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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-05 · 295 added, 727 removed, 349 unchanged (75% of the section changed)

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Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including those related to the COVID-19 pandemic.

Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," "target," or other similar words or expressions.

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Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our assumptions or expectations will be attained and actual results and performance could differ materially from those projected.

the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals and us, on our business, results of operations, cash flow, liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease, the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in our markets, the development and availability of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief;

perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand, changes in the acuity levels of our new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, and other expenses, the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents, increased regulatory requirements, including unfunded mandatory testing, increased enforcement actions resulting from COVID-19, including those that may limit our collection efforts for delinquent accounts and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts;

events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing markets, consumer confidence or the equity markets and unemployment among family members, which may be adversely impacted by the pandemic;

Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals, and us on our business, results of operations, cash flow, liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease, the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets, the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief, perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand, the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19, changes in the acuity levels of our new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses, the impact of COVID-19 on our ability to complete financings and refinancings of various assets, or other transactions (including dispositions and our pending Health Care Services transaction) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents, increased regulatory requirements, including unfunded, mandatory testing, increased enforcement actions resulting from COVID-19, government action that may limit our collection or discharge efforts for delinquent accounts, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts;

events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing market, consumer confidence, or the equity markets and unemployment among resident family members;

changes in reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid programs;

the impact of ongoing healthcare reform efforts;

the effects of senior housing construction and development, oversupply and increased competition;

disruptions in the financial markets, including those related to the pandemic, that affect our ability to obtain financing or extend or refinance debt as it matures and our financing costs;

the risks associated with current global economic conditions, including changes related to the pandemic, and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates;

the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate;

our ability to generate sufficient cash flow to cover required interest and long-term lease payments and to fund our planned capital projects, which may be adversely affected by the pandemic;

the effect of our indebtedness and long-term leases on our liquidity;

the effect of our non-compliance with any of our debt or lease agreements (including the financial covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of our non-compliance with any such agreements and the risk of loss of our property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions;

the potential phasing out of LIBOR which may increase the costs of our debt obligations;

increased competition for or a shortage of personnel, wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity;

the effects of senior housing construction and development, lower industry occupancy (including due to the pandemic), and increased competition;

conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where we are concentrated;

terminations of our resident agreements and vacancies in the living spaces we lease, including due to the pandemic;

limits on our ability to use net operating loss carryovers to reduce future tax payments;

failure to maintain the security and functionality of our information systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA;

our inability to achieve or maintain profitability;

our ability to complete pending or expected disposition, acquisition, or other transactions on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our ability to identify and pursue any such opportunities in the future;

our ability to obtain additional capital on terms acceptable to us;

our ability to complete our capital expenditures in accordance with our plans;

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competition for the acquisition of assets;

delays in obtaining regulatory approvals;

terminations, early or otherwise, or non-renewal of management agreements;

conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where we are concentrated;

terminations of our resident agreements and vacancies in the living spaces we lease, which may be adversely impacted by the pandemic;

departures of key officers and potential disruption caused by changes in management;

our ability to complete pending or expected disposition, acquisition, or other transactions (including our pending Health Care Services transaction) on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our ability to identify and pursue any such opportunities in the future;

risks related to the implementation of our strategy, including initiatives undertaken to execute on our strategic priorities and their effect on our results;

actions of activist stockholders, including a proxy contest;

market conditions and capital allocation decisions that may influence our determination from time to time whether to purchase any shares under our existing share repurchase program and our ability to fund any repurchases;

our ability to maintain consistent quality control;

a decrease in the overall demand for senior housing, which may be adversely impacted by the pandemic;

delays in obtaining regulatory approvals;

disruptions in the financial markets or decreases in the appraised values or performance of our communities that affect our ability to obtain financing or extend or refinance debt as it matures and our financing costs;

our ability to generate sufficient cash flow to cover required interest and long-term lease payments and to fund our planned capital projects;

the effect of our indebtedness and long-term leases on our liquidity;

the potential phasing out of LIBOR which may increase the costs of our debt obligations;

our ability to obtain additional capital on terms acceptable to us;

departures of key officers and

potential disruption caused by changes in management;

increased competition for or a shortage of personnel (including due to the pandemic), wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity;

environmental contamination at any of our communities;

failure to comply with existing environmental laws;

costs to defend against, or an adverse determination or resolution of, complaints filed against us;

an adverse determination or resolution of complaints filed against us, including class action and stockholder derivative complaints;

the cost and difficulty of complying with increasing and evolving regulation;

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unanticipated costs to comply with legislative or regulatory developments;

as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"), including those set forth under "Item 1A.

the risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates;

the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate;

actions of activist stockholders, including a proxy contest;

as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, including those set forth under "Item 1A.

Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, "Item 1A.

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We cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

As of September 30, 2020, we are the largest operator of senior living communities in the United States based on total capacity, with 726 communities in 44 states and the ability to serve approximately 65,000 residents.

As of March 31, 2021, we are the largest operator of senior living communities in the United States based on total capacity, with 695 communities in 42 states and the ability to serve approximately 60,000 residents.

We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry.

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Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer.

With our range of community and service offerings, we believe that we are positioned to take advantage of favorable demographic trends over time.

Our community and service offerings combine housing with hospitality and healthcare services.

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The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives.

COVID-19 Pandemic

The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, our nation’s economy, the senior living industry, and our business.

Although a significant portion of our corporate support associates began working from home in March 2020, we continue to serve and care for seniors through the pandemic.

COVID-19 Pandemic Update

Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19.

The health and wellbeing of our residents, patients, and associates is and has been our highest priority.

We initiated our COVID-19 preparation efforts in January 2020 and continue to actively monitor requirements and guidance of federal, state, and local governments and agencies, including the U.S.

Centers for Disease Control and Prevention and U.S.

Centers for Medicare & Medicaid Services ("CMS"), and adapt our policies and procedures when applicable.

Our response efforts center on infection prevention and control protocols.

We have enhanced and reinforced training our associates in such protocols.

Upon confirmation of positive COVID-19 exposure at a community, we follow government guidance regarding minimizing further exposure, including associates' adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents.

Seeking to prevent the introduction of COVID-19 into our communities, and to help control further exposure to infections within communities, in March 2020 we began restricting visitors at all our communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days.

These restrictions were in place across our portfolio for the three months ended June 30, 2020.

We have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the community having no current confirmed positive COVID-19 cases.

Under this framework, we began easing restrictions on a community-by-community basis in July 2020 where regulatory requirements and guidance allow, which easing may have included permitting outdoor, and in some cases, indoor visits with families, reduced capacity communal dining, limited communal activities programming, and in-person prospective resident visits.

Due to the vulnerable nature of our residents, we expect restrictions at our communities to continue for some time, and we may revert to more restrictive measures if the pandemic worsens or as necessary to comply with regulatory requirements.

In April 2020, we proactively commenced a resident and associate testing program for our communities.

We conducted the testing program in conjunction with state and local testing requirements at several of our communities.

We undertook the program to identify positive, but asymptomatic, individuals, to better understand how our infection protocols are working, and to help minimize the exposure to residents and associates of someone known to be COVID-19 positive.

In July 2020, we completed baseline testing at all of our communities.

Through October 31, 2020, our testing program has accumulated more than 185,000 test results.

Approximately 1% of our residents had current COVID-19 positive test results on October 31, 2020.

Further testing, whether undertaken proactively or as a result of regulatory requirements, may result in significant additional expense, additional temporary restrictions on move-ins at affected communities, continued need for isolating positive residents, increased use of personal protection equipment by our associates, and increased labor costs.

The pandemic, including the related restrictions at our communities, have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities.

We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time.

In response to these developments, we have redesigned our sales process to include virtual tours, video engagement, and outdoor prospective resident meetings, enhanced and adapted our marketing programs to address the social distancing environment, and sought to strengthen our relationships with referral partners.

During the third quarter of 2020, we returned to using in-person prospective resident visits for a majority of our communities.

However, several large markets continue with virtual-only prospective resident visits.

Restrictions on move-ins were eased at our communities beginning in July 2020, with approximately 98% of our communities accepting new residents by the end of September 2020 compared to 86% of our communities as of June 30, 2020.

On October 31, 2020, we are accepting new residents to 95% of our communities.

The health and wellbeing of our residents, patients, and associates is and has been our highest priority as we continue to serve and care for seniors through the pandemic.

In addition to the updates below, readers are directed to the "COVID-19 Pandemic" section of Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 for more information about the impact of the pandemic and our response efforts on our business, results of operations, and financial condition.

Vaccine Clinics Completed .

We elected to work with CVS Health Corporation ("CVS") to administer vaccinations on site to our residents and associates through the Pharmacy Partnership for Long-Term Care Program offered through the U.S.

Centers for Disease Control and Prevention ("CDC").

We worked extensively to prepare for and host CVS clinics as quickly as possible among our approximately 700 communities, which included extensive planning, gathering insurance information, obtaining consents, scheduling appointments, holding educational sessions with residents, families, and associates, detailed coordination of traffic flow, and staffing observation areas.

We hosted our first clinics on December 18, 2020 and had completed at least three vaccine clinics at all of our communities by April 9, 2021.

Through April 30, 2021, our resident vaccine acceptance rate was 93%, and our COVID-19 positive resident caseload had decreased by 97% since the peak in mid-December 2020.

We continue to promote vaccine acceptance among our residents and associates and to work with state and local resources, including local health departments and pharmacies, to ensure our residents and associates can access the vaccine.

Community Restrictions .

To help protect our residents, patients, and associates from contracting COVID-19, we imposed significant restrictions at our communities beginning in March 2020, including closing our communities to visitors and prospective residents, and in some cases restricting new resident move-ins, suspending group outings, modifying communal dining and programming to comply with social distancing and other regulatory guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days.

We have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the presence of current confirmed COVID-19 positive cases.

We may revert to more restrictive measures if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities.

As of December 31, 2020, 89% of our communities were accepting new move-ins.

With lower caseloads, restrictions on visits have been relaxed, and as of April 30, 2021, 100% of our communities have opened for visitors and new prospects.

Occupancy and Demand.

According to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), seniors housing occupancy again decreased to a record low for the first quarter of 2021.

In our consolidated seniors housing portfolio, our monthly net move-ins and move-outs turned positive in March 2021 for the first time since the pandemic began.

Move-ins increased sequentially each month during the first quarter of 2021 and increased 29% for the first quarter of 2021 compared to the fourth quarter of 2020.

Our consolidated senior housing portfolio’s weighted average occupancy

decreased 310 basis points for the first quarter of 2021 from the fourth quarter of 2020.

Weighted average occupancy for March 2021 increased slightly sequentially and for April 2021 increased 50 basis points sequentially, after having declined sequentially each month from March 2020 through February 2021.

The table below sets forth our consolidated occupancy trend during the pandemic.

2021 February

Weighted average occupancy 83.2 % 78.7 % 75.3 % 72.7 % 69.6 % 70.0 % 69.4 % 69.4 % 69.9 %

Month-end occupancy 82.2 % 77.8 % 75.0 % 71.5 % 70.6 % 70.4 % 70.1 % 70.6 % 71.1 %

We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents.

The pandemic, including the related restrictions at our communities, began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels.

