations” for details.
(B) For the three months ended March 31, 2020, amount consists primarily of repayments of debt in conjunction with the AL/MC Portfolio Disposition. Refer to “Note 3 - Discontinued Operations” for details.


5

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)


 
Three Months Ended March 31,
 
2020
 
2019
Supplemental Disclosure of Cash Flow Information
 

 
 

Cash paid during the period for interest expense
$
18,922

 
$
22,171

 
 
 
 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
 
 
 
Issuance of common stock
$

 
$
275

Capital lease obligations
278

 
215


 
Three Months Ended March 31,
 
2020
 
2019
Reconciliation of Cash, Cash Equivalents and Restricted Cash
 
 
 
Cash and cash equivalents
$
39,614

 
$
72,422

Restricted cash (A)
24,215

 
20,234

Total, beginning of period
$
63,829

 
$
92,656

 
 
 
 
Cash and cash equivalents
$
135,103

 
$
41,519

Restricted cash (A)
13,330

 
19,154

Total, end of period
$
148,433

 
$
60,673



(A)
Restricted cash consists of (i) amounts held by lender in tax, insurance, replacement reserve and other escrow accounts and (ii) security deposits; amounts relating to continuing operations are included in “Receivables and other assets, net” in our Consolidated Balance Sheets.

See accompanying notes to consolidated financial statements (unaudited).



6

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)



1.
ORGANIZATION
 
New Senior is a REIT primarily focused on investing in private pay senior housing properties. As of March 31, 2020, we owned a diversified portfolio of 103 primarily private pay senior housing properties located across 36 states. We are listed on the New York Stock Exchange (“NYSE”) under the symbol “SNR” and are headquartered in New York, New York.

We operate in two reportable segments: (1) Managed Independent Living (“IL”) Properties, and (2) Other Properties.
 
Managed IL Properties – We own 102 properties managed by Holiday, FHC Property Management LLC (together with its subsidiaries, “Merrill Gardens”), and Grace Management, Inc. (“Grace”) (collectively, the “Property Managers”), under Property Management Agreements (collectively, the “Property Management Agreements”). Under the Property Management Agreements, the Property Managers are responsible for the day-to-day operations of our senior housing properties and are entitled to a management fee in accordance with the terms of the Property Management Agreements. Our Property Management Agreements have initial five-year or ten-year terms, with successive, automatic one-year renewal periods. We generally pay management fees of 4.5% to 5% of effective gross income pursuant to our Property Management Agreements and, in some cases, the Property Managers are eligible to earn an incentive fee based on operating performance.

Other Properties – We own one CCRC and lease this property to Watermark Retirement Communities, Inc. (“Watermark”), a healthcare operating company under a triple net lease agreement. In a triple net lease arrangement, the lessee agrees to operate and maintain the property at its own expense, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Our triple net lease agreement has an initial term of 15 years and includes a renewal option and annual rent increases ranging from 2.75% to 3.25%.

We were formed as a Delaware limited liability company on May 17, 2012 as a wholly owned subsidiary of Drive Shack Inc., formerly Newcastle Investment Corp. (“Drive Shack”). On November 6, 2014, we were spun-off from Drive Shack and our shares of common stock were publicly listed on the NYSE.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP’’) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The consolidated financial statements include the accounts of New Senior and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. We consolidate those entities in which we have control over significant operating, financial and investing decisions of the entity. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.

Certain prior period amounts have been reclassified to conform to the current period’s presentation, primarily related to classification of certain properties as discontinued operations.

7

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)



Significant Accounting Policies

Earnings per Common Share

The two-class method determines EPS for each class of common stock and participating securities according to dividends declared (or accumulated) and their respective participation rights in undistributed earnings. Non-vested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and, therefore are included in the computation of basic EPS pursuant to the two-class method. During the three months ended March 31, 2020, we issued 233,974 unvested restricted stock units to officers and employees with certain participating rights (“Participating RSUs”).

Diluted earnings per share of common stock is calculated by including the effect of dilutive securities. Participating RSUs are included in the computation of diluted EPS by using the more dilutive of the two-class method or treasury stock method. Any anti-dilutive securities are excluded from the calculation. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund losses.

Refer to our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 for other significant accounting policies.

