What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 441 added, 210 removed, 434 unchanged (60% of the section changed)

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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.

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;

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 or variants 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, potentially greater associate attrition and use of contract labor due to our associate vaccine mandate, the impact of COVID-19 on our ability to complete financings and refinancings of various assets, or other transactions 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;

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competition for the acquisition of assets;

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;

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;

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

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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;

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

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;

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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 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.

As of June 30, 2021, we are the nation’s premier operator of senior living communities, operating and managing 685 communities in 41 states, with the ability to serve over 60,000 residents.

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

W e operate and manage independent living, assisted living, memory care, and co ntinuing care retirement communities ("CCRCs").

We also offer a range of home health, hospice, and outpatient therapy services to more than 16,000 patients as of that date.

We operate and manage independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs").

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.

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

Our senior living communities offer residents a supportive home-like setting, assistance with activities of daily living such as eating, bathing, dressing, toileting, transferring/walking, and, in certain communities, licensed skilled nursing services.

We also provide home health, hospice, and outpatient therapy services to residents of many of our communities and to seniors living outside of our communities.

Our senior living communities and our comprehensive network of services help to provide seniors with care and services to support their lifestyle in an environment that feels like home.

Our expertise in healthcare, hospitality, and real estate provides our residents with opportunities to improve wellness, pursue passions, and stay connected with friends and loved ones.

By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time.

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COVID-19 Pandemic Update

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, the senior living industry and our business.

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 as we continue to serve and care for seniors through the pandemic.

The COVID-19 pandemic has significantly disrupted the senior living industry and our business.

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 COVID-19 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.

Vaccine Update .

By April 9, 2021, we completed at least three rounds of COVID-19 vaccine clinics at all of our approximately 700 communities 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.

Upon completion of at least three vaccine clinics at all of our communities by April 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.

We recently have adopted a policy requiring our associates to be vaccinated against COVID-19, subject to limited exceptions, which we will implement in a phased approach beginning with our corporate associates and field and community leadership.

We also continue to monitor guidance of the CDC and U.S.

Food and Drug Administration regarding the potential need for booster doses of COVID-19 vaccines.

Rebuilding Occupancy.

We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic.

During the second quarter of 2021 substantially all, and as of July 31, 2021 all, of our communities were open for visitors, new resident move-ins, and prospective residents.

Our consolidated senior housing monthly net move-ins and move-outs turned positive in March 2021 for the first time since the pandemic began.

Beginning in March 2021, we have achieved five consecutive months of weighted average consolidated senior housing occupancy growth on a sequential basis.

According to data from the National Investment Center for the Seniors Housing & Care Industry ("NIC"), seniors housing occupancy increased 10 basis points from the first quarter to the second quarter of 2021 for stabilized portfolios.

Our weighted average consolidated senior housing occupancy increased 90 basis points sequentially for the second quarter of 2021 compared to the first quarter of 2021.

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

Weighted average occupancy 83.2 % 78.7 % 75.3 % 72.7 % 69.6 % 70.5 %

Quarter-end occupancy 82.2 % 77.8 % 75.0 % 71.5 % 70.6 % 72.6 %

2021 February

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Month-end occupancy 70.4 % 70.1 % 70.6 % 71.1 % 71.6 % 72.6 % 73.3 %

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.

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;

We may revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic worsens, as necessary to comply with regulatory requirements, or at the direction of state or local health authorities.

We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 pandemic 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.

Revenue and Expense Impacts.

Compared to our pre-pandemic expectations for fiscal 2020, we estimate that the pandemic resulted in $109.5 million and $227.0 million of lost resident fee revenue for the three and six months ended June 30, 2021, respectively.

Estimated lost resident fee revenue includes $81.8 million and $176.0 million in our consolidated senior housing portfolio and $27.7 million and $51.0 million in our Health Care Services segment for the three and six months ended June 30, 2021, respectively.

On a cumulative basis through June 30, 2021, we estimate that the pandemic has resulted in approximately $510 million of lost resident fee revenue.

The estimated lost revenue represents the difference between the actual resident fee revenue for the period and our pre-pandemic expectations for the 2020 period.

For the three and six months ended June 30, 2021, we recognized $9.7 million and $37.1 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

For the three and six months ended June 30, 2020, we recognized $60.6 million and $70.6 million, respectively, of such facility operating expense.

The direct costs include those for:

acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies;

enhanced cleaning and environmental sanitation;

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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.

On a cumulative basis through June 30, 2021, we have incurred $162.6 million of pandemic related facility operating expense since the beginning of fiscal 2020.

For the three and six months ended June 30, 2021, we recorded $1.5 million and $10.5 million, respectively, of non-cash impairment charges in our operating results 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.

For the three and six months ended June 30, 2020, we recorded $6.6 million and $72.3 million, respectively, of such non-cash impairment charges.

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

As of June 30, 2021, our total liquidity was $387.8 million, consisting of $280.7 million of unrestricted cash and cash equivalents, $100.0 million of marketable securities, and $7.1 million of availability on our secured credit facility.

As described below, we received net cash proceeds of $305.8 million at closing for the sale of 80% of our equity in our Health Care Services segment on July 1, 2021, which further enhanced our liquidity.

We continue to seek opportunities to enhance and preserve our liquidity, including through increasing occupancy and maintaining expense discipline, 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, 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.

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.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("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.

• During the six months ended June 30, 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.