The year-over-year decrease in monthly move-ins of our same community portfolio has moderated from 64.2% in April 2020 to 22.9% in September 2020, and move-ins for the third quarter of 2020 improved 38.0% sequentially from the second quarter of 2020.

Despite the slowing pace of reduced move-ins, our same community weighted average occupancy has declined in each month of the pandemic, from 83.0% in March 2020 to 74.4% in September 2020, and was 74.0% in October 2020.

We estimate that the pandemic, including the related restrictions at our communities, resulted in $70.8 million and $115.8 million of lost resident fee revenue in our same community portfolio for the three and nine months ended September 30, 2020, respectively.

Further deterioration of our resident fee revenue will result from lower move-in activity and the resident attrition inherent in our business, which may increase due to the impacts of COVID-19.

Lower controllable move-out activity during the pandemic may continue to partially offset future adverse revenue impacts.

Our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in a 14.4% year-over-year decline in home health average daily census for the three months ended September 30, 2020.

We expect home health average daily census to continue to gradually recover sequentially with increased elective medical procedures and hospital discharges and senior housing occupancy.

Facility operating expense for the three and nine months ended September 30, 2020 includes $24.5 million and $95.1 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for:

acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation, increased labor, increased workers compensation and health plan expense, consulting and professional services, and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources.

We are not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs are likely to be substantial.

As described further below, we also recorded non-cash impairment charges in our operating results of $95.2 million for the nine months ended September 30, 2020 for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities for which assets were impaired.

We have taken, and continue to take, actions to enhance and preserve our liquidity in response to the pandemic.

During the nine months ended September 30, 2020, we have completed our financing plans in the regular course of business, including refinancing substantially all of our remaining 2020 and 2021 maturities.

In addition, on August 31, 2020, we terminated our $250 million revolving credit facility and obtained $266.9 million of non-recourse mortgage financing on 16 communities, most of which had secured the credit facility prior to its termination.

See Note 10 for further information regarding our financings.

During the nine months ended September 30, 2020, we accepted $36.1 million of cash for grants under the Public Health and Social Services Emergency Fund (the "Provider Relief Fund") and $87.5 million of accelerated/advanced Medicare payments, and we deferred $50.1 million of the employer portion of social security payroll taxes.

Each of these programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below.

We also have delayed or canceled a number of elective capital expenditure projects, resulting in an approximate $65 million reduction to our pre-pandemic full-year 2020 capital expenditure plans, and suspended repurchases under our existing share repurchase program.

On July 26, 2020, we restructured our 120 community triple-net master lease with Ventas, Inc.

("Ventas") in a multipart transaction.

The components included, among other things, reducing our initial annual minimum rent to $100 million, representing a reduction of approximately $86 million over the twelve months ending June 30, 2021, and removal of the prior

requirements that we satisfy financial covenants and maintain a security deposit with Ventas.

We paid a $119.2 million one-time cash lease payment to Ventas in connection with our lease restructuring transaction effective July 26, 2020.

See "Transaction Activity and Impact of Dispositions on Results of Operations" below for more information about the Ventas restructuring.

As of September 30, 2020, our total liquidity was $490.7 million, consisting of $354.6 million of unrestricted cash and cash equivalents, and $136.1 million of marketable securities.

We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic.

There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief.

In response to the pandemic, on March 27, 2020, the President signed the CARES Act into law, which was amended and expanded by the Paycheck Protection Program and Health Care Enhancement Act signed into law on April 24, 2020.

The legislation provides liquidity and financial relief to certain businesses, among other things.

The impacts to us of certain provisions of the CARES Act are summarized below.

• During the three and nine months ended September 30, 2020, we accepted $2.6 million and $36.1 million o f cash for grants from the Provider Relief Fund, respectively, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

The accepted grants were made available pursuant to the following distributions from the Provider Relief Fund:

• $28.9 million pursuant to the Phase 1 General Distribution, which generally related to home health, hospice, outpatient therapy, and skilled nursing care provided through our Health Care Services and CCRCs segments.

• $4.6 million pursuant to the Skilled Nursing Facility Targeted Distribution, which generally related to our certified skilled nursing facilities.

• $2.6 million pursuant to the Nursing Home Infection Control Distribution, which related to our skilled nursing care provided through our CCRCs segments.

Further funding may become available to us from this distribution based on an incentive program that measures skilled nursing facilities’ COVID-19 infection rates and mortality.

We have applied for additional grants pursuant to the Provider Relief Fund's Phase 2 General Distribution, generally related to our senior housing segments.

The amount of such grants are expected to be based on 2% of a portion of our 2018 revenues from patient care.

We expect to receive up to approximately $50 million of grants from this allocation.

We have also applied for additional grants pursuant to the Provider Relief Fund’s Phase 3 General Distribution, for which HHS allocated up to $20 billion.

According to HHS' guidance, eligible applicants will receive grant amounts to ensure that they have received approximately 2% of their annual patient care revenue, plus an additional percentage of their change in revenues minus their operating expenses, in each case from patient care attributable to COVID-19.

Grants from the Provider Relief Fund are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19.

The permissible uses of grants from the Nursing Home Infection Control Distribution are further limited certain infection control expenses.

During the three and nine months ended September 30, 2020, we recognized $8.6 million and $35.0 million , respectively, of the grants as other operating income based upon our estimates of our satisfaction of the conditions of the grants during such period.

HHS continues to evaluate and provide allocations of, and regulation and guidance regarding, grants made under the Provider Relief Fund.

We intend to pursue additional funding that may become available pursuant to the Provider Relief Fund.

However, there can be no assurance that we will qualify for, or receive, grants in the amount we expect, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify.

• During the three and nine months ended September 30, 2020, we received $2.5 million and $87.5 million, respectively, under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act.

Under the program, we requested acceleration/advancement of 100% of our Medicare payment amount for a three-month period.

The Continuing Appropriations Act, 2021 and Other Extensions Act, enacted on October 1, 2020,

amended the repayment terms for accelerated/advanced payments.

As amended, recoupment of accelerated/advanced payments will begin one year after payments were issued.

Payments will be recouped at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months.

Any outstanding balance of accelerated/advanced payments will be due following such recoupment period.

We expect recoupment of approximately $44 million in 2021 and recoupment or repayment of the remaining amount in 2022.

• Under the CARES Act, we have elected to defer payment of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020.

Lost Revenue .

Compared to our pre-pandemic expectations for fiscal 2020, we estimate that the pandemic, including the related restrictions at our communities, resulted in $117.5 million of lost resident fee revenue for the first quarter of 2021.

Estimated lost resident fee revenue for the first quarter of 2021 includes $94.2 million in our consolidated senior housing portfolio and $23.3 million for our Health Care Services segment.

On a cumulative basis, we estimate that the pandemic has resulted in approximately $400 million of lost resident fee revenue compared to our pre-pandemic expectations for fiscal 2020.

Pandemic-Related Expenses .

We incurred $27.3 million of facility operating expense during the first quarter of 2021 for incremental direct costs to respond to the pandemic.

Such costs include those for:

acquisition of additional PPE, medical equipment, and cleaning and disposable food service supplies;

enhanced cleaning and environmental sanitation;

increased employee-related costs, including labor, workers compensation, and health plan expense;

increased expense for general liability claims;

and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources.

On a cumulative basis, we have incurred $152.9 million of pandemic-related facility operating expense since the beginning of fiscal 2020.

We also recorded non-cash impairment charges in our operating results of $9.0 million for the three months ended March 31, 2021, for our operating lease right-of-use assets, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.

As of March 31, 2021, our total liquidity was $438.9 million, consisting of $304.0 million of unrestricted cash and cash equivalents and $134.9 million of marketable securities.

Our cash flows from operations, excluding management agreement termination fees and the impact of the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") funding, have been insufficient to cover our operating expenses, capital expenditures, and required interest and lease payments during the pandemic.

However, we were able to satisfy our liquidity needs over such period utilizing a portion of our preexisting liquidity, together with CARES Act funding.

We currently estimate that our cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of the equity in our Health Care Services segment will be sufficient to fund our liquidity needs for at least the next 12 months.

We continue to seek opportunities to enhance and preserve our liquidity, including through maintaining expense discipline and increasing occupancy, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the pandemic.

There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief, or that the closing of the pending transaction will be completed in accordance with our expectations, or at all, or generate cash proceeds to us in the amount we anticipate.

Financial Relief .

The CARES Act, signed into law on March 27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other things.

Certain impacts of such programs are provided below.

• During the first quarter of 2021, we accepted $0.8 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S.

Department of Health and Human Services ("HHS"), under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

The grants represented incentive payments made pursuant to the Nursing Home Infection Control Distribution, which related to our skilled nursing care provided through our CCRCs.

HHS continues to evaluate future allocations under the Provider Relief Fund and the regulation and guidance regarding grants made under the Provider Relief Fund.

We intend to pursue additional funding that may become available.

There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect, that additional restrictions on the permissible

uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify.

• During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, $75.2 million of which related to our Health Care Services segment and $12.3 million related to our CCRCs segment.

Recoupment of advanced payments will begin one year after payments were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months.

Any outstanding balance of advanced payments will be due following such recoupment period.

Pursuant to the Purchase Agreement providing for the sale of 80% of our equity in our Health Care Services segment (as described below), our net cash proceeds at closing will include a reduction for the then outstanding balance of such advanced payments related to our Health Care Services segment.

We expect recoupment of approximately $6 million of advanced payments related to our CCRCs segment during 2021, beginning in the second quarter.

• During fiscal 2020, we deferred payment of $72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act.

One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022.

As of September 30, 2020, we have deferred payment of $50.1 million under the program and intend to defer an additional approximately $25 million of the employer portion of payroll taxes estimated to be incurred for the three months ending December 31, 2020.

• The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefits our Health Care Services segment.

This suspension had a favorable impact of $1.6 million and $2.5 million on the segment’s resident fee revenue for the three and nine months ended September 30, 2020, respectively.

We estimate that the suspension will have a $1.5 million favorable impact on the segment’s resident fee revenue for the three months ended December 31, 2020.

• We continue to evaluate our eligibility to claim the employee retention tax credit under the CARES Act for certain of our associates.

The refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee.

We estimate that we will be eligible to claim tax credits of $10 million or more.

However, there can be no assurance that we will qualify for, or receive, tax credits in the amount we expect.

Pursuant to the Purchase Agreement providing for the sale of 80% of our equity in our Health Care Services segment, our net cash proceeds at closing will include a reduction for the $8.9 million of deferred payroll tax payments related to our Health Care Services segment.

We expect to pay approximately $32 million of the deferred payments in both December 2021 and 2022.

• We are eligible to claim the employee retention credit for certain of our associates under the CARES Act.

The credit for 2020 is available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and is equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee.

During the first quarter of 2021, we recognized $9.0 million of employee retention credits on wages paid from March 12, 2020 to September 30, 2020 within other operating income.

The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and we are assessing our eligibility to claim such credit.

There can be no assurance that we will qualify for, or receive, credits in the amount or on the timing we expect.

In addition to the grants described above, during the three months ended March 31, 2021, we received and recognized $0.9 million of other operating income from grants from other government sources.

We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth.