Recently Adopted Accounting Pronouncements

On January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This standard requires a company to recognize an impairment allowance equal to its current estimate of all contractual cash flows that it does not expect to collect from financial assets measured at amortized cost. The adoption of this standard did not have a material impact on our consolidated financial statements as our entire balance of receivables relates to lease agreements with our residents and tenant, which are specifically excluded from this standard.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference London Inter-Bank Rate (“LIBOR”) or another rate that is expected to be discontinued. Companies can adopt ASU 2020-04 anytime during the effective period of March 12, 2020 through December 31, 2022. We are assessing the impact this guidance may have on our consolidated financial statements.

3. DISCONTINUED OPERATIONS

On October 31, 2019, we entered into a Purchase and Sale Agreement (the “Sale Agreement”) to sell a portfolio of 28 assisted living/memory care (“AL/MC”) properties for a gross sale price of $385.0 million (the “AL/MC Portfolio Disposition”). The portfolio represented a separate reportable segment at the time and the sale represented a strategic shift that would have a major effect on our operations and financial results. As a result, we classified the assets and liabilities associated with the operations of the 28 AL/MC properties as discontinued operations in our consolidated financial statements.

On February 10, 2020, we completed the AL/MC Portfolio Disposition and recognized a gain on sale of $20.0 million, which is included in “Discontinued operations, net” in our Consolidated Statements of Operations. In conjunction with the sale, we repaid $260.2 million of debt specifically attributable to the properties included in the disposition and recognized a loss on extinguishment of debt of $3.6 million, comprising of $2.5 million in prepayment penalties and $1.1 million in the write-off of unamortized deferred financing costs, which is included in “Loss from discontinued operations” in our Consolidated Statements of Operations.


8

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


As of December 31, 2019, the assets and liabilities associated with discontinued operations were as follows:
 
December 31, 2019
Assets
 
Real estate investments:
 
Land
$
43,313

Buildings, improvements and other
397,808

Accumulated depreciation
(87,719
)
Net real estate property
353,402

Acquired lease and other intangible assets
996

Accumulated amortization
(996
)
Net real estate intangibles

Net real estate investments
353,402

 
 
Receivables and other assets, net
10,087

Assets from discontinued operations
$
363,489

 
 
Liabilities
 
Debt, net
$
255,096

Accrued expenses and other liabilities
12,760

Liabilities from discontinued operations
$
267,856


For the three months ended March 31, 2020 and 2019, the results of operations associated with discontinued operations are as follows:
 
Three Months Ended March 31,
 
2020
 
2019
Revenues
 
 
 
Resident fees and services
$
14,024

 
$
30,288

Total Revenues
14,024

 
30,288

 

 

Expenses
 
 
 
Property operating expenses
11,328

 
24,408

Depreciation and amortization

 
3,793

Interest expense
1,361

 
3,869

Acquisition, transaction, and integration expense
1,037

 
158

General and administrative expense
8

 
5

Loss on extinguishment of debt
3,602

 

Other income
(204
)
 
(69
)
Total expenses
17,132

 
32,164

Loss before income taxes
(3,108
)
 
(1,876
)
Income tax (benefit) expense
(1
)
 
44

Loss from discontinued operations
$
(3,107
)
 
$
(1,920
)



9

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


4. SEGMENT REPORTING

We operate in two reportable business segments, Managed IL Properties and Other Properties. Our Managed IL Properties segment includes 102 IL properties throughout the United States managed by Holiday, Merrill Gardens and Grace under Property Management Agreements. Our Other Properties segment includes one CCRC property, which is currently leased to a healthcare operating company under a triple net lease agreement that obligates the tenant to pay all property-related expenses, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. It also includes the operations of two managed AL/MC properties we previously owned during the three months ended March 31, 2019 and sold in the second quarter of 2019.

We evaluate performance of the combined properties in each reportable business segment based on segment NOI. We define NOI as total revenues less property-level operating expenses, which include property management fees and travel cost reimbursements. We believe that net income, as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment NOI serves as a useful supplement to net income because it allows investors, analysts and management to measure unlevered property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. Segment NOI should not be considered as an alternative to net income as determined in accordance with GAAP.

Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, income tax expense (benefit) and discontinued operations, net are not allocated to individual segments for purposes of assessing segment performance. There are no intersegment sales.
 
