ANNUAL REPORT CHECKLIST
PROVIDER(S): _______________________________________________________________
___________________________________________________________________________
CCRC(S): ___________________________________________________________________
___________________________________________________________________________
CONTACT PERSON: __________________________________________________________
TELEPHONE NO.: (_____) __________________ EMAIL: ___________________________
A complete annual report must consist of 3 copies of all of the following:
Annual Report Checklist.
Annual Provider Fee in the amount of: $_________________
If applicable, late fee in the amount of: $___________
Certification by the provider’s Chief Executive Officer that:
The reports are correct to the best of his/her knowledge.
Each continuing care contract form in use or offered to new residents has been approved by the Department.
The provider is maintaining the required liquid reserves and, when applicable, the required refund reserve.
Evidence of the provider’s fidelity bond, as required by H&SC section 1789.8.
Provider’s audited financial statements, with an accompanying certified public accountant’s opinion thereon.
Provider’s audited reserve reports (prepared on Department forms), with an accompanying certified public accountant’s opinion thereon.
Provider’s “Continuing Care Retirement Community Disclosure Statement” and Form 7‐1 “Report on CCRC Monthly Service Fees” for each community.
Provider’s Refund Reserve Calculation(s) – Form 9‐1 and/or Form 9‐2, if applicable.
The Key Indicators Report is required to be submitted within 30 days of the due date of the submission of the annual report, but may be submitted at the same time as the annual report.
September 2013
FISCAL YEAR ENDED:
___/___/____ 12 31 20
Oakmont Senior Living LLC / Capriana Operations LLCCapriana At La Floresta Village
Keith Fitzsimons
707 535-3226
[email protected]
✔
✔
5,110.00
✔
✔
✔
✔
✔
✔
✔
✔
✔
Line Continuing Care Residents TOTAL
[1] Number at beginning of fiscal year 90
[2] Number at end of fiscal year 90
[3] Total Lines 1 and 2 180
[4] Multiply Line 3 by ".50" and enter result on Line 5.
[5] Mean number of continuing care residents 90
All Residents
[6] Number at beginning of fiscal year 147
[7] Number at end of fiscal year 143
[8] Total Lines 6 and 7 290
[9] Multiply Line 8 by ".50" and enter result on Line 10.
[10] Mean number of all residents 145
[11]
Divide the mean number of continuing care residents (Line 5) by the mean number of all residents (Line 10) and enter the result
(round to two decimal places). 0.62
FORM 1-2
ANNUAL PROVIDER FEE
Line TOTAL
[1] Total Operating Expenses (including depreciation and debt service - interest only) $8,335,200
[a] Depreciation $102,200
[b] Debt Service (Interest Only) $0
[2] Subtotal (add Line 1a and 1b) $102,200
[3] Subtract Line 2 from Line 1 and enter result. $8,233,000
[4] Percentage allocated to continuing care residents (Form 1-1, Line 11) 62%
[5] Total Operating Expense for Continuing Care Residents
(multiply Line 3 by Line 4) $5,110,138
x .001
[6] Total Amount Due (multiply Line 5 by .001) $5,110
PROVIDER:
COMMUNITY:
RESIDENT POPULATION
Oakmont Senior Living LLC/Capriana Operations LLC Capriana at La Floresta Village
x .50 x .50
Capriana LLC
Note to Form 1-2 reconciling total Operating Expense
Total Operating Expenses Per Consolidated Statement $ 11,115,900
Less: Facility Lease (2,780,700)
Form 1-2, Line 1 $ 8,335,200
Willis Towers Watson Midwest, Inc. fka Willis of Illinois, Inc.
c/o 26 Century Blvd P.O. Box 305191
Nashville, TN 372305191 USA
Oakmont Management Group, LLC 9240 Old Redwood Hwy, Ste 200 Windsor, CA 95492
Abuse - Primary Coverage: $1,000,000/$3,000,000; Excess Coverage $2,000,000/$2,000,000
Excess Liability coverage over General Liability, Professional Liability & Sexual Misconduct, coverage follows form for underlying.
Retro Date: 5/1/2015 or as specified as scheduled on the policy per location.