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the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets;

the development and availability of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups;

the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups;

government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief;

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changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand;

the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, and equity markets caused by COVID-19;

the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19;

changes in the acuity levels of our new residents;

the disproportionate impact of COVID-19 on seniors generally and those residing in our communities;

the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, and other expenses;

the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents;

the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses;

the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions (including dispositions and the pending sale of 80% of the equity in our Health Care Services segment) or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents;

increased regulatory requirements, including unfunded, mandatory testing;

increased enforcement actions resulting from COVID-19, including those that may limit our collection efforts for delinquent accounts;

increased enforcement actions resulting from COVID-19;

government action that may limit our collection or discharge efforts for delinquent accounts;

and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.

Transaction Activity and Impact of Dispositions on Results of Operations

During the period from January 1, 2019 through September 30, 2020, we acquired 27 formerly leased communities (2,453 units), sold 16 owned communities (2,143 units), and sold our ownership interest in our unconsolidated entry fee CCRC Venture (the "CCRC Venture") with Healthpeak Properties, Inc.

("Healthpeak"), and our triple-net lease obligations on 14 communities (937 units) were terminated.

On July 26, 2020, we entered into definitive agreements with Ventas to restructure our 120 community (10,174 units) triple-net master lease arrangements.

Transaction Activity

During the period from January 1, 2020 through March 31, 2021, we terminated triple-net obligations on an aggregate of 32 communities (2,890 units), including through the acquisition of 27 formerly leased communities (2,453 units), we sold three owned communities (417 units), and we sold our ownership interest in our unconsolidated entry fee CCRC venture (the "CCRC Venture") with Healthpeak Properties, Inc.

("Healthpeak").

On July 26, 2020, we entered into definitive agreements with Ventas, Inc.

("Ventas") to restructure our 120 community (10,174 units) triple-net master lease arrangements.

In addition, we conveyed to Ventas five communities (471 units) and manage the communities following the closing.

Completed transactions and cash lease payments during the nine months ended September 30, 2020 have reduced our future minimum lease payments by approximately $1.0 billion, or 36%.

Summaries of the significant transactions impacting the periods presented, and the impacts of dispositions of owned and leased communities on our results of operations, are included below.

Management's Discussion and Analysis of Financial

Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2019 for more details regarding the terms of such transactions, including transactions we entered into with Healthpeak during 2019.

During the next 12 months, we expect to close on the disposition of one owned unencumbered community (120 units) classified as held for sale as of September 30, 2020 and the termination of our lease obligation on one community (159 units).

Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 for more details regarding the terms of significant transactions that occurred prior to 2021.

During the three months ended March 31, 2021, we completed the sale of one owned community (42 units) for cash proceeds of $2.7 million, net of transaction costs, and for which we recognized a net gain on sale of assets of $0.5 million.

During the next twelve months, we expect to sell 80% of our equity in our Health Care Services segment and to close on the disposition of two owned unencumbered communities (207 units) classified as held for sale as of March 31, 2021.

We also anticipate terminations of certain of our management arrangements with third parties as we transition to new operators our management on certain communities.

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However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Summaries of Transactions

• Ventas Lease Portfolio Restructuring:

On July 26, 2020 (the "Effective Date"), we entered into definitive agreements with Ventas in connection with the restructuring of our lease arrangements with Ventas, including a Master Transaction Letter Agreement (the "Master Agreement").

Pursuant to the Master Agreement:

• On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the "Master Lease") and Amended and Restated Guaranty (the "Guaranty"), which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time.

Pursuant to the Master Lease, we continue to lease 120 communities (10,174 units) for an aggregate initial annual minimum rent of approximately $100 million, which reflects a reduction of approximately $83 million of annual minimum rent in effect prior to the transaction.

Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3% escalator.

The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to us.

The annual minimum rent for the initial lease year of any such renewal term will be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator.

The Master Lease removed the prior provision that would have automatically extended the initial term in the event of the consummation of a change of control transaction by us.

The Master Lease requires us to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ending December 31, 2021.

In addition, Ventas has agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million.

Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%.

The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.

Our subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty.

The Guaranty removed the prior requirements that we satisfy, at the parent level, financial covenants and that we maintain a security deposit with Ventas.

The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the basis of parent level financial covenants.

Pursuant to the terms of the Guaranty, we may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600.0 million, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25.0 million to Ventas.

The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that we fund additional capital expenditures, and that we extend the term upon the occurrence of the change in control transaction.

Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as we exercise our lease term extension option with respect to the Master Lease), Ventas shall have the right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination.

• On the Effective Date, we entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management arrangement with us pursuant to a market management agreement (which is terminable by

either party).

Notwithstanding the foregoing, Ventas may only transition one or more communities from the Master Lease to a management arrangement if such transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such transition.

• On the Effective Date, we conveyed five owned communities (471 units) to Ventas in full release and satisfaction of $78.4 million principal amount of indebtedness secured by the communities.

Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which we manage the communities.

We also paid to Ventas $115.0 million in cash, released all security deposits under the former guaranty (which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45.0 million unsecured interest-only promissory note to Ventas.

The initial interest rate of the promissory note is 9.0% per annum and will increase by 0.50% on each anniversary of the date of issuance.

We may prepay the outstanding principal amount in whole or in part at any time without premium or penalty.

The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty).

• On the Effective Date, we issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of our common stock, $0.01 par value per share, at a price per share of $3.00.

The Warrant is exercisable at Ventas’ option at any time and from time to time, in whole or in part, until December 31, 2025.

The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions.

To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all our classes of capital stock or of the total value of shares of all our classes of capital stock (the "Ownership Cap") (other than as a result of actions taken by Ventas), we would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require us to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap.

The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof.

On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights.

Pursuant to the terms of the agreement, we filed a shelf registration statement with the SEC, with respect to the shares of common stock underlying the Warrant, which was declared effective on August 17, 2020.

Ventas is entitled to customary underwritten offering, piggyback, and additional demand registration rights with respect to the shares underlying the Warrant.

• Healthpeak:

On October 1, 2019, we entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak.

The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of our interest in the CCRC Venture (rather than removing the community from the CCRC Venture for joint marketing and sale).

The components of the multi-part transaction include:

• CCRC Venture Transaction:

Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired our 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs (6,383 units), for a purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment).

We recognized a $369.8 million gain on sale of assets for the nine months ended September 30, 2020, and we derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture.

At the closing, the parties terminated the existing management agreements on the 14 entry fee CCRCs, Healthpeak paid us a $100.0 million management agreement termination fee, and we transitioned operations of the entry fee CCRCs to a new operator.

We recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee.

The sale of our interest in the CCRC Venture and the $100.0 million of management termination fees generated approximately $579.0 million of taxable income in three months ended March 31, 2020.

We will utilize any 2020 operating losses generated and tax loss carryforwards (including our capital loss carryforward that was generated in 2018) to offset the taxable gain on this transaction.

Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs (889 units) into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities expected to occur in 2021.

Subsequent to these transactions, we will have exited substantially all of our entry fee CCRC operations.

• Master Lease Transactions.

Pursuant to the MTCA, on January 31, 2020, the parties amended and restated our existing master lease pursuant to which we continue to lease 25 communities (2,711 units) from Healthpeak, and we acquired

18 formerly leased communities (2,014 units) from Healthpeak, at which time the 18 communities were removed from the master lease.

At the closing, we paid $405.5 million to acquire such communities and to reduce our annual rent under the amended and restated master lease.

We funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction.

In addition, Healthpeak has agreed to terminate the lease for one leased community (159 units).

With respect to the continuing 24 communities (2,552 units), our amended and restated master lease:

(i) has an initial term to expire on December 31, 2027, subject to two extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased communities;

(ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year;

and (iii) Healthpeak has agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%.

As a result of the community acquisition transaction, we recognized a $19.7 million gain on debt extinguishment during the three months ended March 31, 2020 and derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement.

During the three months ended March 31, 2020, we obtained $30.0 million of additional non-recourse mortgage financing on the acquired communities.

• Acquisitions Pursuant to Purchase Options:

On January 22, 2020, we acquired eight formerly leased communities (336 units) from National Health Investors, Inc.

pursuant to our exercise of a purchase option for a purchase price of $39.3 million.

We funded the community acquisitions with cash on hand.

During the three months ended March 31, 2020, we obtained $29.2 million of non-recourse mortgage financing, primarily secured by the acquired communities.

On August 31, 2020, we acquired one formerly leased community (103 units) pursuant to our exercise of a purchase option for a purchase price of $25.0 million and funded the acquisition with cash on hand and non-recourse mortgage financing secured by the acquired community.

• Dispositions of Owned Communities.

In addition to the conveyance of five communities to Ventas, during the nine months ended September 30, 2020, we completed the sale of two owned communities (375 units) for cash proceeds of $38.1 million, net of transaction costs, and for which we recognized a net gain on sale of assets of $2.7 million for the nine months ended September 30, 2020.

Summary of Financial Impact of Completed Dispositions

The following table sets forth, for the periods indicated, the amounts included within our consolidated financial data for the 19 communities that we disposed through sales, conveyances, and lease terminations during the period from July 1, 2019 to September 30, 2020 through the respective disposition dates.

Three Months Ended September 30, 2020

(in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions

Resident fees

Independent Living $ 125,762 $ — $ 125,762

Assisted Living and Memory Care 408,695 1,279 407,416

CCRCs 76,411 2,158 74,253

Senior housing resident fees $ 610,868 $ 3,437 $ 607,431

Facility operating expense

Independent Living $ 83,420 $ — $ 83,420

Assisted Living and Memory Care 323,479 1,195 322,284

CCRCs 69,298 2,077 67,221

Senior housing facility operating expense $ 476,197 $ 3,272 $ 472,925

Cash facility lease payments $ 185,398 $ — $ 185,398

Three Months Ended September 30, 2019

(in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions

Resident fees

Independent Living $ 136,874 $ — $ 136,874

Assisted Living and Memory Care 452,474 9,960 442,514

CCRCs 100,104 13,435 86,669

Senior housing resident fees $ 689,452 $ 23,395 $ 666,057

Facility operating expense

Independent Living $ 87,460 $ — $ 87,460

Assisted Living and Memory Care 335,618 8,907 326,711

CCRCs 85,632 13,700 71,932

Senior housing facility operating expense $ 508,710 $ 22,607 $ 486,103

Cash facility lease payments $ 94,183 $ 947 $ 93,236

The following table sets forth, for the periods indicated, the amounts included within our consolidated financial data for the 35 communities that we disposed through sales, conveyances, and lease terminations during the period from January 1, 2019 to September 30, 2020 through the respective disposition dates.