The grants received in the six months ended June 30, 2021 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.

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 the Centers for Medicare and Medicaid ("CMS"), $75.2 million of which related to our Health Care Services segment and $12.3 million related to our CCRCs segment and of which $85.0 million was received in the three and six months ended June 30, 2020.

Recoupment of advanced payments began 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.

During both the three and six months ended June 30, 2021, $14.3 million of the advanced payments were recouped.

Pursuant to the sale of 80% of our equity in our Health Care Services segment (as described below), $63.6 million of such obligations related to our Health Care Services segment were retained by the unconsolidated Health Care Services venture.

As of June 30, 2021, the outstanding balance of advanced payments related to our CCRCs segment was $9.7 million, of which we expect recoupment of approximately $5 million during the second half of 2021 and the remainder in 2022.

• During the year ended December 31, 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.

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.

Pursuant to the sale of 80% of our equity in our Health Care Services segment, $8.9 million of such obligations related to our Health Care Services segment were retained by the unconsolidated Health Care Services venture.

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

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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.

During the three and six months ended June 30, 2021, we recognized $0.9 million and $9.9 million, respectively, of employee retention credits on wages paid from March 12, 2020 to December 31, 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.

In addition to the grants described above, during the three and six months ended June 30, 2021, we received and recognized $0.4 million and $1.3 million, respectively, 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.

The ultimate impacts of COVID-19 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 ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants 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;

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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;

potentially greater associate attrition and use of contract labor due to our associate vaccine mandate;

the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions 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;

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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.

During the period from January 1, 2020 through June 30, 2021, we terminated triple-net obligations on an aggregate of 33 communities (2,978 units), including through the acquisition of 27 formerly leased communities (2,453 units), we sold four owned communities (504 units), and we sold our ownership interest in our unconsolidated entry fee CCRC venture (the "CCRC Venture") with Healthpeak Properties, Inc.

("Healthpeak").

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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.

The closings of the various pending and expected transactions described herein are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals.

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

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.

During the six months ended June 30, 2021, we completed the sale of two owned communities (129 units) for cash proceeds of $8.5 million, net of transaction costs, and for which we recognized a net gain on sale of assets of $0.5 million.

Additionally, we sold 80% of our equity in our Health Care Services segment on July 1, 2021, as described below.

We expect to close on the disposition of one owned unencumbered community (120 units) classified as held for sale as of June 30, 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.

The closing of the sale of the community is subject to the satisfaction of various closing conditions, including the receipt of regulatory approvals.

There can be no assurance that the transaction will close or, if it does, when the actual closing will occur.

Completed Dispositions of Entry Fee CCRCs by Unconsolidated Venture

Prior to the January 31, 2020 closing of our sale of our ownership interest in the CCRC Venture, we and Healthpeak moved the remaining two entry fee CCRCs into a new unconsolidated entry fee CCRC venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities.

During the three months ended June 30, 2021, the new unconsolidated entry fee CCRC venture completed the sale of the two remaining entry fee CCRCs for cash proceeds of $14.0 million, net of associated mortgage debt repayments and transaction costs.

Subsequent to the sale transaction, the new unconsolidated entry fee CCRC venture has no continuing operations.

During the three months ended June 30, 2021, we received $5.4 million of cash distributions from the new unconsolidated entry fee CCRC venture and recognized $13.9 million of equity in earnings of unconsolidated ventures for our proportionate share of the net income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a gain on sale of assets for the sale of the two remaining entry fee CCRCs.

Sale of Health Care Services

On February 24, 2021, we entered into the Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc., 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 $63.6 million and $8.9 million, respectively, as of June 30, 2021.

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.

The closing of the sale transaction was completed on July 1, 2021.

We received net cash proceeds of $305.8 million at closing, which remains subject to a post-closing net working capital adjustment as set forth in the Purchase Agreement.

Additionally, $10.0 million of the purchase price was deposited into an escrow account as set forth in the Purchase Agreement, the majority of which is expected to be released to us upon completion of the post-closing net working capital adjustment.

Pursuant to the Purchase Agreement, at closing of the transaction, we retained a non-controlling 20% equity interest in the business.

We expect that the results and financial position of our Health Care Services segment will be deconsolidated from our consolidated financial statements as of July 1, 2021 and that our 20% equity interest in the Health Care Services venture will be accounted for under the equity method of accounting.

We expect to recognize an approximate $288 million gain on sale, net of transaction costs, within our condensed consolidated statement of operations for the three months ended September 30, 2021 for the sale transaction.

We expect any taxable gains recognized from the transaction to be fully offset by current year operational losses.

Results of Operations

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

As of June 30, 2021, our total operations included 685 communities with a capacity to serve over 60,000 residents.

As of that date, we owned 348 communities (31,783 units), leased 300 communities (21,038 units), and managed 37 communities (6,157 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, 2020 to March 31, 2021 affect the comparability of our results of operations.

Transactions completed during the period of January 1, 2020 to June 30, 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.

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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, 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.

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.

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.

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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

Comparison of Three Months Ended June 30, 2021 and 2020

Summary Operating Results

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

The following table summarizes our overall operating results for the three months ended June 30, 2021 and 2020.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

Total resident fees and management fees revenue $ 678,976 $ 737,705 $ (58,729) (8.0) %

Other operating income 10,735 — 10,735 NM

Other operating income 1,308 26,693 (25,385) (95.1) %

Facility operating expense 550,846 606,034 (55,188) (9.1) %

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

Net income (loss) (83,604) (118,420) (34,816) (29.4) %

Adjusted EBITDA 33,064 44,733 (11,669) (26.1) %

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.