Evidence of Coverage
05/04/2020
1-877-945-7378 1-888-467-2378
Admiral Insurance Company 24856
W16408431
A
1,000,000 50,000 5,000 SIR $500,000
Retro Date: See below Included
3,000,000 3,000,000
257AL20A1075AR 05/01/2020 05/01/2021
Policy Aggregate 10,000,000
A 10,000,000
100,000
257AL20A1075BR 05/01/2020 05/01/2021 10,000,000
A Professional Liability
Claims Made
Each Claim
257AL20A1075AR 05/01/2020 05/01/2021
Aggregate Retention: $500,000
1668378 19578134
SR ID: BATCH:
3,000,000 1,000,000 Willis Towers Watson Certificate Center
Oakmont Management Group, LLC 9240 Old Redwood Hwy, Ste 200 Windsor, CA 95492
Holder Details:
Oakmont Management Group, LLC La Floresta, LLC
Capriana at La Floresta Village, LLC Capriana Operations, LLC
Oakmont Senior Living, LLC
dba: Capriana; Villagio at Capriana
460 S La Floresta Dr., Brea, Orange, CA 92823.
Occupancy: Assisted Living & Memory Care
Willis Towers Watson Midwest, Inc. fka Willis of Illinois, Inc.
See Page 1
See Page 1 See Page 1 See Page 1
25 Certificate of Liability Insurance
W16408431 CERT:
1668378 BATCH:
19578134 SR ID:
Report of Independent Auditors and Consolidated Financial Statements with
Consolidating Information
Oakmont Senior Living LLC and Subsidiaries
December 31, 2020 and 2019
Table of Contents
REPORT OF INDEPENDENT AUDITORS ... 1
CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets ... 4
Consolidated Statements of Operations ... 5
Consolidated Statements of Changes in Members’ Deficit ... 6
Consolidated Statements of Cash Flows ... 7
Notes to Consolidated Financial Statements ... 9
CONSOLIDATING INFORMATION Consolidating Balance Sheets ... 21
Consolidating Statements of Operations ... 22
Consolidating Statements of Cash Flows ... 23
1
Report of Independent Auditors
To the Members
Oakmont Senior Living LLC and Subsidiaries Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Oakmont Senior Living LLC and Subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in members’ deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
2 Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oakmont Senior Living LLC and Subsidiaries as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
Other Matter
Report on 2020 Consolidating Information
Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements of Oakmont Senior Living LLC and Subsidiaries taken as a whole. The 2020 consolidating information presented on pages 21 through 24 is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such consolidating information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.
San Francisco, California April 28, 2021
Consolidated Financial Statements
4 See accompanying notes.
Consolidated Balance Sheets December 31, 2020 and 2019
2020 2019
CURRENT ASSETS
Cash and cash equivalents $ 32,231,800 $ 48,688,300
Restricted cash 6,110,100 2,477,800
Accounts receivable and other assets 2,555,800 1,869,300
Due from related parties 3,990,300 2,270,900
Total current assets 44,888,000 55,306,300
INVESTMENT IN REAL ESTATE
Buildings and improvements 114,401,000 113,545,100
Land 8,108,400 8,108,400
Furniture, fixtures, and equipment 8,652,700 8,112,300
Land improvements 42,400 39,500
Construction in progress 284,900 83,600
Accumulated depreciation (56,403,200) (51,802,200)
Total investments in real estate, net 75,086,200 78,086,700
OTHER ASSETS
Due from related parties, less current potion 20,626,300 22,705,700
Total assets $ 140,600,500 $ 156,098,700
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 13,500,200 $ 10,312,800
Deferred rent 1,118,500 1,194,600
Due to related parties 660,300 80,000
Current maturities of debt obligations 1,217,200 1,073,700
Total current liabilities 16,496,200 12,661,100
OTHER LIABILITIES
Deferred revenue 818,300 565,900
Deferred rent, less current portion 7,936,700 9,129,000
Entrance fees subject to refund 190,757,300 186,830,800
Entrance fees nonrefundable, net 27,526,800 28,213,100
Debt obligations, less current maturities net of unamortized debt issuance costs 70,263,400 71,462,600
Total other liabilities 297,302,500 296,201,400
MEMBERS' DEFICIT
Noncontrolling interest (28,307,400) (26,779,600)
Controlling interest (144,890,800) (125,984,200)
Total members’ deficit (173,198,200) (152,763,800)
Total liabilities and members’ deficit $ 140,600,500 $ 156,098,700
ASSETS
LIABILITIES AND MEMBERS’ DEFICIT
See accompanying notes. 5