Nine Months Ended September 30, 2020

(in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions

Resident fees

Independent Living $ 391,902 $ — $ 391,902

Assisted Living and Memory Care 1,298,330 14,099 1,284,231

CCRCs 249,983 9,836 240,147

Senior housing resident fees $ 1,940,215 $ 23,935 $ 1,916,280

Facility operating expense

Independent Living $ 257,108 $ — $ 257,108

Assisted Living and Memory Care 993,557 13,368 980,189

CCRCs 218,635 9,304 209,331

Senior housing facility operating expense $ 1,469,300 $ 22,672 $ 1,446,628

Cash facility lease payments $ 362,150 $ 1,102 $ 361,048

Nine Months Ended September 30, 2019

(in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions

Resident fees

Independent Living $ 408,519 $ — $ 408,519

Assisted Living and Memory Care 1,361,225 41,647 1,319,578

CCRCs 305,084 41,606 263,478

Senior housing resident fees $ 2,074,828 $ 83,253 $ 1,991,575

Facility operating expense

Independent Living $ 254,770 $ — $ 254,770

Assisted Living and Memory Care 970,526 35,542 934,984

CCRCs 251,128 39,683 211,445

Senior housing facility operating expense $ 1,476,424 $ 75,225 $ 1,401,199

Cash facility lease payments $ 283,697 $ 4,265 $ 279,432

The following table sets forth the number of communities and units in our senior housing segments disposed through sales, conveyances, and lease terminations during the nine months ended September 30, 2020 and twelve months ended December 31, 2019:

Nine Months Ended

September 30, 2020 Twelve Months Ended

December 31, 2019

Number of communities

Assisted Living and Memory Care 10 20

Assisted Living and Memory Care 827 1,600

CCRCs 297 827

Total 1,124 2,427

Other Recent Developments

Goodwill Impairment Estimates

As of September 30, 2020, we had a goodwill balance of $154.1 million.

Goodwill recorded in connection with business combinations is allocated to the respective reporting unit and included in our application of the provisions of ASC 350, Intangibles - Goodwill and Other .

Goodwill allocated to our Independent Living and Health Care Services reporting units is $27.3 million and $126.8 million as of September 30, 2020, respectively.

Our interim goodwill impairment analyses did not result in any impairment charges during the nine months ended September 30, 2020.

Based on the results of our interim quantitative goodwill impairment test as of March 31, 2020, we estimated that the fair values of both our Independent Living and Health Care Services reporting units exceeded their carrying amount by approximately 20%.

Additionally, we estimated that there were no significant changes to the fair values of both our Independent Living and Health Care Services reporting units during the three months ended June 30, 2020 and September 30, 2020.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain.

These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates.

Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost

structure of existing communities, changes in reimbursement rates from Medicare for healthcare services, and changes in healthcare reform.

Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition, changes in reimbursement rates from Medicare for healthcare services, and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that additional goodwill is impaired.

Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there has been a decline in the fair value of our reporting units, including estimating future cash flows, and if necessary, the fair value of our assets and liabilities.

As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future.

Although we make every reasonable effort to ensure the accuracy of our estimate of the fair value of our reporting units, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.

As of March 31, 2020, June 30, 2020, and September 30, 2020, there was a wide range of possible outcomes as a result of the COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impacts.

Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as described above.

Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

Capital Expenditures

In response to the COVID-19 pandemic, we have delayed or canceled a number of elective capital expenditure projects.

As a result, we expect our full-year 2020 non-development capital expenditures, net of anticipated lessor reimbursements, and development capital expenditures to be approximately $140 million and $15 million, respectively, which reflects a $50 million and $15 million reduction to our pre-pandemic plans for 2020, respectively.

We anticipate that our 2020 capital expenditures will be funded from cash on hand, cash flows from operations, and reimbursements from lessors.

Pending Sale of Health Care Services

On February 24, 2021, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc.

("HCA Healthcare"), providing for the sale of 80% of our equity in our Health Care Services segment for a purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment, which were $75.2 million and $8.9 million, respectively, as of March 31, 2021.

We expect our net cash proceeds at the closing will be approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the Purchase Agreement.

The Purchase Agreement also contains certain agreed upon indemnities for the benefit of the purchaser.

The closing of the sale transaction is anticipated to occur in the early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement.

Pursuant to the Purchase Agreement, at closing of the transaction, we will retain a 20% equity interest in the business.

Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements and that our interest in the joint venture will be accounted for under the equity method of accounting.

We anticipate that the sale transaction will utilize a portion of our federal net operating loss carryforwards to offset the expected taxable gain on such transaction.

Results of Operations

As of September 30, 2020 our total operations included 726 communities with a capacity to serve approximately 65,000 residents.

As of March 31, 2021, our total operations included 695 communities with a capacity to serve approximately 60,000 residents.

As of that date we owned 349 communities (31,819 units), leased 301 communities (21,127 units), and managed 45 communities (6,652 units).

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The results of operations for any particular period are not necessarily indicative of results for any future period.

Transactions completed during the period of January 1, 2019 to September 30, 2020 affect the comparability of our results of operations, and summaries of such transactions and their impact on our results of operations are discussed above in "Transaction Activity and Impact of Dispositions on Results of Operations."

Transactions completed during the period of January 1, 2020 to March 31, 2021 affect the comparability of our results of operations.

We use the operating measures described below in connection with operating and managing our business and reporting our results of operations.

Our adoption and application of the new lease accounting standard impacted our results for the year ended December 31, 2019 due to our recognition of additional resident fee revenue and facility operating expense, which are non-cash and are non-recurring in years subsequent to December 31, 2019.

To aid in comparability between periods, presentations of our results on a same community basis, and RevPAR and RevPOR, exclude the impact of the lease accounting standard.

• Operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities.

The operating results exclude hurricane and natural disaster expense and related insurance recoveries, and for the 2019 periods, exclude the additional resident fee revenue and facility operating expense recognized as a result of the application of the lease accounting standard ASC 842.

• Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities.

The operating results exclude natural disaster expense and related insurance recoveries.

We define our same community portfolio as communities consolidated and operational for the full period in both comparison years.

Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, certain communities that have expansion, redevelopment, and repositioning projects that are anticipated to be under construction in the current year, and certain communities that have experienced a casualty event that significantly impacts their operations.

Our management uses same community operating results and data, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted

by completed, in-process, or planned development-related capital expenditure projects.

As presented herein, same community results include the direct costs incurred to prepare for and respond to the COVID-19 pandemic.

• RevPAR , or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 periods, the additional resident fee revenue recognized as a result of the application of the lease accounting standard ASC 842), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the

beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations.

Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects.

As presented herein, same community results include the direct costs incurred to respond to the COVID-19 pandemic.

• RevPAR , or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments.

Our management uses RevPAR, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.

• RevPOR , or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 periods, the additional resident fee revenue recognized as a result of the application of the lease accounting standard ASC 842), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period.

Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.

• RevPOR , or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue from private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period.

We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments.

Our management uses RevPOR, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates.

Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates.

RevPOR is a significant driver of our senior housing revenue performance.

1 unchanged sentence

We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis.

Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver to senior housing resident fee revenue.

Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance.

This section includes the non-GAAP performance measure Adjusted EBITDA.

See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures.

Comparison of Three Months Ended September 30, 2020 and 2019

See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.

Comparison of Three Months Ended March 31, 2021 and 2020

Summary Operating Results

The following table summarizes our overall operating results for the three months ended September 30, 2020 and 2019.

The following table summarizes our overall operating results for the three months ended March 31, 2021 and 2020.

Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

2 unchanged sentences

Facility operating expense 556,312 588,482 (32,170) (5.5) %

Net income (loss) (124,993) (78,508) 46,485 59.2 %

Adjusted EBITDA (64,019) 80,447 (144,466) NM

The decrease in total resident fees and management fees revenue was primarily attributable to a $100.5 million decrease in resident fees, including a 7.7% decrease in same community RevPAR, comprised of a 920 basis points decrease in same community weighted average occupancy and a 3.5% increase in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $70.8 million of lost resident fee revenue on a same community basis for the three months ended September 30, 2020.

Estimated lost resident fee revenue represents the difference between the actual revenue for the period and our expectations prior to estimating the effects of COVID-19.

Revenue for home health services decreased $19.0 million, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic and due to the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020.

Additionally, the disposition of 19 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $20.0 million less in resident fees during the three months ended September 30, 2020 compared to the prior year period.

Management fee revenue decreased $7.9 million primarily due to terminations of management agreements subsequent to the beginning of the prior year period.

Our other operating income for the three months ended September 30, 2020 includes $10.8 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the grants during the period.

The decrease in facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $19.3 million less in facility operating expense during the three months ended September 30, 2020 compared to the prior year period, and a decrease in labor costs for home health services as a result of lower census and as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the new payment model.

These decreases were primarily offset by a 0.3% increase in same community facility operating expense, which was primarily due to $20.4 million of incremental costs incurred during the three months ended September 30, 2020 to respond to the COVID-19 pandemic.

The increase in same community facility operating expense was partially offset by decreases in repairs and maintenance costs and food and supplies costs due to the reduced occupancy during the period.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of $8.0 million and $14.0 million, respectively, during the three months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility operating expense excludes $7.3 million and $12.8 million, respectively, of such additional revenue and expenses.

The increase in net loss was primarily attributable to the revenue and facility operating expense factors previously discussed.

The decrease in Adjusted EBITDA was primarily attributable to the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 and the revenue and facility operating expense factors previously discussed, partially offset by a decrease in general and administrative expense.

Net income (loss) (108,303) 369,497 (477,800) NM

Adjusted EBITDA 34,981 185,069 (150,088) (81.1) %

The decrease in total resident fees and management fees revenue was primarily attributable to a $118.4 million decrease in resident fees, including a 14.3% decrease in same community RevPAR, comprised of a 1,390 basis point decrease in same

community weighted average occupancy and a 2.9% increase in same community RevPOR.

Revenue for home health services decreased $9.6 million, as our home health average daily census decreased 16.9% compared to the prior year period primarily due to the COVID-19 pandemic and lower occupancy in our communities.

Additionally, the disposition of 13 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $15.3 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period.

Management fee revenue decreased $100.1 million primarily due to $100.0 million of management agreement termination fees recognized for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture.

During the three months ended March 31, 2021, we recognized $9.0 million of employee retention credits and $1.7 million of government grants as other operating income based on our estimates of our satisfaction of the conditions of the credits and grants during the period.

The decrease in facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of lower census and as we adjusted our home health services operational structure to better align our facility operating expenses and business model with the new Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020.

Additionally, the disposition of communities since the beginning of the prior year period resulted in $13.6 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period.

Same community facility operating expense decreased 1.0%, which was primarily due to decreases in food and supplies costs due to reduced occupancy during the period, partially offset by an increase in labor costs.

Facility operating expense for the three months ended March 31, 2021 and 2020 includes $27.3 million and $10.0 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The change in net income (loss) was primarily attributable to a $371.7 million decrease in net gain on sale of assets, primarily resulting from the sale of our interest in the CCRC Venture, as well as the net impact of the revenue, other operating income, and facility operating expense factors previously discussed, partially offset by a decrease in asset impairment expense compared to the prior year period.

The decrease in Adjusted EBITDA was primarily attributable to the net impact of the revenue (including the $100.0 million management agreement termination fee payment received from Healthpeak), other operating income, and facility operating expense factors previously discussed, partially offset by decreases in cash facility operating lease payments and general and administrative expense.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.

See management's discussion and analysis of the operating results on an individual segment basis on the following pages.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

2021 2020 Amount Percent

18 unchanged sentences

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the three months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

The following table summarizes the operating results and data for our Independent Living segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

2021 2020 Amount Percent

17 unchanged sentences

RevPOR $ 4,307 $ 4,174 $ 133 3.2 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 910 basis points decrease in same community weighted average occupancy and a 3.9% increase in same community RevPOR.

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,350 basis point decrease in same community weighted average occupancy and a 3.2% increase in same community RevPOR.