The decrease in total resident fees and management fees revenue was primarily attributable to a $57.7 million decrease in resident fees, including a 7.2% decrease in same community RevPAR, comprised of an 860 basis point decrease in same community weighted average occupancy and a 4.2% increase in same community RevPOR.

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 $12.5 million less in resident fees during the three months ended June 30, 2021 compared to the prior year period.

Revenue for the Health Care Services segment decreased $2.9 million, 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

Management fee revenue decreased $1.1 million primarily due to the transition of management agreements on 43 net communities since the beginning of the prior year period.

During the three months ended June 30, 2021 and 2020, we recognized $1.3 million and $26.7 million, respectively, of government grants and employee retention credits 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 6.1% decrease in same community facility operating expense, which was primarily due to a $44.9 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period.

These decreases in the segment's same community facility operating expense were partially offset by an increase in contract labor costs due to a competitive labor market and an increase in advertising costs as we scaled back advertising during the prior year period as a result of the pandemic.

Facility operating expenses for the Health Care Services segment decreased $13.1 million primarily attributable to a decrease in labor costs for home health services as a result of the lower census and a decrease in incremental direct costs to respond to the COVID-19 pandemic.

Additionally, the disposition of communities since the beginning of the prior year period resulted in $12.9 million less in facility operating expense during the three months ended June 30, 2021 compared to the prior year period.

Facility operating expense for the three months ended June 30, 2021 and 2020 includes $9.7 million and $60.6 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The decrease in net loss was primarily attributable to decreases in facility operating lease expense, depreciation and amortization expense, non-cash asset impairment expense, and provision for income taxes, as well as an increase in equity in earnings of unconsolidated ventures compared to the prior year period, partially offset by the net impact of the revenue, other operating income, and facility operating expense factors previously discussed.

The decrease in Adjusted EBITDA was primarily attributable to the net impact of the revenue, other operating income, and facility operating expense factors previously discussed and an increase in general and administrative expense (excluding non-cash stock based compensation expense and transaction and organizational restructuring costs), partially offset by a $21.4 million decrease in cash facility operating lease payments, primarily reflecting reduced cash lease payments as a result of the lease restructuring transaction with Ventas on July 26, 2020.

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 March 31, 2021 and 2020, 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 June 30, 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

March 31, Increase (Decrease)

2021 2020 Amount Percent

Three Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 586,665 $ 641,459 $ (54,794) (8.5) %

Other operating income $ 8,152 $ — $ 8,152 NM

Other operating income $ 786 $ 9,698 $ (8,912) (91.9) %

Facility operating expense $ 466,424 $ 508,561 $ (42,137) (8.3) %

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Resident fees $ 559,415 $ 602,682 $ (43,267) (7.2) %

Other operating income $ 7,554 $ — $ 7,554 NM

Other operating income $ 769 $ 7,044 $ (6,275) (89.1) %

Facility operating expense $ 443,948 $ 472,957 $ (29,009) (6.1) %

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Independent Living Segment

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

March 31, Increase (Decrease)

2021 2020 Amount Percent

The following table summarizes the operating results and data for our Independent Living segment for the three months ended June 30, 2021 and 2020, including operating results and data on a same community basis.

Three Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 118,005 $ 130,278 $ (12,273) (9.4) %

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The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,020 basis point decrease in same community weighted average occupancy and a 2.6% 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.

The decrease in the segment's same community weighted average occupancy primarily reflects the impact of the net move-in and move-out activity at our communities since the beginning of the prior year period.

During the three months ended June 30, 2021, the segment's quarterly net move-ins and move-outs turned positive for the first time since the pandemic began.

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 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.

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 an $8.0 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period.

These decreases in the segment's same community facility operating expense were partially offset by an increase in advertising costs as we scaled back advertising during the prior year period as a result of the pandemic.

The segment's facility operating expense for the three months ended June 30, 2021 and 2020 includes $1.4 million and $9.6 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 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

March 31, Increase (Decrease)

2021 2020 Amount Percent

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended June 30, 2021 and 2020, including operating results and data on a same community basis.

Three Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 391,718 $ 432,156 $ (40,438) (9.4) %

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RevPOR $ 5,382 $ 5,207 $ 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 1,390 basis point decrease in same community weighted average occupancy and a 3.4% 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 an 860 basis point decrease in same community weighted average occupancy and a 3.4% increase in same community RevPOR.

During the three months ended June 30, 2021, the segment's quarterly net move-ins and move-outs turned positive for the first time since the pandemic began.

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

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.

Additionally, the disposition of 11 communities (877 units) since the beginning of the prior year period resulted in $6.4 million less in resident fees during the three months ended June 30, 2021 compared to the prior year period.

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 a $31.7 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period.

Additionally, the disposition of communities since the beginning of the prior year period resulted in $6.3 million less in facility operating expense during the three months ended June 30, 2021 compared to the prior year period.

The segment's facility operating expense for the three months ended June 30, 2021 and 2020 includes $6.1 million and $38.7 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 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

March 31, Increase (Decrease)

2021 2020 Amount Percent

The following table summarizes the operating results and data for our CCRCs segment for the three months ended June 30, 2021 and 2020, including operating results and data on a same community basis.