Consolidated Statements of Operations Years Ended December 31, 2020 and 2019
2020 2019
REVENUE:
Continuing care contracts $ 34,426,500 $ 32,256,800
Noncontinuing care contracts 15,115,800 11,913,400
Amortization of entrance fees nonrefundable 4,433,500 3,628,400
Total revenue 53,975,800 47,798,600
OPERATING EXPENSES:
Continuing care contract operating expenses 32,089,200 30,350,200 Noncontinuing care contract operating expenses 6,775,700 4,811,200 Management fees - related party 2,166,400 1,974,400
General and administrative 5,496,800 1,206,400
Depreciation 4,601,000 4,419,700
Facility lease 7,296,600 7,384,300
Total operating expenses 58,425,700 50,146,200
LOSS FROM CONTINUING OPERATIONS (4,449,900) (2,347,600)
OTHER INCOME (EXPENSE):
Interest income 34,600 69,900
Amortization of debt issuance costs (120,500) (121,600)
Interest expense (3,184,800) (3,241,100)
Gain on sale of equipment - 12,200
Fire related expenses (208,000) (2,413,900)
Fire related insurance recovery proceeds 437,000 2,986,700 Water damage related insurance recovery proceeds - 1,813,600 Water damage remediation costs - (104,300)
Miscellaneous 30,000 37,900
NET LOSS, BEFORE ALLOCATION TO NONCONTROLLING INTEREST (7,461,600) (3,308,200) NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST 1,015,000 268,400 NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST $ (6,446,600) $ (3,039,800)
6 See accompanying notes.
Consolidated Statements of Changes in Members’ Deficit Years Ended December 31, 2020 and 2019
Noncontrolling Controlling
Interest Interest Total
BALANCE, December 31, 2018 $ (25,933,700) $ (116,736,300) $ (142,670,000) Member contributions - 165,406,400 165,406,400 Member distributions (577,500) (171,614,500) (172,192,000) Net loss (268,400) (3,039,800) (3,308,200) BALANCE, December 31, 2019 (26,779,600) (125,984,200) (152,763,800) Member contributions 65,000 102,665,500 102,730,500 Member distributions (577,800) (115,125,500) (115,703,300) Net loss (1,015,000) (6,446,600) (7,461,600) BALANCE, December 31, 2020 $ (28,307,400) $ (144,890,800) $ (173,198,200)
See accompanying notes. 7
Consolidated Statements of Cash Flows Years Ended December 31, 2020 and 2019
2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from continuing care contracts $ 34,562,800 $ 32,468,300 Cash received from entrance fees nonrefundable 3,747,200 7,041,100 Cash received from noncontinuing care contracts - Cardinal Point 283,100 301,000 Cash received from noncontinuing care contracts - Segovia 2,117,200 2,115,000 Cash received from noncontinuing care contracts - Capriana 4,326,100 4,485,400 Cash received from noncontinuing care contracts - Fountaingrove Lodge 2,941,000 2,889,200 Cash received from noncontinuing care contracts - all other 5,479,900 2,263,100
Cash received from affiliates, net 940,300 3,093,900
Cash received fire related insurance proceeds 437,000 2,986,700 Cash received from water damage related insurance proceeds - 1,813,600
Cash paid to employees and suppliers (41,776,200) (38,764,800)
Cash paid for management fees (2,166,400) (1,974,400)
Cash paid for facility lease (8,565,000) (7,129,000)
Cash paid for fire related expense (208,000) (2,413,900)
Cash paid for water damage remediation costs - (104,300)
Interest received 34,600 69,900
Interest paid (3,184,800) (3,241,100)
Miscellaneous receipts 30,000 37,900
Net cash from operating activities (1,001,200) 5,937,600 CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (1,600,500) (3,341,600)
Net cash from investing activities (1,600,500) (3,341,600) CASH FLOWS FROM FINANCING ACTIVITIES:
Refunds of entrance fees subject to refunds (26,350,100) (29,730,300) Proceeds from entrance fees subject to refunds 30,276,600 30,293,800
Payments on debt obligations (1,176,200) (1,116,200)
Controlling interest distributions (115,125,500) (171,614,500)
Noncontrolling interest distributions (577,800) (577,500)
Controlling interest contributions 102,665,500 165,406,400
Noncontrolling interest contributions 65,000 - Net cash from financing activities (10,222,500) (7,338,300) NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH (12,824,200) (4,742,300) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year 51,166,100 55,908,400 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, end of year $ 38,341,900 $ 51,166,100
Consolidated Statements of Cash Flows (Continued) Years Ended December 31, 2020 and 2019