 
Three Months Ended March 31, 2020
 
 
Managed IL Properties
 
Other Properties
 
Consolidated
Revenues
 
 
 
 

 
 

Resident fees and services
 
$
85,007

 
$

 
$
85,007

Rental revenue
 

 
1,583

 
1,583

Less: Property operating expense
 
51,065

 

 
51,065

Segment NOI
 
$
33,942

 
$
1,583

 
35,525

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 

 
17,536

Interest expense
 
 
 
 

 
17,219

General and administrative expense
 
 
 
 

 
5,846

Acquisition, transaction and integration expense
 
 
 
 

 
133

Loss on extinguishment of debt
 
 
 
 
 
5,884

Other income
 
 
 
 
 
(105
)
Total expenses
 
 
 
 
 
46,513

Loss before income taxes
 
 
 
 
 
(10,988
)
Income tax expense
 
 
 
 

 
60

Loss from continuing operations
 
 
 
 

 
(11,048
)
Discontinued operations:
 
 
 
 
 
 
Gain from sale of real estate
 
 
 
 
 
19,992

Loss from discontinued operations
 
 
 
 
 
(3,107
)
Discontinued operations, net
 
 
 
 
 
16,885

Net income
 
 
 
 
 
$
5,837


10

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


 
 
Three Months Ended March 31, 2019
 
 
Managed IL Properties
 
Other Properties
 
Consolidated
Revenues
 
 
 
 
 
 
Resident fees and services
 
$
83,745

 
$
2,004

 
$
85,749

Rental revenue
 

 
1,582

 
1,582

Less: Property operating expense
 
50,719

 
2,220

 
52,939

Segment NOI
 
$
33,026

 
$
1,366

 
34,392

 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
16,994

Interest expense
 
 
 
 
 
19,850

General and administrative expense
 
 
 
 
 
4,978

Acquisition, transaction and integration expense
 
 
 
 
 
492

Other expense
 
 
 
 
 
1,315

Total expenses
 
 
 
 
 
43,629

Loss before income taxes
 
 
 
 
 
(9,237
)
Income tax expense
 
 
 
 
 
36

Loss from continuing operations
 
 
 
 
 
(9,273
)
Discontinued Operations:
 
 
 
 
 
 
Loss from discontinued operations
 
 
 
 
 
(1,920
)
Discontinued operations, net
 
 
 
 
 
(1,920
)
Net loss
 
 
 
 
 
$
(11,193
)

Assets by reportable business segment are reconciled to total assets as follows:
 
March 31, 2020
 
December 31, 2019

Amount
 
Percentage
 
Amount
 
Percentage
Managed IL Properties
$
1,735,305

 
90.8
%
 
$
1,748,787

 
79.7
%
Other Properties
62,612

 
3.3
%
 
63,616

 
2.9
%
All other assets (A)
113,071

 
5.9
%
 
382,306

 
17.4
%
Total assets
$
1,910,988

 
100.0
%
 
$
2,194,709

 
100.0
%


(A)
Includes $363.5 million of assets classified as discontinued operations for the year ended December 31, 2019. The remaining balance primarily consists of corporate cash which is not directly attributable to our reportable business segments.


11

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


The following table presents the percentage of total revenues by geographic location:
 
As of and for the three months ended
March 31, 2020
 
As of and for the three months ended
March 31, 2019
 
Number of Communities
 
% of Total Revenue
 
Number of Communities
 
% of Total Revenue
Florida
9

 
9.0
%
 
9

 
9.1
%
California
9

 
10.3
%
 
9

 
10.6
%
Texas
9

 
8.1
%
 
9

 
7.8
%
North Carolina
8

 
8.5
%
 
8

 
8.3
%
Pennsylvania
5

 
5.7
%
 
6

 
6.7
%
Oregon
8

 
7.0
%
 
8

 
7.1
%
Other
55

 
51.4
%
 
56

 
50.4
%
Total
103

 
100.0
%
 
105

 
100.0
%


5.
REAL ESTATE INVESTMENTS
 
The following table summarizes our real estate investments:
 
March 31, 2020
 
December 31, 2019
 
Gross Carrying Amount
 
Accumulated Depreciation
 
Net Carrying Value
 
Gross Carrying Amount
 
Accumulated Depreciation
 
Net Carrying Value
Land
$
134,643

 
$

 
$
134,643

 
$
134,643

 
$

 
$
134,643

Building and improvements
1,866,552

 
(280,022
)
 
1,586,530

 
1,863,866

 
(266,420
)
 
1,597,446

Furniture, fixtures and equipment
106,206

 
(88,957
)
 
17,249

 
106,170

 
(85,135
)
 
21,035

Total real estate investments
$
2,107,401

 
$
(368,979
)
 
$
1,738,422

 
$
2,104,679

 
$
(351,555
)
 
$
1,753,124


 
Depreciation expense was $17.4 million and $16.9 million for the three months ended March 31, 2020 and 2019, respectively.