Three Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 76,942 $ 79,025 $ (2,083) (2.6) %

Other operating income $ 46 $ 9,546 $ (9,500) (99.5) %

Facility operating expense $ 68,315 $ 74,721 $ (6,406) (8.6) %

Number of communities (period end) 20 22 (2) (9.1) %

Number of units (period end) 5,351 5,741 (390) (6.8) %

Total average units 5,341 5,721 (380) (6.6) %

RevPAR $ 4,770 $ 4,572 $ 198 4.3 %

Occupancy rate (weighted average) 70.2 % 74.0 % (380) bps n/a

RevPOR $ 6,790 $ 6,181 $ 609 9.9 %

Same Community Operating Results and Data

Resident fees $ 58,095 $ 54,912 $ 3,183 5.8 %

Other operating income $ 32 $ 6,893 $ (6,861) (99.5) %

Facility operating expense $ 52,459 $ 52,099 $ 360 0.7 %

Number of communities 15 15 — —

Total average units 3,786 3,786 — —

RevPAR $ 5,115 $ 4,835 $ 280 5.8 %

Occupancy rate (weighted average) 69.4 % 73.2 % (380) bps n/a

RevPOR $ 7,374 $ 6,605 $ 769 11.6 %

The decrease in the segment's resident fees was primarily attributable to the disposition of two communities (456 units) since the beginning of the prior year period, which resulted in $6.1 million less in resident fees during the three months ended June 30, 2021 compared to the prior year period.

The decrease in resident fees was partially offset by the increase in the segment's same community RevPAR, comprised of an 11.6% increase in same community RevPOR and a 380 basis point decrease in same community weighted average occupancy.

The increase in the segment's same community RevPOR was primarily the result of an occupancy mix shift from less independent living services to more skilled nursing services within the segment and in-place rent increases.

The segment’s period-end occupancy increased on a sequential basis for both the three months ended March 31, 2021 and June 30, 2021.

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 June 30, 2021 compared to the prior year period, partially offset by an increase in the segment's same community facility operating expense.

The increase in the segment's same community facility operating expense was primarily attributable to an increase in labor expense arising from increased contract labor costs due to a competitive labor market and wage rate increases, an increase in healthcare supplies costs as we intentionally scaled back advertising during the prior year period for the reduced occupancy, an increase in repairs and maintenance costs due to more move-ins during the period, and an increase in advertising costs.

These increases in the segment's same community facility operating expense were partially offset by a $5.2 million decrease in incremental direct costs to respond to the COVID-19 pandemic.

The segment's facility operating expense for the three months ended June 30, 2021 and 2020 includes $1.4 million and $9.3 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 June 30, 2021 and 2020.

Three Months Ended

June 30, Increase (Decrease)

(in thousands, except census) 2021 2020 Amount Percent

Resident fees $ 87,313 $ 90,170 $ (2,857) (3.2) %

Other operating income $ 522 $ 16,995 $ (16,473) (96.9) %

Facility operating expense $ 84,422 $ 97,473 $ (13,051) (13.4) %

Home health average daily census 11,174 12,980 (1,806) (13.9) %

Hospice average daily census 1,467 1,646 (179) (10.9) %

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 a $2.3 million decrease in incremental direct costs to respond to the COVID-19 pandemic.

The segment's facility operating expense for the three months ended June 30, 2021 and 2020 includes $0.8 million and $3.1 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

As described above, we sold 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare on July 1, 2021.

For periods beginning July 1, 2021, we expect that the results and financial position of our Health Care Services segment will be deconsolidated from the consolidated financial statements and our 20% equity interest in the Health Care Services venture will be accounted for under the equity method of accounting.

Operating Results - Management Services Segment

The following table summarizes the operating results and data for our Management Services segment for the three months ended June 30, 2021 and 2020.

Three Months Ended

June 30, Increase (Decrease)

(in thousands, except communities and units) 2021 2020 Amount Percent

Management fees $ 4,998 $ 6,076 $ (1,078) (17.7) %

Reimbursed costs incurred on behalf of managed communities $ 43,008 $ 101,511 $ (58,503) (57.6) %

Costs incurred on behalf of managed communities $ 43,008 $ 101,511 $ (58,503) (57.6) %

Number of communities (period end) 37 77 (40) (51.9) %

Number of units (period end) 6,157 10,694 (4,537) (42.4) %

Total average units 6,354 10,905 (4,551) (41.7) %

The decrease in management fees was primarily attributable to the transition of management arrangements on 43 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 $5.0 million for the three months ended June 30, 2021 include $0.8 million of management fees attributable to communities for which our management agreements were terminated during such period.

We expect the terminations of a significant majority of our remaining 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 June 30, 2021 and 2020.

Three Months Ended

June 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

General and administrative expense $ 52,400 $ 52,518 $ (118) (0.2) %

Facility operating lease expense 43,864 62,379 (18,515) (29.7) %

Depreciation and amortization 83,591 93,154 (9,563) (10.3) %

Asset impairment 2,078 10,290 (8,212) (79.8) %

Interest income 341 2,243 (1,902) (84.8) %

Interest expense 49,057 52,422 (3,365) (6.4) %

Gain (loss) on debt modification and extinguishment, net

— (157) 157 NM

Equity in earnings (loss) of unconsolidated ventures 13,946 438 13,508 NM

Gain (loss) on sale of assets, net (79) (1,029) 950 92.3 %

Other non-operating income (loss) 2,948 988 1,960 198.4 %

Benefit (provision) for income taxes 792 (8,504) 9,296 NM

General and Administrative Expense.