8 See accompanying notes.
2020 2019
Reconciliation of net loss to net cash from operating activities:
Net loss $ (7,461,600) $ (3,308,200)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 4,601,000 4,419,700
Gain on sale of equipment - (12,200)
Amortization of debt issuance costs 120,500 121,600
Amortization of entrance fees nonrefundable (4,433,500) (3,628,400) Proceeds from entrance fees nonrefundable 3,747,200 7,041,100 Changes in operating assets and liabilities:
Accounts receivable and other assets (686,500) 438,700
Due from related parties 360,000 3,178,300
Accounts payable and accrued liabilities 3,187,400 (2,527,600)
Due to related parties 580,300 (84,400)
Deferred revenue 252,400 43,700
Deferred rent (1,268,400) 255,300
Net cash from operating activities $ (1,001,200) $ 5,937,600
9
Notes to Consolidated Financial Statements
NOTE 1 – DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of operations – Oakmont Senior Living LLC was formed on November 1, 2000, as a California limited liability company. Oakmont Senior Living LLC purpose is to develop, construct, operate, lease, and own apartments, independent living, assisted living, and continuing care retirement communities. Oakmont Senior Living LLC operates retirement facilities it owns, or leases located in Alameda, Santa Rosa, Palm Desert, and Brea, California.
Basis of accounting and principles of consolidation – The consolidated financial statements are presented on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Oakmont Senior Living LLC and the following entities (the
“Company”):
Oakmont SL of Alameda, LP Varenna Assisted Living, LLC
Varenna at Fountaingrove, LLC OSL Limited Partner of Alameda, LLC
Varenna, LLC Segovia Operations, LLC
Varenna Apartments, LLC Fountaingrove Lodge, LLC
Cardinal Point at Mariner Square, LLC Capriana Operations, LLC Cardinal Point Social Club, LLC OSL of Alameda, LLC All significant transactions between these entities have been eliminated.
The Company adopted accounting standards that address consolidation by business enterprises of variable interest entities (VIEs). The Company has considered its agreements and business activities with related parties in order to determine whether any of the relationships would qualify as VIEs and whether the Company would be deemed to be the primary beneficiary and be required to consolidate the activities of these VIEs in the Company’s consolidated financial statements.
The Company has identified certain related entities with common ownership as VIEs and has concluded that it is not the primary beneficiary in accordance with GAAP, primarily due to the fact that the Company does not have a direct ownership and ultimately the members of such entities control and support the activities that most significantly impact operations. Each of these entities has been financed either through capital contributions or related party debt, some of which was provided by the Company (see Note 3). The Company has no contractual obligation to support the operations of these entities; however, it may voluntarily elect to provide additional direct or indirect support based on each business’ objectives and cash flow needs.
The power to direct the activities of these entities was evaluated in making this determination and the Company concluded that the members of the entities, and not the Company, hold this decision-making power. Further, it was concluded that the members of the entities have the obligation to absorb potential losses and the right to receive the benefits derived from the entities. The Company does not believe they are exposed to any future losses from the relationship with these entities.
Notes to Consolidated Financial Statements
10
The summarized financial information for unconsolidated VIEs at December 31 is as follows:
2020 2019
Cash $ 1,451,700 $ 2,045,800
Due from related parties 1,200 -
Investments in real estate
Building and improvements 61,037,000 -
Construction in progress 16,457,300 43,376,300
Land 16,552,700 16,552,700
Furniture, fixtures, and equipment 4,558,600 - Accumulated depreciation (1,282,700) -
Total investments in real estate, net 97,322,900 59,929,000
Other assets 673,400 6,255,200
Total assets $ 99,449,200 $ 68,230,000
Due to related parties $ 490,300 $ -
Debt obligations 104,428,000 74,540,200
Other liabilities 4,080,500 862,600
Total liabilities 108,998,800 75,402,800
Members’ deficit (9,549,600) (7,172,800)
Total liabilities and members’ deficit $ 99,449,200 $ 68,230,000 ASSETS
LIABILITIES AND MEMBERS’ DEFICIT
Use of estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentration of risk – Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of demand deposits and other cash accounts (including restricted amounts) that may be in excess of Federal Deposit Insurance Corporation insured limits, and accounts receivable.