The following table summarizes our real estate intangibles:
 
March 31, 2020
 
December 31, 2019
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted Average Remaining Amortization Period
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted Average Remaining Amortization Period
Intangible lease assets
$
7,642

 
$
(2,327
)
 
$
5,315

 
43.2 years
 
$
7,642

 
$
(2,238
)
 
$
5,404

 
43.0 years


Amortization expense was $0.1 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

We evaluate long-lived assets, primarily consisting of our real estate investments, for impairment indicators. In performing this evaluation, market conditions and our current intentions with respect to holding or disposing of the asset are considered. Where indicators of impairment are present, we evaluate whether the sum of the expected future undiscounted cash flows is less than book value. Based on our assessment, no charges were necessary for the three months ended March 31, 2020 and 2019.


12

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


6.
RECEIVABLES AND OTHER ASSETS, NET
 
March 31, 2020
 
December 31, 2019
Escrows held by lenders (A)
$
10,461

 
$
15,895

Straight-line rent receivable
4,218

 
4,084

Prepaid expenses
6,462

 
3,534

Security deposits
2,851

 
2,763

Resident receivables, net
1,422

 
1,345

Income tax receivable
636

 
821

Other assets and receivables
6,098

 
4,636

Total receivables and other assets
$
32,148

 
$
33,078


(A)
Represents amounts held by lenders in tax, insurance, replacement reserve and other escrow accounts that are related to mortgage notes collateralized by New Senior’s properties.

Straight-line Rent Receivable

Rental revenue from our triple net lease property is recognized on a straight-line basis over the applicable term of the lease when collectability of substantially all rents is probable. Recognizing rental revenue on a straight-line basis typically results in recognizing revenue in excess of cash amounts contractually due from our tenants during the first half of the lease term, creating a straight-line rent receivable.

We assess the collectability of straight-line rent receivables on an ongoing basis. This assessment is based on several qualitative and quantitative factors, including and as appropriate, the payment history of the triple net lease tenant, the tenant’s ability to satisfy its lease obligations, the value of the underlying collateral or deposit, if any, and current economic conditions. If our evaluation of these factors indicates it is not probable that we will collect substantially all rents, any lease income is limited to the lesser of the lease income reflected on a straight-line basis or cash collected.

The following table sets forth future contracted minimum lease payments from the tenant within the Other Properties segment, excluding contingent payment escalations, as of March 31, 2020:
2020 (nine months)
$
4,455

2021
6,066

2022
6,233

2023
6,405

2024
6,581

Thereafter
38,888

Total future minimum lease payments
$
68,628




13

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


7.
DEBT, NET
 
March 31, 2020
 
December 31, 2019
 
Outstanding Face Amount
 
Carrying Value (A)
 
Maturity Date
 
Stated Interest Rate
 
Weighted Average Maturity (Years)
 
Outstanding Face Amount
 
Carrying Value (A)
Floating Rate (B)(C)(D)
$
1,139,753

 
$
1,123,306

 
Mar 2022- Mar 2030
 
1M LIBOR + 2.00% to 1M LIBOR + 2.75%
 
6.2
 
$
1,139,036

 
$
1,128,100

Fixed Rate
464,680

 
462,630

 
Sep 2025
 
4.25%
 
5.3
 
464,680

 
462,532

Total
$
1,604,433

 
$
1,585,936

 
 
 
 
 
6.0
 
$
1,603,716

 
$
1,590,632


(A)
The totals are reported net of deferred financing costs of $18.5 million and $13.1 million as of March 31, 2020 and December 31, 2019, respectively.
(B)
Substantially all of these loans have LIBOR caps that range between 3.38% and 3.75% as of March 31, 2020.
(C)
Includes $100.0 million of borrowings outstanding under our Revolver as of March 31, 2020.
(D)
As of March 31, 2020, $350.0 million of total floating rate debt has been hedged using an interest rate swap, which is carried at fair value. See “Note 8 - Derivative Instruments” for more information.

The carrying value of the collateral relating to the floating rate and fixed rate debt was $1.2 billion and $0.5 billion, respectively, as of both March 31, 2020, and December 31, 2019.

Our debt agreements contain various customary financial and other covenants, in some cases including a debt service coverage ratio and project yield, as defined in the agreements. We are in compliance with the covenants in our debt agreements as of March 31, 2020.