The decrease in general and administrative expense was primarily attributable to decreases in transaction costs, non-cash stock-based compensation expense, and organizational restructuring costs, partially offset by an increase in incentive compensation costs.

General and administrative expense includes transaction and organizational restructuring costs of $0.7 million and $3.4 million for the three months ended June 30, 2021 and 2020, respectively.

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.

General and administrative expense of $52.4 million for the three months ended June 30, 2021 includes direct general and administrative expense attributable to the Health Care Services segment, which was subsequently transitioned to the unconsolidated Health Care Services venture on July 1, 2021.

Additionally, we expect reductions of general and administrative expense for indirect scaling initiatives, including initiatives completed prior to the date of this report.

Facility Operating Lease Expense.

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 three months ended June 30, 2021 and 2020, we recorded $2.1 million and $10.3 million, respectively, 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 a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates.

Equity in Earnings (Loss) of Unconsolidated Ventures.

The increase in equity in earnings of unconsolidated ventures was primarily due to the gain on sale of assets recognized by our unconsolidated entry fee CCRC venture for the sale of the two remaining entry fee CCRCs during the current year period.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the three months ended June 30, 2021 and 2020 was primarily due to the annualized effective rate for 2021 as compared to 2020.

We recorded an aggregate deferred federal, state, and local tax benefit of $20.8 million as a result of the operating loss for the three months ended June 30, 2021, which was offset by a proportionate increase in the valuation allowance of $19.8 million.

The change in the valuation allowance for the three months ended June 30, 2021 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 $26.7 million for the three months ended June 30, 2020, which was offset by an increase in the valuation allowance of $33.2 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 June 30, 2021 and December 31, 2020 was $426.3 million and $381.0 million, respectively.

Comparison of Six Months Ended June 30, 2021 and 2020

Summary Operating Results

The following table summarizes our overall operating results for the six months ended June 30, 2021 and 2020.

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

Total resident fees and management fees revenue $ 1,351,892 $ 1,629,127 $ (277,235) (17.0) %

Other operating income 12,043 26,693 (14,650) (54.9) %

Facility operating expense 1,107,158 1,194,516 (87,358) (7.3) %

Net income (loss) (191,907) 251,077 (442,984) NM

Adjusted EBITDA 68,045 229,802 (161,757) (70.4) %

The decrease in total resident fees and management fees revenue was primarily attributable to a $176.0 million decrease in resident fees, including a 10.8% decrease in same community RevPAR, comprised of an 1,130 basis point decrease in same community weighted average occupancy and a 3.5% increase in same community RevPOR.

Additionally, the disposition of 15 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $27.9 million less in resident fees during the six months ended June 30, 2021 compared to the prior year period.

Revenue for the Health Care Services segment decreased $10.8 million, 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.

Management fee revenue decreased $101.2 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 and terminations of management agreements subsequent to the beginning of the prior year period.

During the six months ended June 30, 2021 and 2020, we recognized $12.0 million and $26.7 million, respectively, of government grants and employee retention credits as other operating income based on our estimates of our satisfaction of the conditions of the grants and credits during the period.

The decrease in facility operating expense was primarily attributable to a 3.6% decrease in same community facility operating expense which was primarily due to a $28.9 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period.

Facility operating expenses for the Health Care Services segment decreased $30.0 million 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 $26.5 million less in facility operating expense during the six months ended June 30, 2021 compared to the prior year period.

Facility operating expense for the six months ended June 30, 2021 and 2020 includes $37.1 million and $70.6 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The change in net income (loss) was primarily attributable to a $370.8 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, offset by decreases in non-cash asset impairment expense and facility operating lease expense compared to the prior year period.

The decrease in Adjusted EBITDA was primarily attributable to the revenue, other operating income, and facility operating expense factors previously discussed, partially offset by a $43.5 million decrease in cash facility operating lease payments, primarily reflecting reduced cash lease payments as a result of the lease restructuring transaction with Ventas on July 26, 2020.

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 six months ended June 30, 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.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 1,164,164 $ 1,329,347 $ (165,183) (12.4) %

Other operating income $ 8,938 $ 9,698 $ (760) (7.8) %

Facility operating expense $ 935,705 $ 993,103 $ (57,398) (5.8) %

Number of communities (period end) 648 660 (12) (1.8) %

Number of units (period end) 52,821 54,019 (1,198) (2.2) %

Total average units 52,941 54,112 (1,171) (2.2) %

RevPAR $ 3,662 $ 4,092 $ (430) (10.5) %

Occupancy rate (weighted average) 70.0 % 81.0 % (1,100) bps n/a

RevPOR $ 5,228 $ 5,054 $ 174 3.4 %

Same Community Operating Results and Data

Resident fees $ 1,110,882 $ 1,245,914 $ (135,032) (10.8) %

Other operating income $ 8,323 $ 7,044 $ 1,279 18.2 %

Facility operating expense $ 890,287 $ 923,637 $ (33,350) (3.6) %

Number of communities 637 637 — —

Total average units 50,455 50,455 — —

RevPAR $ 3,670 $ 4,116 $ (446) (10.8) %

Occupancy rate (weighted average) 69.9 % 81.2 % (1,130) bps n/a

RevPOR $ 5,248 $ 5,069 $ 179 3.5 %

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the six months ended June 30, 2021 and 2020, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 236,787 $ 266,140 $ (29,353) (11.0) %

Other operating income $ 1,475 $ — $ 1,475 NM

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RevPOR $ 4,294 $ 4,172 $ 122 2.9 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 1,180 basis points decrease in same community weighted average occupancy and a 2.9% increase in same community RevPOR.