Cash and cash equivalents – The Company considers all highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents.
Restricted cash – Restricted cash consists of collections for entrance fee deposits, operating expense impound accounts required by the Company’s lenders, and restricted cash accounts used as collateral as required by one of the Company’s lenders.
Notes to Consolidated Financial Statements
11 The following table provides a reconciliation of cash and cash equivalents and restricted cash reporting within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows at December 31:
2020 2019
Cash and cash equivalents $ 32,231,800 $ 48,688,300
Restricted cash 6,110,100 2,477,800
Total cash and cash equivalents and restricted
cash shown in the consolidated statements of cash flows $ 38,341,900 $ 51,166,100 Accounts receivable and other assets – Accounts receivable and other assets consist of trade receivables, receivables from tenants, deposits, and prepaid expenses. Accounts receivable consists of payments owed from residents for services rendered, which does not represent concentrated credit risks to the Company. Management regularly monitors and adjusts its reserves and allowances related to these receivables. Accounts deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. At December 31, 2020 and 2019, no allowance for doubtful accounts was deemed necessary.
Investments in real estate – Investments in real estate are recorded at the lesser of cost or estimated fair- market value, if impaired, and include interest and property taxes capitalized on long-term construction projects during the construction period, as well as other costs directly related to the development and construction of facilities. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:
Buildings and improvements 30–40 years
Furniture, fixtures, and equipment 3–10 years
The Company reviews its investments in real estate for impairment whenever events or changes in circumstances indicate that the cost basis of such assets may not be recoverable. If the cost basis of an investment in real estate is greater than the projected future undiscounted net cash flows (before interest) from that property, an impairment loss is recognized. Impairment losses are calculated as the difference between the property’s cost basis and its estimated fair value. No such impairment losses have been recognized to date. An investment in real estate held for sale is carried at the lower of its carrying amount or estimated fair value, less costs to sell. The Company considers an investment in real estate held for sale when the property is being actively marketed for sale and expects it to sell within one year. There were no properties held for sale at December 31, 2020 and 2019.
Debt issuance costs – Debt issuance costs are stated at cost and consist of fees incurred in connection with the debt obligations. These costs are amortized on a straight-line basis over the term of the associated indebtedness, which approximates the effective interest method. The unamortized costs are classified as a reduction to the debt obligations. The Company paid no loan costs for the years ended December 31, 2020 and 2019. The Company incurred amortization expense related to debt issuance costs of $120,500 and $121,600 for the years ended December 31, 2020 and 2019, respectively.
Notes to Consolidated Financial Statements
12
Entrance fees refundable – Residents pay an entrance fee to occupy a unit and pay monthly fees for housing, food, and services. The Company has residency agreements that require the resident to pay an upfront entrance fee prior to joining the community that is 100% refundable within 90 days of occupancy. Certain contracts require the refundable portion of the entrance fee to be refunded only upon resale of the unit (contingently refundable).
Upon resale, the Company may receive re-occupancy proceeds in the form of additional contingently refundable fees, refundable fees, or nonrefundable fees. The refundable portion of a resident’s entrance fee is recorded as a liability on the consolidated balance sheets. Entrance fees subject to refund, totaled $190,757,300 and
$186,830,800 at December 31, 2020 and 2019, respectively. It is management’s expectation that future refunds will not have a significant effect on the consolidated financial statements.
Deferred rent – Deferred rent consists of the difference between the amount recognized as rent expense and the amount of rent paid due to step increases in the lease agreement.
Revenue recognition – On January 1, 2019, Oakmont Senior Living LLC and its subsidiaries adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), and its related amendments, collectively known as ASC 606. The Company did not record a cumulative-effect adjustment from initially applying the standard as the adoption did not have a material impact on the financial position or results of operations.
Amortization of entrance fees nonrefundable - After the initial 90 days of occupancy, the entrance fees are a combination of refundable and nonrefundable in accordance with the terms of the contracts. The nonrefundable portion of the entrance fee is recorded as an entrance fee nonrefundable liability and amortized over the estimated life of the resident based on an actuarial valuation.
Entrances fees nonrefundable were $27,526,800 and $28,213,100 at December 31, 2020 and 2019, respectively.