In February 2020, in conjunction with the AL/MC Portfolio Disposition, we obtained mortgage financing in the aggregate amount of $270.0 million from KeyBank and assigned to Federal Home Loan Mortgage Corporation (the “2020 Freddie Financing”). The 2020 Freddie Financing is secured by 14 of our managed IL properties, matures on March 1, 2030, and bears interest at an adjustable rate, adjusted monthly, equal to the sum of the one month LIBOR index rate plus 2.12%. Concurrently on the same date, we used the funds from the 2020 Freddie Financing and proceeds from the AL/MC Portfolio Disposition to prepay an aggregate of $368.1 million of secured loans. We recognized a loss on extinguishment of debt of $5.9 million, comprising of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs, and is recorded in “Loss on extinguishment of debt” on our Consolidated Statements of Operations. We incurred a total of $3.3 million in deferred financing costs, which have been capitalized and are being amortized over the life of the loan and the related amortization is included in “Interest expense” in our Consolidated Statements of Operations.

In addition, in February 2020, we also amended and restated our secured revolving credit facility in the amount of $125.0 million (the “Revolver”) and extended its maturity from December 2021 to February 9, 2024. The amendment allows the Revolver to be increased with lender consent to a maximum aggregate amount of $500.0 million, of which (i) up to 10% may be used for the issuance of letters of credit, and (ii) up to 10% may be drawn by us in the form of swing loans. The Revolver bears an interest rate of, at our option, (i) the sum of LIBOR plus 2.0% or, in the case of a swing line loan, (ii) the greater of (a) the fluctuating annual rate of interest announced from time to time by KeyBank as its “prime rate,” plus 1.0% (b) 1.5% above the effective federal funds rate and (c) the sum of LIBOR for a one-month interest period plus 2.0%. The Revolver is secured by nine of our IL properties and the pledge of the equity interests of certain of our wholly owned subsidiaries. We continue to pay a fee for unused amounts of the Revolver under certain circumstances, which was not material for the three months ended March 31, 2020.


14

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


8.
DERIVATIVE INSTRUMENTS

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.

Derivatives Designated as Hedging Instruments

Interest rate swap

In May 2019, we entered into a $350.0 million notional interest rate swap with a maturity of May 2022 that effectively converts LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense. The interest rate swap was designated and qualified as a cash flow hedge with the change in fair value included in the assessment of hedge effectiveness deferred as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

As of March 31, 2020 and December 31, 2019, our interest rate swap liability of $14.7 million and $5.9 million, respectively, was recorded in “Accrued expenses and other liabilities” in our Consolidated Balance Sheets. For the three months ended March 31, 2020, $0.5 million of loss was reclassified from accumulated other comprehensive income (loss) into earnings and was recorded in “Interest expense” in our Consolidated Statements of Operations. As of March 31, 2020, approximately $5.5 million of our swap liability, which is included in accumulated other comprehensive income (loss), is expected to be reclassified into earnings in the next 12 months.

Derivatives Not Designated as Hedging Instruments

Interest rate caps

As of March 31, 2020 and December 31, 2019, our interest rate cap assets were recorded in “Receivables and other assets, net” in our Consolidated Balance Sheets. Fair value losses recognized for the three months ended March 31, 2020 were not material and fair value losses recognized for the three months ended March 31, 2019 were $0.5 million. These amounts are included in “Other expense” in our Consolidated Statements of Operations and “Other non-cash expense” in our Consolidated Statements of Cash Flows.

9.
ACCRUED EXPENSES AND OTHER LIABILITIES
 
March 31, 2020
 
December 31, 2019
Accounts payable
$
10,718

 
$
17,554

Security deposits payable
2,419

 
2,486

Due to property managers
6,714

 
6,752

Mortgage interest payable
5,218

 
5,665

Deferred community fees, net
5,820

 
5,865

Rent collected in advance
1,984

 
2,099

Property tax payable
4,843

 
5,627

Operating lease liability
1,914

 
1,942

Derivative liability
14,670

 
5,896

Other liabilities
8,013

 
5,434

Total accrued expenses and other liabilities
$
62,313

 
$
59,320




15

NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020
(dollars in tables in thousands, except share data)


10.
FAIR VALUE MEASUREMENTS

The carrying amounts and fair values of our financial instruments were as follows:
 
Fair Value Hierarchy
 
March 31, 2020
 
December 31, 2019
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (A)
1
 
$
135,103

 
$
135,103

 
$
39,614

 
$
39,614

Restricted cash (A)
1
 
13,311

 
13,311

 
18,658

 
18,658

Interest rate caps (B)(D)
2
 
74

 
74

 
IMM

 
IMM

Financial Liabilities:
 
 
 
 
 
 
 
 
 
Mortgage debt (C)