During the three months ended June 30, 2021, the segment's quarterly net move-ins and move-outs turned positive for the first time since the pandemic began.

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 a decrease in the segment's same community facility operating expense, including a $6.3 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period.

The segment's facility operating expense for the six months ended June 30, 2021 and 2020 includes $4.5 million and $10.8 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 six months ended June 30, 2021 and 2020, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 778,656 $ 889,635 $ (110,979) (12.5) %

Other operating income $ 5,733 $ 152 $ 5,581 NM

Facility operating expense $ 635,894 $ 670,078 $ (34,184) (5.1) %

Number of communities (period end) 560 570 (10) (1.8) %

Number of units (period end) 34,904 35,744 (840) (2.4) %

Total average units 35,063 35,864 (801) (2.2) %

RevPAR $ 3,700 $ 4,134 $ (434) (10.5) %

Occupancy rate (weighted average) 68.9 % 79.9 % (1,100) bps n/a

RevPOR $ 5,371 $ 5,175 $ 196 3.8 %

Same Community Operating Results and Data

Resident fees $ 768,109 $ 864,974 $ (96,865) (11.2) %

Other operating income $ 5,594 $ 151 $ 5,443 NM

Facility operating expense $ 626,195 $ 650,344 $ (24,149) (3.7) %

Number of communities 556 556 — —

Total average units 34,506 34,511 (5) —

RevPAR $ 3,710 $ 4,177 $ (467) (11.2) %

Occupancy rate (weighted average) 68.8 % 80.1 % (1,130) bps n/a

RevPOR $ 5,389 $ 5,214 $ 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 1,130 basis point decrease in same community weighted average occupancy and a 3.4% increase in same community RevPOR.

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.

During the three months ended June 30, 2021, the segment's quarterly net move-ins and move-outs turned positive for the first time since the pandemic began.

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

Additionally, the disposition of 13 communities (1,044 units) since the beginning of the prior year period resulted in $13.8 million less in resident fees during the six months ended June 30, 2021 compared to the prior year period.

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 a $20.4 million decrease in incremental direct costs to respond to the COVID-19 pandemic, a decrease in labor costs arising from fewer hours worked, and a decrease in food costs due to reduced occupancy during the period.

Additionally, the disposition of communities since the beginning of the prior year period resulted in $13.3 million less in facility operating expense during the six months ended June 30, 2021 compared to the prior year period.

The segment's facility operating expense for the six months ended June 30, 2021 and 2020 includes $25.0 million and $46.4 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 six months ended June 30, 2021 and 2020, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2021 2020 Amount Percent

Resident fees $ 148,721 $ 173,572 $ (24,851) (14.3) %

Other operating income $ 1,730 $ 9,546 $ (7,816) (81.9) %

Facility operating expense $ 134,170 $ 149,337 $ (15,167) (10.2) %

Number of communities (period end) 20 22 (2) (9.1) %

Number of units (period end) 5,351 5,741 (390) (6.8) %

Total average units 5,332 5,716 (384) (6.7) %

RevPAR $ 4,621 $ 5,034 $ (413) (8.2) %

Occupancy rate (weighted average) 69.3 % 78.2 % (890) bps n/a

RevPOR $ 6,665 $ 6,438 $ 227 3.5 %

Same Community Operating Results and Data

Resident fees $ 112,489 $ 121,319 $ (8,830) (7.3) %

Other operating income $ 1,292 $ 6,893 $ (5,601) (81.3) %

Facility operating expense $ 103,422 $ 104,269 $ (847) (0.8) %

Number of communities 15 15 — —

Total average units 3,786 3,786 — —

RevPAR $ 4,952 $ 5,341 $ (389) (7.3) %

Occupancy rate (weighted average) 68.3 % 77.8 % (950) bps n/a

RevPOR $ 7,255 $ 6,864 $ 391 5.7 %

The decrease in the segment's resident fees was primarily attributable to the disposition of two communities (456 units) since the beginning of the prior year period which resulted in $14.1 million less in resident fees during the six months ended June 30, 2021 compared to the prior year period.

Additionally, there was a decrease in the segment's same community RevPAR, comprised of a 950 basis point decrease in same community weighted average occupancy and a 5.7% increase in same community RevPOR.

The segment’s period-end occupancy increased on a sequential basis for both the three months ended March 31, 2021 and June 30, 2021.

The increase in the segment's same community RevPOR was primarily the result of in-place rent increases and an occupancy mix shift from less independent living services to more skilled nursing services within the segment.

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 $13.2 million less in facility operating expense during the six months ended June 30, 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 a $2.2 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the period.

These decreases in the segment's same community facility operating expense were partially offset by an increase in labor expense arising from increased contract labor costs due to a competitive labor market and wage rate increases.

The segment's facility operating expense for the six months ended June 30, 2021 and 2020 includes $5.4 million and $9.9 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 March 31, 2021 and 2020.