Revenue recognized from amortization of entrance fees nonrefundable totaled $4,433,500 and $3,628,400 for the years ended December 31, 2020 and 2019, respectively.
Rental revenue – The Company’s operations include leasing apartment units. Rental income is recognized in revenue on a straight-line basis over the lives of the related leases when collectability is reasonably assured. The lease terms are generally for periods of one year or less. Differences between the rental revenue recognized and amounts due under the respective lease agreements with terms in excess of one year are recorded as deferred rent receivable, which was $0 as of December 31, 2020 and 2019. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.
Resident fee revenue, presented as continuing care and noncontinuing care contracts, and is recorded when services are rendered and consist of fees for basic housing, support services, and fees associated with additional services, such as personalized health and assisted living care. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly in advance. Revenues for certain care services provided are also charged in advance. Additional ancillary charges are billed monthly in arrears. As of December 31, 2020 and 2019, approximately $818,300 and $565,900, respectively, has been recorded in deferred revenue related to fees paid by applicants prior to occupancy.
Advertising – The Company expenses its advertising costs as they are incurred. Advertising expenses amounted to $732,500 and $798,900 for the years ended December 31, 2020 and 2019, respectively.
Notes to Consolidated Financial Statements
13 Income taxes – The Company is taxed as a partnership for federal and state purposes. As a partnership, all federal and state income tax liability flows through to the Company’s members. No provision for income taxes is included in the accompanying consolidated financial statements.
The Company follows the accounting standard related to accounting for uncertain tax positions. The standard prescribes a recognition threshold and measurement process for accounting for uncertain tax positions and also provides guidance on various related matters, such as derecognition, interest, penalties, and disclosures required.
The Company does not have any entity level uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and the State of California. The Company recognizes interest and penalties related to income tax matters in operating expenses. There are no interest and penalties recorded in the consolidated financial statements for the years ended December 31, 2020 and 2019.
Obligation to provide future services – If the present value of estimated future cash outflows to provide services to residents exceeds the present value of estimated future cash inflows from residents, a liability is recognized. The Company has determined that no accrual for the obligation to provide future services and use of facilities to current residents was required at December 31, 2020 and 2019. The discount rate used to calculate the obligation to provide future services is 5%.
Statutory cash reserve requirements – The Company is subject to statutory cash reserve requirements. At December 31, 2020 and 2019, the Company’s reserves were in excess of such requirements by $9,335,200 and
$11,019,200, respectively, as calculated in accordance with the Continuing Care Contract Statutes of the California Health and Safety Code.
Recent accounting pronouncements – In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which provides a new model for accounting by lessees, whereby the rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the consolidated balance sheet. For lessors, however, the accounting remains largely unchanged and the distinction between operating and finance leases is retained. ASU 2016-02 is effective for annual periods beginning on or after December 15, 2021. Early application is permitted for all entities. The Company is currently evaluating the impact of the new standard and has not yet determined if it will have a material impact on its consolidated financial statements.
Reclassifications – Certain 2020 and 2019 amounts have been reclassified to conform to correct year presentation with no effect on the results of operations or members’ deficit.
Subsequent events – Subsequent events are events or transactions that occur after the consolidated balance sheet date, but before the consolidated financial statements are issued. The Company recognizes, in the consolidated financial statements, the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the consolidated balance sheet, including the estimates inherent in the process of preparing the consolidated financial statements. The Company’s consolidated financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the consolidated balance sheet but arose after the consolidated balance sheet date and before the consolidated financial statements were available to be issued.
The Company has evaluated subsequent events through April 28, 2021, which is the date the consolidated financial statements were available to be issued, in accordance with the Company’s policy related to disclosures of subsequent events.
Notes to Consolidated Financial Statements
14
NOTE 2 – DEBT OBLIGATIONS, NET
The following is a listing of debt obligations that were outstanding at December 31:
2020 2019
52,772,000
$ $ 53,927,900
1,818,600
1,838,900
17,500,000
17,500,000 72,090,600
73,266,800 Less: unamortized debt issuance costs (610,000) (730,500)
71,480,600
$ $ 72,536,300 Loan payable to a financial institution with monthly payments of
$287,000, bearing interest at 4.25%. The loan matures in August 2025, and is guaranteed by a member. The payments are secured in part by a pledge of reserve funds and the mortgaged property.