The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic, including the related restrictions at our communities.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $11.6 million of lost resident fee revenue on a same community basis for this segment for the three months ended September 30, 2020.

The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.

The decrease in the segment's facility operating expense was primarily attributable to the additional facility operating expense during the three months ended September 30, 2019 as a result of the application of the new lease accounting standard (described below) and a decrease in the segment's same community facility operating expense.

The decrease in the segment's same community facility operating expense was primarily attributable to decreases in repairs and maintenance costs and food and supplies costs due to the reduced occupancy during the period, partially offset by $1.9 million of incremental direct costs to respond to the COVID-19 pandemic.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of $2.5 million and $3.4 million, respectively, during the three months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility operating expense for this segment excludes $2.3 million and $3.2 million, respectively, of such additional revenue and expenses.

The decrease in the segment's facility operating expense was primarily attributable to a decrease in the segment's same community facility operating expense, including decreases in food and supplies costs due to reduced occupancy during the period.

The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $3.0 million and $1.2 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

2021 2020 Amount Percent

17 unchanged sentences

RevPOR $ 5,396 $ 5,221 $ 175 3.4 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 900 basis points decrease in same community weighted average occupancy and a 4.1% increase in same community RevPOR.

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,390 basis point decrease in same community weighted average occupancy and a 3.4% increase in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $47.5 million of lost resident fee revenue on a same community basis for this segment for the three months ended September 30, 2020.

The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.

Additionally, the disposition of 14 communities since the beginning of the prior year period resulted in $8.7 million less in resident fees during the three months ended September 30, 2020 compared to the prior year period.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period which resulted in $7.7 million less in facility operating expense during the three months ended September 30, 2020 compared to the prior year period.

The decrease in facility operating expense was partially offset by an increase in the segment's same community facility operating expense, including $15.5 million of incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs and food and supplies costs due to the reduced occupancy during the period.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of $4.6 million and $9.1 million, respectively, during the three months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility operating expense for this segment excludes $4.4 million and $8.6 million, respectively, of such additional revenue and expenses.

Additionally, the disposition of 11 communities (869 units) since the beginning of the prior year period resulted in $7.3 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period which resulted in $7.0 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period.

The decrease in the segment's same community facility operating expense was primarily attributable to decreases in food and supplies costs due to reduced occupancy during the period, partially offset by an increase in labor costs.

The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $18.9 million and $7.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the three months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

The following table summarizes the operating results and data for our CCRCs segment for the three months ended March 31, 2021 and 2020, including operating results and data on a same community basis.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

2021 2020 Amount Percent

17 unchanged sentences

RevPOR $ 7,133 $ 7,093 $ 40 0.6 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1180 basis points decrease in same community weighted average occupancy and a 0.2% decrease in same community RevPOR.

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,530 basis point decrease in same community weighted average occupancy and a 0.6% increase in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $11.7 million of lost resident fee revenue on a same community basis for this segment for the three months ended September 30, 2020.

The decrease in the segment's same community RevPOR was primarily the result of a mix shift away from skilled nursing within the segment, partially offset by in-place rent increases.

Additionally, the disposition of five communities since the beginning of the prior year period resulted in $11.3 million less in resident fees during the three months ended September 30, 2020 compared to the prior year period.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $11.6 million less in facility operating expense during the three months ended September 30, 2020 compared to the prior year period and a decrease in the segment's same community facility operating expense.

The decrease in the segment's same community facility operating expense was primarily attributable to decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy, partially offset by $3.1 million of incremental direct costs to respond to the COVID-19 pandemic.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of $0.9 million and $1.5 million, respectively, during the three months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility

operating expense for this segment excludes $0.6 million and $1.0 million, respectively, of such additional revenue and expenses.

The increase in the segment's same community RevPOR was primarily the result of in-place rent increases, partially offset by a mix shift from less skilled nursing services within the segment.

Additionally, the disposition of two communities (456 units) since the beginning of the prior year period resulted in $8.0 million less in resident fees during the three months ended March 31, 2021 compared to the prior year period.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $6.6 million less in facility operating expense during the three months ended March 31, 2021 compared to the prior year period and a decrease in the segment's same community facility operating expense.

The decrease in the segment's same community facility operating expense was primarily attributable to decreases in healthcare supplies and food costs due to the reduced occupancy during the period and decreases in labor expense arising from fewer hours worked.

The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $4.0 million and $0.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Operating Results - Health Care Services Segment

The following table summarizes the operating results and data for our Health Care Services segment for the three months ended September 30, 2020 and 2019.

The following table summarizes the operating results and data for our Health Care Services segment for the three months ended March 31, 2021 and 2020.

(in thousands, except census) Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

2021 2020 Amount Percent

4 unchanged sentences

Hospice average daily census 1,509 1,698 (189) (11.1) %

The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic, which resulted in lower occupancy in our communities and fewer elective medical procedures and hospital discharges.

The implementation of the PDGM, an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020, resulted in a decrease in revenue for home health services.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $15.1 million of lost resident fee revenue for the three months ended September 30, 2020.

The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, as our home health average daily census decreased compared to the prior year period primarily due to the COVID-19 pandemic and lower occupancy in our communities.

The decrease in the segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure to better align our facility operating expenses and business model with the new payment model.

The decrease in the segment's facility operating expense was partially offset by $2.4 million of incremental direct costs to respond to the COVID-19 pandemic.

The decrease in the segment's facility operating expense was partially offset by a $1.0 million increase in incremental direct costs to respond to the COVID-19 pandemic.

The segment's facility operating expense for the three months ended March 31, 2021 and 2020 includes $1.4 million and $0.4 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Upon closing, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from our financial statements.

Operating Results - Management Services Segment

The following table summarizes the operating results and data for our Management Services segment for the three months ended September 30, 2020 and 2019.

(in thousands, except communities, units, and occupancy) Three Months Ended

September 30, Increase (Decrease)

The following table summarizes the operating results and data for our Management Services segment for the three months ended March 31, 2021 and 2020.

(in thousands, except communities and units) Three Months Ended

March 31, Increase (Decrease)

2021 2020 Amount Percent

1 unchanged sentence

Reimbursed costs incurred on behalf of managed communities $ 65,794 $ 122,717 $ (56,923) (46.4) %

Costs incurred on behalf of managed communities $ 65,794 $ 122,717 $ (56,923) (46.4) %

Number of communities (period end) 45 80 (35) (43.8) %

1 unchanged sentence

Total average units 8,258 13,325 (5,067) (38.0) %

The decrease in management fees was primarily attributable to the transition of management arrangements on 64 net communities since the beginning of the prior year period, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities.

Management fees of $5.7 million for the three months ended September 30, 2020 include $1.3 million of management fees attributable to communities for which our management agreements were terminated during such period or we expect the terminations of our management agreements to occur in the next approximately 12 months.

The decrease in reimbursed costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.

The decrease in management fees was primarily attributable to $100.0 million of management agreement termination fees recognized for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture.

As of March 31, 2021, we have completed the transition of management arrangements on 55 net communities since the beginning of the prior year period, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities.

Management fees of $8.6 million for the three months ended March 31, 2021 include $4.6 million of management agreement termination fees and $2.0 million of other management fees

attributable to communities for which our management agreements were terminated during such period, or we expect the terminations of our management agreements to occur in the next approximately 12 months.

The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the three months ended September 30, 2020 and 2019.

The following table summarizes other income and expense items in our operating results for the three months ended March 31, 2021 and 2020.

(in thousands) Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

2021 2020 Amount Percent

2 unchanged sentences

Depreciation and amortization 83,891 90,738 (6,847) (7.5) %

Asset impairment 8,213 2,094 6,119 NM

Costs incurred on behalf of managed communities 90,775 194,148 (103,373) (53.2) %

Interest income 607 2,162 (1,555) (71.9) %

Interest expense (50,546) (62,078) (11,532) (18.6) %

Gain (loss) on debt modification and extinguishment, net

(7,917) (2,455) 5,462 NM

Equity in earnings (loss) of unconsolidated ventures (293) (2,057) 1,764 NM

Gain (loss) on sale of assets, net 2,209 579 1,630 NM

Other non-operating income (loss) 948 3,763 (2,815) (74.8) %

Benefit (provision) for income taxes (14,884) 1,800 16,684 NM

General and Administrative Expense.

The decrease in general and administrative expense was primarily attributable to a reduction in our travel costs as we intentionally scaled back such activities and a reduction in our corporate headcount as we scaled our general and administrative costs in connection with community dispositions.

The decrease was partially offset by a $2.3 million increase in transaction and organizational restructuring costs compared to the prior period, to $6.3 million for the three months ended September 30, 2020.

Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs.

Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.

Facility Operating Lease Expense.

The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the current year period and the acquisition of formerly leased communities since the beginning of the prior year period.

Depreciation and Amortization .

The decrease in depreciation and amortization expense was primarily due to leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year period and disposition activity since the beginning of the prior year period.

Asset impairment 10,677 78,226 (67,549) (86.4) %

During the current year period, we recorded $8.2 million of non-cash impairment charges, primarily for hurricane and other natural disaster related property damage sustained at certain communities during the period and for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.

During the prior year period, we recorded $2.1 million of non-cash impairment charges.

See Note 6 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the impairment charges.

Costs Incurred on Behalf of Managed Communities.

The decrease in costs incurred on behalf of managed communities was primarily due to terminations of management agreements subsequent to the beginning of the prior year period.

Interest Expense.

The decrease in interest expense was primarily due to a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year period.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the three months ended September 30, 2020 and 2019 was primarily due to the impact of the increase to the valuation allowance on the annualized effective rate for

We recorded an aggregate deferred federal, state, and local tax benefit of $27.4 million as a result of the operating loss for the three months ended September 30, 2020, which was offset by an increase in the valuation allowance of $40.0 million.

The change in the valuation allowance for the three months ended September 30, 2020 resulted from the anticipated reversal of future tax liabilities offset by future tax deductions.

We recorded an aggregate deferred federal, state, and local tax benefit of $19.4 million as a result of the operating loss for the three months ended September 30, 2019.

The tax benefit was offset by an increase in the valuation allowance of $17.8 million.

Comparison of Nine Months Ended September 30, 2020 and 2019

Summary Operating Results

The following table summarizes our overall operating results for the nine months ended September 30, 2020 and 2019.

Nine Months Ended

September 30, Increase (Decrease)

(in thousands) 2020 2019 Amount Percent

Total resident fees and management fees revenue $ 2,335,567 $ 2,457,335 $ (121,768) (5.0) %

Other operating income 37,458 — 37,458 NM

Facility operating expense 1,765,046 1,792,057 (27,011) (1.5) %

Net income (loss) 126,084 (177,169) 303,253 NM

Adjusted EBITDA 165,783 301,066 (135,283) (44.9) %

The decrease in total resident fees and management fees revenue was primarily attributable to a $197.5 million decrease in resident fees, including a $61.6 million decrease for home health services, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic and due to the implementation of the PDGM.

Additionally, the disposition of 35 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $59.3 million less in resident fees during the nine months ended September 30, 2020 compared to the prior year period.

Same community RevPAR decreased 3.1%, comprised of a 500 basis points decrease in same community weighted average occupancy and a 3.0% increase in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $115.8 million of lost resident fee revenue on a same community basis for the nine months ended September 30, 2020.