(in thousands, except census) Three Months Ended

March 31, Increase (Decrease)

2021 2020 Amount Percent

The following table summarizes the operating results and data for our Health Care Services segment for the six months ended June 30, 2021 and 2020.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except census) 2021 2020 Amount Percent

Resident fees $ 174,164 $ 184,989 $ (10,825) (5.9) %

Other operating income $ 2,583 $ — $ 2,583 NM

Other operating income $ 3,105 $ 16,995 $ (13,890) (81.7) %

Facility operating expense $ 171,453 $ 201,413 $ (29,960) (14.9) %

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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 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.

The segment's facility operating expense for the six months ended June 30, 2021 and 2020 includes $2.2 million and $3.5 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

As described above, we sold 80% of our equity in our Health Care Services segment pursuant to the Purchase Agreement with HCA Healthcare on July 1, 2021.

Operating Results - Management Services Segment

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

The following table summarizes the operating results and data for our Management Services segment for the six months ended June 30, 2021 and 2020.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, and occupancy) 2021 2020 Amount Percent

Management fees $ 13,564 $ 114,791 $ (101,227) (88.2) %

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Total average units 7,306 12,115 (4,809) (39.7) %

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 management fees was primarily attributable to $100.0 million of management agreement termination fees recognized for the six months ended June 30, 2020 for the management agreement termination fee received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture.

As of June 30, 2021, we have completed the transition of management arrangements on 63 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 $13.6 million for the six months ended June 30, 2021 include $5.2 million of management agreement termination fees and $1.3 million of other management fees attributable to communities for which our management agreements were terminated during such period.

We expect the terminations of a significant majority of our remaining management agreements to occur in the next approximately 12 months.

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 March 31, 2021 and 2020.

(in thousands) Three Months Ended

March 31, Increase (Decrease)

2021 2020 Amount Percent

The following table summarizes other income and expense items in our operating results for the six months ended June 30, 2021 and 2020.

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

General and administrative expense $ 102,343 $ 107,113 $ (4,770) (4.5) %

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Gain (loss) on debt modification and extinguishment, net

— 19,181 (19,181) NM

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

— 19,024 (19,024) (100.0) %

Equity in earnings (loss) of unconsolidated ventures 13,415 (570) 13,985 NM

Gain (loss) on sale of assets, net 1,033 371,810 (370,777) (99.7) %

Other non-operating income (loss) 4,592 3,650 942 25.8 %

Benefit (provision) for income taxes (752) 15,828 (16,580) NM

Benefit (provision) for income taxes 40 7,324 (7,284) (99.5) %

General and Administrative Expense.

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.

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, as well as decreases in non-cash stock-based compensation expense, transaction costs, organizational restructuring costs, and travel costs.

These decreases were partially offset by an increase in incentive compensation costs.

General and administrative expense includes transaction and organizational restructuring costs of $2.6 million and $5.3 million for the six months ended June 30, 2021 and 2020, respectively.

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

General and administrative expense of $102.3 million for the six months ended June 30, 2021 includes direct general and administrative expense attributable to the Health Care Services segment, which was subsequently transitioned to the unconsolidated Health Care Services venture on July 1, 2021.

Additionally, we expect reductions of general and administrative expense for indirect scaling initiatives, including indirect initiatives completed prior to the date of this report.

Facility Operating Lease Expense.

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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.

Equity in Earnings (Loss) of Unconsolidated Ventures.

The change in equity in earnings (loss) of unconsolidated ventures was primarily due to the gain on sale of assets recognized by our unconsolidated entry fee CCRC venture for the sale of the two remaining entry fee CCRCs during the current year period.

Gain (Loss) on Sale of Assets, Net.

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Benefit (Provision) for Income Taxes.

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 difference between our effective tax rate for the six months ended June 30, 2021 and 2020 was primarily due to the 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.

We recorded an aggregate deferred federal, state, and local tax benefit of $46.0 million as a result of the operating loss for the six months ended June 30, 2021, which was offset by a proportionate increase in the valuation allowance of $45.3 million.

We recorded an aggregate deferred federal, state, and local tax expense of $64.2 million, of which $28.9 million was recorded as a result of the benefit on our operating loss for the six months ended June 30, 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 $79.5 million.

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

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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:

Three Months Ended

March 31, Increase (Decrease)

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

9 unchanged sentences

Adjusted Free Cash Flow $ (105,421) $ 118,633 $ (224,054) NM

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.

The change in net cash provided by (used in) operating activities was attributable primarily to a decrease in same community revenue compared to the prior year period, 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, $85.0 million of cash received under the Medicare accelerated and advance payment program in the prior year period, a $32.1 million decrease in government grants accepted compared to the prior year period, and $26.5 million of the employer portion of social security payroll taxes deferred during the prior year period.

These changes were partially offset by a decrease in cash facility operating lease payments and decreases 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, an $84.2 million increase in proceeds from sales and maturities of marketable securities, a $33.3 million decrease in cash paid for capital expenditures, and a $29.3 million decrease in purchases of marketable securities compared to the prior year period.

These changes were partially offset by a $290.9 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 $452.4 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.

These changes were partially offset by a $231.0 million decrease in repayment of debt and financing lease obligations, an $18.1 million decrease in cash paid for share repurchases, and a $7.3 million decrease in cash paid for financing costs compared to the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating activities, excluding $5.4 million of distributions from unconsolidated ventures, and an $18.8 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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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.

As described above, we sold 80% of our equity in our Health Care Services segment on July 1, 2021, for net cash proceeds of $305.8 million at closing.

We are evaluating the use of the net proceeds from the transaction.

Our liquidity requirements have historically arisen from:

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• acquisition consideration;

• transaction costs and expansion of our healthcare services;

• transaction costs and expansion of our healthcare and service platform;

• capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities;

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

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

As of June 30, 2021, we had $3.9 billion of debt outstanding, at a weighted average interest rate of 3.6%.

As of such date, 98.1%, or $3.8 billion of our total debt obligations represented non-recourse property-level mortgage financings.

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

As of June 30, 2021, $1.4 billion of our long-term debt is variable

rate debt subject to interest rate cap agreements.

The remaining $128.1 million of our long-term variable rate debt is not subject to any interest rate cap agreements.

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.

As of June 30, 2021, $70.3 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 June 30, 2021 under which $13.6 million had been issued as of that date.

As of June 30, 2021, we had $1.5 billion of operating and financing lease obligations.

For the twelve months ending June 30, 2022, we will be required to make approximately $269.7 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $387.8 million as of June 30, 2021 included $280.7 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $108.0 million in the aggregate), $100.0 million of marketable securities, and $7.1 million of availability on our secured credit facility.

Total liquidity as of June 30, 2021 decreased $187.7 million from total liquidity of $575.5 million as of December 31, 2020.

The decrease was primarily attributable to the negative $105.4 million of Adjusted Free Cash Flow and $49.4 million of payments of mortgage debt during the six months ended June 30, 2021.

As described above, we sold 80% of our equity in our Health Care Services segment on July 1, 2021, for net cash proceeds of $305.8 million at closing, which further enhanced our liquidity subsequent to June 30, 2021.

As of June 30, 2021, our current liabilities exceeded current assets by $116.4 million.

Included in our current liabilities is $218.3 million of the current portion of long term debt which we have historically refinanced in the normal course.

Our current liabilities also include $164.1 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.

We currently estimate that our net cash proceeds of $305.8 million for the sale of 80% of our equity in our Health Care Services segment on July 1, 2021 and our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next 12 months.

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, as well as other factors described in "Item 1A.

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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 three months ended March 31, 2021 for our consolidated business:

The following table summarizes our capital expenditures for the six months ended June 30, 2021 for our consolidated business:

(in millions)

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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 provides a commitment amount of up to $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.

Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of June 30, 2021.

Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of June 30, 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.

As of June 30, 2021, $70.3 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility and the facility had $7.1 million of availability.

We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of June 30, 2021 under which $13.6 million had been issued as of that date.

Long-Term Leases

As of March 31, 2021, we operated 301 communities under long-term leases (235 operating leases and 66 financing leases).

As of June 30, 2021, we operated 300 communities under long-term leases (234 operating leases and 66 financing leases).

The substantial majority of our lease arrangements are structured as master leases.

Under a master lease, numerous communities are leased through an indivisible lease.

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.

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.

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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These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.

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).

For the three and six months ended June 30, 2021, our cash lease payments for our operating leases were $53.7 million and $107.6 million, respectively and for our financing leases were $16.4 million and $32.5 million, respectively.

For the twelve months ending June 30, 2022, we will be required to make $269.7 million of cash lease payments in connection with our existing operating and financing leases.

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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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 March 31, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.

As of June 30, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Contractual Commitments

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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.

There have been no material changes outside the ordinary course of business in our contractual commitments during the six months ended June 30, 2021.

Off-Balance Sheet Arrangements

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.

As of June 30, 2021, we do not have an interest in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, cash requirements, or capital resources.

Non-GAAP Financial Measures

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2021 2020 2021 2020

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(1) Adjusted EBITDA includes:

• $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

• $1.3 million and $12.0 million benefit for the three and six months ended June 30, 2021, respectively, and $26.7 million for both the three and six months ended June 30, 2020 of government grants and credits recognized in other operating income

• $100.0 million benefit for the six months ended June 30, 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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Three Months Ended

June 30, Six Months Ended

(in thousands) 2021 2020 2021 2020

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Net cash provided by (used in) operating activities $ 3,410 $ 151,840 $ (20,447) $ 209,319

Distributions from unconsolidated ventures from cumulative share of net earnings

(5,355) — (5,355) —

Changes in prepaid insurance premiums financed with notes payable

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$ (54,747) $ 113,451 $ (105,421) $ 118,633

(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.

(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $0.7 million and $2.6 million for the three and six months ended June 30, 2021, respectively, and $3.4 million and $5.3 million for the three and six months ended June 30, 2020, respectively.

Additionally, Adjusted Free Cash Flow includes:

• $1.7 million benefit for the three months ended March 31, 2021 from Provider Relief Funds and other government grants accepted

• $ 0.4 million and $2.1 million for the three and six months ended June 30, 2021, respectively, and $34.2 million benefit for both the three and six months ended June 30, 2020 from Provider Relief Funds and other government grants accepted

• $14.3 million recoupment of accelerated/advanced Medicare payments for both the three and six months ended June 30, 2021

• $85.0 million benefit from accelerated/advanced Medicare payments received for both the three and six months ended June 30, 2020

• $26.5 million benefit from payroll taxes deferred for the three and six months ended June 30, 2020

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