Loan payable to Greystone Service Corporation bearing a fixed annual interest rate of 4.55% payable monthly. Scheduled maturity date is May 1, 2027, guaranteed 100% by the majority member of Oakmont Senior Living with payment of principal and interest secured in part by a pledge of Reserve Funds and the Mortgaged Property under the Indenture.
Loan payable to a financial institution; monthly payments for the first 60 months of $8,500 bearing interest at 3.08% and 4.76% as of December 31, 2020 and 2019, respectively; monthly payments of
$9,000 for the following 59 months bearing interest at the weekly average yield of U.S. Treasury Securities adjusted to a constant maturity of 5 years, as made available by the federal reserve board, (1.24% and 1.76% at December 31, 2020 and 2019, respectively) plus a margin of 3%; one final payment of outstanding principal and interest at maturity in July 2024; guaranteed by a member of Oakmont Senior Living LLC; subject to certain to financial covenants.
Management believes the Company was in compliance at December 31, 2020 and 2019.
All long-term debt obligations are secured by deeds of trust on the investment in real estate. The loan agreements contain general affirmative and negative covenants that include provisions for the upkeep of the properties, maintenance, insurance, compliance with laws, and financial reporting requirements. Many agreements include restrictions on certain transactions and changes in capital structure. Management believes the Company is in compliance with these covenants.
Notes to Consolidated Financial Statements
15 Future minimum principal payments due under the debt obligations subsequent to December 31, 2020 are as follows:
Year Ending December 31,
2021 $ 1,217,200
2022 1,270,800
2023 1,326,800
2024 3,092,000
2025 47,683,800
Thereafter 17,500,000
72,090,600
$
NOTE 3 – RELATED-PARTY TRANSACTIONS
As of December 31, 2020 and 2019, the Company had amounts due from related parties of $24,616,600 and
$24,976,600, respectively. Included in due from related parties is a note receivable agreement with an affiliated company with an interest rate of 4.31%. The note is payable on demand. The note receivable balance was
$160,900 and $343,500 as of December 31, 2020 and 2019, respectively. During the years ended December 31, 2020 and 2019, the Company recorded interest income of $16,200 and $61,200, respectively, on this note, which is included in interest income in the consolidated statements of operations. There was no interest income receivable at December 31, 2020 and 2019.
As of December 31, 2020 and 2019, the Company had amounts due to related parties of $660,300 and $80,000, respectively. These balances are noninterest bearing and are due on demand.
The Company’s majority member has a controlling financial interest in a financial institution. As of December 31, 2020 and 2019, the Company had cash deposits with this financial institution of $30,458,400 and $42,015,800 respectively.
Pursuant to asset and property management agreements between the Company and an unconsolidated affiliate, the Company is obligated to pay monthly management fees. Management fees of $2,166,400 and $1,974,400 were paid to the unconsolidated affiliate during the years ended December 31, 2020 and 2019, respectively.
NOTE 4 – MEMBERS’ DEFICIT
The liability of each member of Oakmont Senior Living LLC is limited to the amount of his or her required capital contribution. The Company will cease to exist on January 30, 2051, unless it is dissolved at an earlier date in accordance with the operating agreement.
Notes to Consolidated Financial Statements
16
NOTE 5 – EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) defined contribution retirement plan for all full-time employees with at least 12 months of continuous service and who have reached the age of 21 years. The plan is qualified under Section 401(k) of the Internal Revenue Code, so that contributions to the plan by the Company are not taxable until distributed to employees. The Company matches up to 3% of each participating employee’s annual salary at its discretion, and such employer contributions are vested immediately. There were employer contributions of
$80,900 and $59,200 to the plan for the years ended December 31, 2020 and 2019, respectively.
NOTE 6 – COMMITMENTS
The Company operates assisted living facilities under long-term noncancelable operating leases with initial lease terms of 15 years, renewal options of 15 to 30 years, and expiration dates through October 2035. Operating lease rent expense is recorded on the straight-line basis and amounted to $7,296,600 and $7,384,300 for the years ended December 31, 2020 and 2019, respectively. The adjustment to the straight-line lease expense resulted in deferred rent liability of $9,055,200 and $10,323,600 as of December 31, 2020 and 2019, respectively.