Management fee revenue increased $75.7 million primarily due to $100.0 million of management fee revenue during the three months ended March 31, 2020 for the management termination fee payment from Healthpeak partially offset by terminations of management agreements subsequent to the beginning of the prior year period.

Our other operating income for the nine months ended September 30, 2020 includes $37.5 million of government grants based on our estimates of our satisfaction of the conditions of the grants during the period.

The decrease in facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $52.6 million less in facility operating expense during the nine months ended September 30, 2020 compared to the prior year period.

Additionally, there was a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the new payment model.

The decrease was partially offset by a 6.1% increase in same community facility operating expense, which was primarily due to $81.6 million of incremental costs incurred during the nine months ended September 30, 2020 to respond to the COVID-19 pandemic.

Additionally, there was an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an extra day of expense due to the leap year.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of $16.0 million and $35.0 million, respectively, during the nine months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility operating expense excludes $14.6 million and $31.9 million, respectively, of such additional revenue and expenses.

The increase in net income was primarily attributable to a $371.3 million increase in net gain on sale of assets, resulting from our sale of our interest in the CCRC Venture, partially offset by the net revenue and facility operating expense factors previously discussed.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the nine months ended September 30, 2020 and 2019 including operating results and data on a same community basis.

See management's discussion and analysis of the operating results on an individual segment basis on the following pages.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

Resident fees $ 1,940,215 $ 2,074,828 $ (134,613) (6.5) %

Other operating income $ 14,571 $ — $ 14,571 NM

Facility operating expense $ 1,469,300 $ 1,476,424 $ (7,124) (0.5) %

Number of communities (period end) 652 671 (19) (2.8) %

Number of units (period end) 53,110 55,262 (2,152) (3.9) %

Total average units 53,888 55,728 (1,840) (3.3) %

RevPAR $ 3,997 $ 4,103 $ (106) (2.6) %

Occupancy rate (weighted average) 79.1 % 83.7 % (460) bps n/a

RevPOR $ 5,054 $ 4,900 $ 154 3.1 %

Same Community Operating Results and Data

Resident fees $ 1,783,556 $ 1,840,604 $ (57,048) (3.1) %

Other operating income $ 10,155 $ — $ 10,155 NM

Facility operating expense $ 1,337,034 $ 1,260,094 $ 76,940 6.1 %

Number of communities 631 631 — — %

Total average units 49,366 49,358 8 — %

RevPAR $ 4,014 $ 4,144 $ (130) (3.1) %

Occupancy rate (weighted average) 79.4 % 84.4 % (500) bps n/a

RevPOR $ 5,056 $ 4,910 $ 146 3.0 %

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the nine months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

Resident fees $ 391,902 $ 408,519 $ (16,617) (4.1) %

Other operating income $ 96 $ — $ 96 NM

Facility operating expense $ 257,108 $ 254,770 $ 2,338 0.9 %

Number of communities (period end) 68 68 — — %

Number of units (period end) 12,534 12,511 23 0.2 %

Total average units 12,532 12,460 72 0.6 %

RevPAR $ 3,475 $ 3,592 $ (117) (3.3) %

Occupancy rate (weighted average) 83.5 % 89.3 % (580) bps n/a

RevPOR $ 4,160 $ 4,021 $ 139 3.5 %

Same Community Operating Results and Data

Resident fees $ 369,044 $ 380,208 $ (11,164) (2.9) %

Other operating income $ 96 $ — $ 96 NM

Facility operating expense $ 240,043 $ 230,566 $ 9,477 4.1 %

Number of communities 64 64 — — %

Total average units 11,704 11,691 13 0.1 %

RevPAR $ 3,503 $ 3,613 $ (110) (3.0) %

Occupancy rate (weighted average) 83.8 % 89.2 % (540) bps n/a

RevPOR $ 4,181 $ 4,050 $ 131 3.2 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 540 basis points decrease in same community weighted average occupancy and a 3.2% increase in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $18.5 million of lost resident fee revenue on a same community basis for this segment for the nine months ended September 30, 2020.

The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $11.8 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an extra day of expense due to the leap year.

These increases in the segment's same community facility operating expense were partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the period and supplies costs due to the reduced occupancy during the period.

We recognized additional resident fee revenue and additional facility operating expense for this segment of $5.8 million and $9.2 million, respectively, during the nine months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility operating expense for this segment excludes approximately $5.4 million and $8.7 million, respectively, of such additional revenue and expenses.

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the nine months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

Resident fees $ 1,298,330 $ 1,361,225 $ (62,895) (4.6) %

Other operating income $ 2,088 $ — $ 2,088 NM

Facility operating expense $ 993,557 $ 970,526 $ 23,031 2.4 %

Number of communities (period end) 563 577 (14) (2.4) %

Number of units (period end) 35,124 36,177 (1,053) (2.9) %

Total average units 35,666 36,701 (1,035) (2.8) %

RevPAR $ 4,045 $ 4,096 $ (51) (1.2) %

Occupancy rate (weighted average) 78.1 % 82.3 % (420) bps n/a

RevPOR $ 5,181 $ 4,979 $ 202 4.1 %

Same Community Operating Results and Data

Resident fees $ 1,251,865 $ 1,280,151 $ (28,286) (2.2) %

Other operating income $ 2,088 $ — $ 2,088 NM

Facility operating expense $ 955,595 $ 889,423 $ 66,172 7.4 %

Number of communities 553 553 — — %

Total average units 34,050 34,055 (5) — %

RevPAR $ 4,085 $ 4,177 $ (92) (2.2) %

Occupancy rate (weighted average) 78.3 % 82.9 % (460) bps n/a

RevPOR $ 5,214 $ 5,038 $ 176 3.5 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 460 basis points decrease in same community weighted average occupancy and a 3.5% increase in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $74.6 million of lost resident fee revenue on a same community basis for this segment for the nine months ended September 30, 2020.

The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.

Additionally, the disposition of 30 communities since the beginning of the prior year period resulted in $27.5 million less in resident fees during the nine months ended September 30, 2020 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $60.2 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, and an increase in labor expense arising from wage rate increases, increased contract labor costs, an increase in employee benefit expense, and an extra day of expense due to the leap year.

The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the period as we intentionally scaled back such activities.

The increase in facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $22.2 million less in facility operating expense during the nine months ended September 30, 2020 compared to the prior year period.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately $8.3 million and $21.9 million, respectively, during the nine months ended September 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee

revenue and facility operating expense for this segment excludes approximately $7.8 million and $20.5 million, respectively, of such additional revenue and expenses.

CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the nine months ended September 30, 2020 and 2019, including operating results and data on a same community basis.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

Resident fees $ 249,983 $ 305,084 $ (55,101) (18.1) %

Other operating income $ 12,387 $ — $ 12,387 NM

Facility operating expense $ 218,635 $ 251,128 $ (32,493) (12.9) %

Number of communities (period end) 21 26 (5) (19.2) %

Number of units (period end) 5,452 6,574 (1,122) (17.1) %

Total average units 5,690 6,567 (877) (13.4) %

RevPAR $ 4,850 $ 5,108 $ (258) (5.1) %

Occupancy rate (weighted average) 75.7 % 81.3 % (560) bps n/a

RevPOR $ 6,405 $ 6,284 $ 121 1.9 %

Same Community Operating Results and Data

Resident fees $ 162,647 $ 180,245 $ (17,598) (9.8) %

Other operating income $ 7,971 $ — $ 7,971 NM

Facility operating expense $ 141,396 $ 140,105 $ 1,291 0.9 %

Number of communities 14 14 — —

Total average units 3,612 3,612 — —

RevPAR $ 5,003 $ 5,545 $ (542) (9.8) %

Occupancy rate (weighted average) 75.0 % 82.7 % (770) bps n/a

RevPOR $ 6,663 $ 6,703 $ (40) (0.6) %

The decrease in the segment's resident fees was primarily attributable to the disposition of five communities since the beginning of the prior year period, which resulted in $31.8 million less in resident fees during the nine months ended September 30, 2020 compared to the prior year period.

Additionally, there was a decrease in the segment's same community RevPAR, comprised of a 770 basis points decrease in same community weighted average occupancy and a 0.6% decrease in same community RevPOR.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $22.7 million of lost resident fee revenue on a same community basis for this segment for the nine months ended September 30, 2020.

The decrease in the segment's same community RevPOR was primarily the result of a mix shift away from skilled nursing within the segment, partially offset by in-place rent increases.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $30.4 million less in facility operating expense during the nine months ended September 30, 2020 compared to the prior year period.

The decrease in facility operating expense was partially offset by an increase in the segment's same community facility operating expense, including $9.6 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately $2.0 million and $4.0 million, respectively, during the nine months ended September 30, 2019 as

a result of the application of the new lease accounting standard effective January 1, 2019.

Same community resident fee revenue and facility operating expense for this segment excludes approximately $1.4 million and $2.7 million, respectively, of such additional revenue and expenses.

Operating Results - Health Care Services Segment

The following table summarizes the operating results and data for our Health Care Services segment for the nine months ended September 30, 2020 and 2019.

(in thousands, except census) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

Resident fees $ 274,892 $ 337,751 $ (62,859) (18.6) %

Other operating income $ 22,887 $ — $ 22,887 NM

Facility operating expense $ 295,746 $ 315,633 $ (19,887) (6.3) %

Home health average daily census 13,381 15,740 (2,359) (15.0) %

Hospice average daily census 1,670 1,538 132 8.6 %

The decrease in the segment's resident fees was primarily attributable to a decrease in revenue for home health services, which reflects the implementation of the PDGM.

Additionally, our home health average daily census also began to decrease in March 2020 due to the COVID-19 pandemic, which resulted in lower occupancy in our communities and fewer elective medical procedures and hospital discharges.

The decrease in resident fees was partially offset by an increase in volume for hospice services.

We estimate that the COVID-19 pandemic, including the related restrictions at our communities, resulted in $32.9 million of lost resident fee revenue for the nine months ended September 30, 2020.

The decrease in the segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as a result of the lower census and as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the new payment model.

The decrease in the segment's facility operating expense was partially offset by $5.9 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic and an increase in labor costs for hospice services arising from wage rate increases and the expansion of our hospice services throughout 2019.

Operating Results - Management Services Segment

The following table summarizes the operating results and data for our Management Services segment for the nine months ended September 30, 2020 and 2019.

(in thousands, except communities, units, and occupancy) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

Management fees $ 120,460 $ 44,756 $ 75,704 NM

Reimbursed costs incurred on behalf of managed communities $ 315,003 $ 613,115 $(298,112) (48.6) %

Number of communities (period end) 74 123 (49) (39.8) %

Number of units (period end) 9,980 20,168 (10,188) (50.5) %

Total average units 11,559 22,747 (11,188) (49.2) %

The increase in management fees was primarily attributable to the $100.0 million management termination fee payment received from Healthpeak during the three months ended March 31, 2020.

We have completed the transition of management arrangements on 131 net communities since the beginning of the prior year period, generally for interim management arrangements on former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased or owned communities.

Management fees of $120.5 million for the nine months ended September 30, 2020 include $103.9 million of management fees attributable to communities for which our management agreements were terminated during such period and approximately $3.0 million of management fees attributable to communities that we expect the terminations of our management agreements to occur in the next approximately 12 months.

The decrease in reimbursed costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the nine months ended September 30, 2020 and 2019.

(in thousands) Nine Months Ended

September 30, Increase (Decrease)

2020 2019 Amount Percent

General and administrative expense $ 161,251 $ 170,296 $ (9,045) (5.3) %

Facility operating lease expense 178,480 203,610 (25,130) (12.3) %

Depreciation and amortization 271,713 284,462 (12,749) (4.5) %

Asset impairment 96,729 6,254 90,475 NM

Loss (gain) on facility lease termination and modification, net

— 2,006 (2,006) (100.0) %

Costs incurred on behalf of managed communities 315,003 613,115 (298,112) (48.6) %

Interest income 421 1,455 (1,034) (71.1) %

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Equity in earnings (loss) of unconsolidated ventures (531) (1,008) 477 47.3 %

Gain (loss) on sale of assets, net 374,019 2,723 371,296 NM

Gain (loss) on sale of assets, net 1,112 372,839 (371,727) (99.7) %

Other non-operating income (loss) 1,644 2,662 (1,018) (38.2) %

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General and Administrative Expense.

The decrease in general and administrative expense was primarily attributable to a reduction in our travel costs as we intentionally scaled back such activities, a reduction in our corporate headcount, as we scaled our general and administrative costs in connection with community dispositions, and a reduction in our incentive compensation costs.

The decrease was partially offset by a $6.6 million increase in transaction and organizational restructuring costs compared to the prior period, to $11.6 million for the nine months ended September 30, 2020.

The decrease in general and administrative expense was primarily attributable to a reduction in our corporate headcount as we scaled our general and administrative costs in connection with community dispositions and a reduction in our travel costs as we intentionally scaled back such activities.

General and administrative expense includes transaction and organizational restructuring costs of $1.9 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

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Facility Operating Lease Expense.

The decrease in facility operating lease expense was primarily due to the acquisition of formerly leased communities and lease termination activity since the beginning of the prior year and the Ventas lease portfolio restructuring during the current year period.

The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the prior year and lease termination activity since the beginning of the prior year period.

Depreciation and Amortization .

The decrease in depreciation and amortization expense was primarily due to disposition activity since the beginning of the prior year period and leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year period.

Asset Impairment.

During the current year period, we recorded $96.7 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.

During the prior year period, we recorded $6.3 million of non-cash impairment charges.

See Note 6 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the impairment charges.

Costs Incurred on Behalf of Managed Communities.

The decrease in costs incurred on behalf of managed communities was primarily due to terminations of management agreements subsequent to the beginning of the prior year period.

During the current year period, we recorded $10.7 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the period.

During the prior year period, we recorded $78.2 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.

Interest Expense.

The decrease in interest expense was primarily due to interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year period.

Gain (Loss) on Debt Modification and Extinguishment, Net.

The increase in gain on debt modification and extinguishment was primarily due to a $19.7 million gain on debt extinguishment recognized during the three months ended March 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement.

Gain (Loss) on Sale of Assets, Net.

The increase in gain on sale of assets, net was primarily due to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the nine months ended September 30, 2020.

The decrease in gain on sale of assets, net was primarily due to a $370.7 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year period.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the nine months ended September 30, 2020 and 2019 was due to a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak, and the impact of the increase of the annualized valuation allowance on the annualized effective rate for 2020.

We recorded an aggregate deferred federal, state, and local tax expense of $36.8 million, of which, $56.3 million was recorded as a result of the benefit on our operating loss for the nine months ended September 30, 2020.

The difference between our effective tax rate for the three months ended March 31, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020.

The impact represented the tax expense recorded on the gain of the sale of our interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak.

We recorded an aggregate deferred federal, state, and local tax benefit of $25.2 million as a result of the operating loss for the three months ended March 31, 2021, which was offset by an increase in the valuation allowance of $25.5 million.

We recorded an aggregate deferred federal, state, and local tax expense of $90.9 million, of which, $2.2 million was a result of the benefit on our operating loss for the three months ended March 31, 2020.

The benefit was offset by $93.1 million of tax expense that was recorded on the sale of our interest in the CCRC Venture.

The tax expense was offset by a decrease in the valuation allowance of $112.6 million.

The change in the valuation allowance for the nine months ended September 30, 2020 resulted from the tax impact of the Healthpeak transaction, the increase in valuation allowance on current operating losses, and the anticipated reversal of future tax liabilities offset by future tax deductions.

We recorded an aggregate deferred federal, state, and local tax benefit of $40.7 million as a result of the operating loss for the nine months ended September 30, 2019, which was offset by an increase in the valuation allowance of $39.4 million.

We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized.

Our valuation allowance as of March 31, 2021 and December 31, 2020 was $406.5 million and $381.0 million, respectively.

Liquidity and Capital Resources

This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow.

See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures.

See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.

Liquidity and Indebtedness

The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow:

Nine Months Ended

September 30, Increase (Decrease)

Three Months Ended

March 31, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

Net cash provided by (used in) operating activities $ 132,150 $ 128,330 $ 3,820 3.0 %

Net cash provided by (used in) operating activities $ (23,857) $ 57,479 $ (81,336) NM

Net cash provided by (used in) investing activities (3,806) (247,927) (244,121) (98.5) %

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Adjusted Free Cash Flow $ (50,674) $ 5,182 $ (55,856) NM

The increase in net cash provided by operating activities was attributable primarily to the $100.0 million management termination fee payment received from Healthpeak, $87.5 million of cash received under the Medicare accelerated and advance payment program, $50.1 million of the employer portion of social security payroll taxes deferred, and $36.1 million of government grants accepted during the current year period.

These changes were partially offset by the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020, $95.1 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, a decrease in same community revenue, and a decrease in revenue for home health services compared to the prior year period.

The increase in net cash used in investing activities was primarily attributable to $472.2 million of cash paid for the acquisition of communities during the current year period, a $117.6 million increase in purchases of marketable securities compared to the prior year period, and a $31.3 million decrease in cash proceeds from notes receivable compared to the prior year period.

These changes were partially offset by a $277.7 million increase in net proceeds from the sale of assets, a $84.8 million increase in proceeds from sales and maturities of marketable securities, and a $65.7 million decrease in cash paid for capital expenditures compared to the prior year period.

The change in net cash provided by (used in) financing activities was primarily attributable to a $643.3 million increase in debt proceeds compared to the prior year period.

These changes were partially offset by a $114.5 million increase in repayment of debt and financing lease obligations compared to the prior year period and an $11.8 million increase in cash paid during the current year period for financing costs.

The increase in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities and a $75.2 million decrease in non-development capital expenditures, net compared to the prior year period.

The change in net cash provided by (used in) operating activities was attributable primarily to the $100.0 million management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture in the prior year period and a decrease in same community revenue compared to the prior year period.

These changes were partially offset by a decrease in cash payments for accounts payable and accrued expenses compared to the prior year period.

The decrease in net cash used in investing activities was primarily attributable to $446.7 million of cash paid for the acquisition of communities during the prior year period, a $68.0 million increase in proceeds from sales and maturities of marketable securities, a $29.0 million decrease in cash paid for capital expenditures, and a $9.5 million decrease in purchases of marketable securities compared to the prior year period.

These changes were partially offset by a $300.9 million decrease in net proceeds from the sale of assets compared to the prior year period.

The change in net cash provided by (used in) financing activities was primarily attributable to a $453.2 million decrease in debt proceeds compared to the prior year period and $166.4 million of draws on our former secured credit facility during the prior year period.

These changes were partially offset by a $213.3 million decrease in repayment of debt and financing lease

obligations, an $18.1 million decrease in cash paid for share repurchases, and a $5.7 million decrease in cash paid for financing costs compared to the prior year period.

The decrease in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating activities, partially offset by a $33.1 million decrease in non-development capital expenditures, net compared to the prior year period.

Our principal sources of liquidity have historically been from:

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• funds generated through unconsolidated venture arrangements;

• proceeds from mortgage financing, refinancing of various assets, or sale-leaseback transactions;

• proceeds from mortgage financing or refinancing of various assets;

• funds raised in the debt or equity markets;

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Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity.

During the nine months ended September 30, 2020, we also have received cash grants and advanced/accelerated Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above.

During 2020, we also received cash grants and advanced Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above.

As described above, we expect to sell 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare, which transaction is expected to occur in the early second half of 2021, for expected net cash proceeds of approximately $300 million, subject to the timing of closing with respect to the adjustments set forth in the Purchase Agreement described above.

We are evaluating the use of the net proceeds from the pending Health Care Services transaction.

Our liquidity requirements have historically arisen from:

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• operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs;

• debt service and lease payments;

• debt, interest, and lease payments;

• acquisition consideration, lease termination and restructuring costs, and transaction and integration costs;

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• operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic;

• debt service and lease payments;

• debt, interest, and lease payments;

• payment of deferred payroll taxes under the CARES Act;

• recoupment of payments received under the Accelerated and Advance Payment Program;

• acquisition consideration;

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We are highly leveraged and have significant debt and lease obligations.

As of September 30, 2020, we had $3.9 billion of debt outstanding, at a weighted average interest rate of 3.6%.

As of March 31, 2021, we had $3.9 billion of debt outstanding, at a weighted average interest rate of 3.6%.

As of such date, 97.9%, or $3.8 billion of our total debt obligations represented non-recourse property-level mortgage financings.

As of September 30, 2020, $1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements.

As of March 31, 2021, $1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements.

The remaining $128.0 million of our long-term variable rate debt is not subject to any interest rate cap agreements.

As of September 30, 2020, $87.7 million of letters of credit had been issued under our secured and unsecured credit facilities.

As of September 30, 2020, we had $1.6 billion of operating and financing lease obligations.

For the twelve months ending September 30, 2021, we will be required to make approximately $264.7 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $490.7 million as of September 30, 2020 included $354.6 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $141.8 million in the aggregate) and $136.1 million of marketable securities.

Total liquidity as of September 30, 2020 increased $9.4 million from total liquidity of $481.3 million as of December 31, 2019.

The increase was primarily attributable to temporary liquidity relief under the CARES Act and the transactions with Healthpeak completed during the three months ended March 31, 2020, including the impact of the related financing transaction, partially offset by the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020.

There is no assurance that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief.

Additionally, 55 communities (4,359 units) were unencumbered by mortgage debt as of September 30, 2020.

We currently estimate that our existing cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, expected grants to be received from the Provider Relief Fund, proceeds from anticipated dispositions of owned communities, and financings and refinancings of various assets, will be sufficient to fund our liquidity needs for at least the next 12 months, assuming the economy and our industry do not further deteriorate substantially as a result of the continuing impacts of the pandemic.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital.

Volatility in the credit and financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing.

Shortfalls in cash flows from operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy.

As of March 31, 2021, $69.9 million of letters of credit and no cash borrowings

were outstanding under our $80.0 million secured credit facility.

We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of March 31, 2021 under which $13.6 million had been issued as of that date.

As of March 31, 2021, we had $1.5 billion of operating and financing lease obligations.

For the twelve months ending March 31, 2022, we will be required to make approximately $268.2 million of cash lease payments in connection with our existing operating and financing leases (excluding minimum lease payments related to $9.7 million of operating lease obligations included within liabilities held for sale).