Future minimum lease payments under these operating lease agreements in effect as of December 31, 2020 are as follows:
Year Ending December 31,
2021 $ 6,522,000
2022 8,146,600
2023 8,228,000
2024 8,310,300
2025 8,393,400
Thereafter 28,744,700
68,345,000
$
Notes to Consolidated Financial Statements
17 NOTE 7 – EXTRAORDINARY EVENT
During October 2017, Sonoma and Napa Counties, experienced wildfires that impacted or destroyed many homes and structures. As a result of the wildfires, Varenna Assisted Living was completely destroyed, while Varenna, LLC and Fountaingrove Lodge, experienced fire damage that required repair. Varenna Assisted Living LLC re-opened in August 2019. During October 2019, Varenna Assisted Living LLC, Varenna LLC, and Fountaingrove Lodge LLC had to evacuate during the Kincade fire. The Company and its related properties are fully insured against fire related events and coordinates with the insurance providers to recover the costs related to fire damage. Fire related expenses include business interruption expenses, temporary relocation costs, employee reimbursements, evacuation costs, and remediation costs, which are accounted for as other expenses as incurred. Fire related loss includes loss due to destroyed property and equipment and is recorded upon the complete destruction of the property. As such, the loss is recorded as other expense in the consolidated statements of operations. Insurance recovery proceeds include payments from the insurance providers to recover the costs relating to fire related expenses or fire related loss. Insurance proceeds in excess of recognized losses are recorded as gains. There were no gains recorded relating to fire related events during the years ended December 31, 2020 and 2019. During the years ended December 31, 2020 and 2019, the Company has recognized the following fire related expenses, loses, and insurance recoveries:
2020 2019
FIRE RELATED EXPENSES:
Varenna Assisted Living, LLC $ (183,700) $ (1,956,600)
Varenna, LLC (14,700) (250,600)
Fountaingrove Lodge, LLC (9,600) (206,700)
(208,000)
$ $ (2,413,900)
INSURANCE RECOVERY PROCEEDS:
Varenna Assisted Living, LLC $ 8,100 $ 1,730,000
Varenna, LLC 217,400 832,400
Fountaingrove Lodge, LLC 211,500 424,300
437,000
$ $ 2,986,700 As of December 31, 2020 and 2019, there were no fire related expenses included in accounts payables and accrued liabilities.
Notes to Consolidated Financial Statements
18
During 2018, Varenna, LLC had a pipe burst at the community that affected several units of the building, requiring those units to be vacated for several months while repairing the damage. The Company is fully insured against the property damage and is working with the insurance providers to recover all of the costs associated with the water damage. During the years ended December 31, 2020 and 2019, the Company has recognized the following water damage related expenses and insurance recoveries:
2020 2019
WATER DAMAGE RELATED EXPENSES:
Varenna, LLC $ - $ (104,300)
INSURANCE RECOVERY PROCEEDS:
Varenna, LLC $ - $ 1,813,600
As of December 31, 2020 and 2019, there were no water damage related expenses included in accounts payables and accrued liabilities.
NOTE 8 – CONTINGENCIES
Environmental matters – The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, consolidated assets, or consolidated results of operations. There can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s consolidated results of operations.
Litigation – The Company may be involved, from time-to-time, in legal actions relating to the ownership and operations of its properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.
COVID-19 – During the year ended December 31, 2020, the World Health Organization declared the novel coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide.
Public health crises, pandemics and epidemics, such as those caused by COVID-19, could have a material adverse effect on global, national, and local economics, as well as on the Company’s business by disrupting supply chains and delaying transactional activities. Any spread of an infectious illness, public health threat, or similar issue could reduce consumer demand or economic output, result in market closures, cause travel restrictions or quarantines, and generally have a significant impact on the economy. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, customers, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses and organizations, including the Company’s. The potential impact of a pandemic, epidemic, or outbreak of a contagious disease on business is difficult to predict and could have a material adverse effect on the Company’s results of operations and financial condition. The Company will continue to monitor the situation closely, but given the uncertainty and volatility about the situation, an estimate of the impact to the consolidated financial statements cannot be made at this time.
Notes to Consolidated Financial Statements
19 NOTE 9 – LEGAL SETTLEMENT
During the year ended December 31, 2020, the Company was involved in a class-action lawsuit involving community fees that was settled during the year. The settlement resulted in a financial loss to the Company in the amount of $1,340,321 and was accrued for in the financial statements as of December 31, 2020.