Total liquidity of $438.9 million as of March 31, 2021 included $304.0 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $100.7 million in the aggregate) and $134.9 million of marketable securities.

Total liquidity as of March 31, 2021 decreased $136.6 million from total liquidity of $575.5 million as of December 31, 2020.

The decrease was primarily attributable to the negative $50.7 million of Adjusted Free Cash Flow and $38.3 million of payments of mortgage debt during the three months ended March 31, 2021.

As of March 31, 2021, our current liabilities exceeded current assets by $42.4 million.

Included in our current liabilities is $224.9 million of the current portion of long term debt which we have historically refinanced in the normal course.

Our current liabilities also include $160.4 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.

We currently estimate that our cash flows from operations, together with cash balances on hand, cash equivalents, marketable securities, and proceeds from the pending sale of 80% of our equity in our Health Care Services segment will be sufficient to fund our liquidity needs for at least the next 12 months.

Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.

Disruptions in the financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing of various assets.

Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities’ maturing indebtedness.

If we are unable to obtain refinancing proceeds sufficient to cover maturing indebtedness, our liquidity could be adversely impacted and we may seek alternative sources of financing, which may be less attractive or unavailable.

Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy.

In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding.

There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.

Capital Expenditures

Our capital expenditures are comprised of community-level, corporate, and development capital expenditures.

Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence, including for unit turnovers (subject to a $500 floor)) and community renovations, apartment upgrades, and other major building infrastructure projects.

Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence and for unit turnovers over $500 per unit) and community renovations, apartment upgrades, and other major building infrastructure projects.

Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and healthcare services programs, and the remediation or replacement of assets as a result of casualty losses.

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With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous.

Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers.

Certain of our communities may benefit from additions and expansions or

from adding a new level of service for residents to meet the evolving needs of our customers.

These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications.

The following table summarizes our capital expenditures for the nine months ended September 30, 2020 for our consolidated business:

(in millions) Nine Months Ended September 30, 2020

The following table summarizes our capital expenditures for the three months ended March 31, 2021 for our consolidated business:

(in millions)

Community-level capital expenditures, net (1)

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(1) Reflects the amount invested, net of lessor reimbursements of $9.0 million.

(2) Includes $1.8 million of remediation costs at our communities resulting from hurricanes and other natural disasters and for the acquisition of emergency power generators at our impacted Florida communities.

(2) Includes $2.7 million of remediation costs at our communities resulting from natural disasters.

(3) Amount is included in Adjusted Free Cash Flow.

In response to the COVID-19 pandemic, we have delayed or canceled a number of elective capital expenditure projects.

We anticipate that our 2020 capital expenditures will be funded from cash on hand, cash flows from operations, and reimbursements from lessors.

In the aggregate, we expect our full-year 2021 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $140 million.

In addition, we expect our full-year 2021 development capital expenditures to be approximately $10 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities.

We anticipate that our 2021 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors.

Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to support our strategy may require additional capital.

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Credit Facilities

On August 31, 2020, we terminated our Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender, and swingline lender and the other lenders from time to time parties thereto (as amended, the "Credit Agreement").

The Credit Agreement had provided commitments for a $250 million revolving credit facility with a $60 million sublimit for letters of credit and a $50 million swingline feature.

The credit facility was secured by first priority mortgages on certain of our communities, and availability varied from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and our consolidated fixed charge coverage ratio.

The Credit Agreement was terminated in connection with our obtaining approximately $266.9 million of non-recourse mortgage financing on 16 communities on August 31, 2020, most of which had secured the Credit Agreement prior to its termination.

At the closing, we repaid the $166.4 million outstanding principal amount under the Credit Agreement, together with accumulated interest, without payment of any termination fee or penalty, and we cash collateralized the letters of credit outstanding under the Credit Agreement.

As of September 30, 2020, $87.7 million of letters of credit have been issued of which $46.7 million were issued under our $50.0 million unsecured credit facility.

Restricted cash as of September 30, 2020 includes $41.4 million of collateral deposits for the $41.0 million secured letters of credit.

On December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto.

The agreement provides a commitment amount of $80 million which can be drawn in cash or as letters of credit.

The agreement matures on January 15, 2024.

Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of March 31, 2021.

Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of March 31, 2021.

The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities and restricted cash deposits.

Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility.

As of March 31, 2021, $69.9 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility.

We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of March 31, 2021 under which $13.6 million had been issued as of that date.

Long-Term Leases

As of September 30, 2020, we operated 302 communities under long-term leases (236 operating leases and 66 financing leases).

As of March 31, 2021, we operated 301 communities under long-term leases (235 operating leases and 66 financing leases).

The substantial majority of our lease arrangements are structured as master leases.

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We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases.

Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord.

Due to the nature of such master leases, it is difficult to restructure the composition of our

leased portfolios or economic terms of the leases without the consent of the applicable landlord.

In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

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The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum net worth and stockholders' equity levels and lease coverage ratios, as further described below.

In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios.

In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.

In addition, certain of our master leases and management agreements contain radius restrictions, which limit our ability to own, develop or acquire new communities within a specified distance from certain existing communities covered by such agreements.

In addition, certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements.

These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.

For the three and nine months ended September 30, 2020, our cash lease payments for our operating leases were $173.7 million and $325.3 million, respectively, and for our financing leases were $16.5 million and $51.4 million, respectively.

For the twelve months ending September 30, 2021, we will be required to make $264.7 million of cash lease payments in connection with our existing operating and financing leases.

For the three months ended March 31, 2021, our cash lease payments for our operating and financing leases were $53.9 million and $16.2 million, respectively.

For the twelve months ending March 31, 2022, we will be required to make $268.2 million of cash lease payments in connection with our existing operating and financing leases (excluding minimum lease payments related to $9.7 million of operating lease obligations included within liabilities held for sale).

Our capital expenditure plans for 2021 include required minimum spend of approximately $18 million for capital expenditures under certain of our community leases.

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Debt and Lease Covenants

Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum net worth and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis.

Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis.

Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue.

The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payments.

In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements.

In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents.

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Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor.

Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or

Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors).

We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.

As of September 30, 2020, we are in compliance with the financial covenants of our debt agreements and long-term leases.

As of March 31, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Contractual Commitments

The following table presents a summary of our material indebtedness, including the related interest payments, lease, and other contractual commitments, as of September 30, 2020.

Payments Due during the Period Ending December 31,

(in millions) Total 2020 2021 2022 2023 2024 Thereafter

Contractual Obligations:

Principal on long-term debt (1)

$ 3,958.5 $ 16.2 $ 72.5 $ 352.4 $ 234.4 $ 304.2 $ 2,978.8

Interest on long-term debt (2)

921.6 36.3 143.3 133.3 121.8 116.4 370.5

Long-term debt 4,880.1 52.5 215.8 485.7 356.2 420.6 3,349.3

Financing lease obligations (3)

445.7 16.0 64.6 65.2 66.0 67.2 166.7

Operating lease obligations (4)

1,335.3 53.6 212.1 195.5 195.7 195.5 482.9

Total contractual obligations $ 6,661.1 $ 122.1 $ 492.5 $ 746.4 $ 617.9 $ 683.3 $ 3,998.9

(1) Excludes debt discount and deferred financing costs of $28.3 million as of September 30, 2020.

(2) Represents contractual interest for all fixed-rate obligations and assumes interest on variable rate instruments at the September 30, 2020 rate.

(3) Reflects future cash lease payments after giving effect to fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the applicable index or rate as of September 30, 2020.

The cash payments for financing lease obligations exclude $412.8 million of financing lease obligations recognized on our condensed consolidated balance sheet for purchase option liabilities and for sale-leaseback transactions in which we have not transferred control of the underlying asset.

(4) Reflects future cash payments after giving effect to fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the applicable index or rate as of September 30, 2020.

Our capital expenditure plans for 2020 include required minimum spend of approximately $17 million for capital expenditures under certain of our community leases.

Additionally, we are required to spend an average of approximately $25 million per year for each of the following four years and approximately $41 million thereafter under the initial lease terms of such leases.

The foregoing amounts exclude outstanding letters of credit aggregating to $87.7 million as of September 30, 2020.

Significant ongoing commitments consist primarily of leases, debt, and certain other long-term liabilities.

For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.

There have been no material changes outside the ordinary course of business in our contractual commitments during the three months ended March 31, 2021.

Off-Balance Sheet Arrangements

As of September 30, 2020, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

As of March 31, 2021, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with GAAP.

This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with U.S.

generally accepted accounting principles ("GAAP").

Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity.

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and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

The table below reconciles our Adjusted EBITDA from our net income (loss).

The table below reconciles Adjusted EBITDA from net income (loss).

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020

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Asset impairment 10,677 78,226

Loss (gain) on facility lease termination and modification, net

Operating lease expense adjustment (4,664) (6,733)

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(1) Adjusted EBITDA includes:

• $6.0 million and $19.0 million, respectively, of negative non-recurring net impact for the three and nine months ended September 30, 2019 from the application of the lease accounting standard effective January 1, 2019

• $100.0 million benefit for the nine months ended September 30, 2020 for the management agreement termination fee payment received from Healthpeak

• $119.2 million for the three and nine months ended September 30, 2020 for the one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020

• $10.8 million and $37.5 million, respectively, benefit for the three and nine months ended September 30, 2020 of Provider Relief Funds and other government grants recognized in other operating income

• $10.7 million benefit for the three months ended March 31, 2021 of government grants and credits recognized in other operating income

• $100.0 million benefit for the three months ended March 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture

Adjusted Free Cash Flow

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Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements.

Non-development capital expenditures do not include capital expenditures for community expansions and major community redevelopment and repositioning projects, and the development of new communities.

Non-development capital expenditures do not include capital expenditures for:

community expansions, major community redevelopment and repositioning projects, and the development of new communities.

We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures;

(ii) it is used as a metric in our performance-based compensation programs;

and (iii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.

and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.

Adjusted Free Cash Flow has material limitations as a liquidity measure, including:

(i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory

debt principal payments, are not reflected in this measure;

(i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure;

(ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity;

and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.

The table below reconciles our Adjusted Free Cash Flow from our net cash provided by (used in) operating activities.

The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020

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Net cash provided by (used in) operating activities $ (23,857) $ 57,479

Distributions from unconsolidated ventures from cumulative share of net earnings

(766) (858) (766) (2,388)

Changes in prepaid insurance premiums financed with notes payable

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$ (50,674) $ 5,182

(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $6.3 million and $3.9 million for the three months ended September 30, 2020 and 2019, respectively, and $11.6 million and $5.0 million for the nine months ended September 30, 2020 and 2019, respectively.

(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $1.9 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

Additionally, Adjusted Free Cash Flow includes:

For the three months ended September 30, 2020:

• $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020

• $2.5 million benefit from accelerated/advanced Medicare payments received

• $4.4 million benefit from Provider Relief Funds and other government grants accepted

• $23.6 million benefit from payroll taxes deferred

For the nine months ended September 30, 2020:

• $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020

• $100.0 million benefit from management agreement termination fee payment received from Healthpeak

• $87.5 million benefit from accelerated/advanced Medicare payments received

• $38.6 million benefit from Provider Relief Funds and other government grants accepted

• $50.1 million benefit from payroll taxes deferred

• $1.7 million benefit for the three months ended March 31, 2021 from Provider Relief Funds and other government grants accepted

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis