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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 215 added, 557 removed, 358 unchanged (68% 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, revenue, expenses, 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, including the Delta variant, 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;

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, revenue, expenses, 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, health plan, and other expenses, potentially greater use of contract labor and overtime due to COVID-19 and general labor market conditions, 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 the costs of unfunded, mandatory testing of residents and associates and provision of test kits to our health plan participants, increased enforcement actions resulting from COVID-19, government action that may limit our collection or discharge efforts for delinquent accounts, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts;

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

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

the impact of ongoing healthcare reform efforts;

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

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

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

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

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

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

delays in obtaining regulatory approvals;

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

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

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

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

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

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

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

the effect of our indebtedness and long-term leases on our liquidity and our ability to operate our business;

increases in market interest rates that increase the

costs of our debt obligations;

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

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

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

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

environmental contamination at any of our communities;

failure to comply with existing environmental laws;

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

an adverse determination or resolution of complaints filed against us, including putative class action complaints;

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

costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations;

changes in, or our failure to comply with, employment-related laws and regulations;

unanticipated costs to comply with legislative or regulatory developments;

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

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

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

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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.

We are the nation’s premier operator of senior living communities, operating and managing 682 communities in 41 states as of September 30, 2021, with the ability to serve more than 60,000 residents.

We are the nation's premier operator of senior living communities, operating and managing 678 communities in 41 states as of March 31, 2022, with the ability to serve more than 60,000 residents.

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

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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.

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

As of September 30, 2021, we operated in four business segments:

Independent Living;

Assisted Living and Memory Care;

and Management Services.

Prior to July 1, 2021, we had an additional reportable segment, Health Care Services.

On July 1, 2021, we sold 80% of our equity in the Health Care Services segment, through which we formerly provided home health, hospice, and outpatient therapy services to our residents and seniors living outside our communities.

For periods beginning July 1, 2021, the results of operations and financial position of the Health Care Services segment are deconsolidated from our consolidated financial statements and our 20% equity interest in the Health Care Services venture ("HCS Venture") is accounted for under the equity method of accounting.

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

COVID-19 Pandemic Update

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 Securities and Exchange Commission ("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 Update.

By April 9, 2021, we completed at least three rounds of COVID-19 vaccine clinics at all of our communities through the Pharmacy Partnership for Long-Term Care Program offered through the U.S.

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

Upon completion of such clinics, our COVID-19 positive resident caseload had decreased by 97% since the peak in mid-December 2020.

As of October 31, 2021, our resident vaccine acceptance rate was 95%.

The CDC has recently recommended that certain populations, including residents in long-term care settings, should receive a COVID-19 booster dose.

We have completed booster vaccine clinics in the vast majority of our communities.

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

The COVID-19 pandemic significantly disrupted the senior living industry and our business beginning in March 2020.

We expect the impact of this disruption to continue into 2023 as we continue to make progress to rebuild occupancy lost due to the pandemic.

The health and wellbeing of our residents and associates has been and continues to be our highest priority.

Rebuilding Occupancy.

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

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 eight 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 120 basis points from the second quarter to the third quarter of 2021 for stabilized portfolios.

Our weighted average consolidated senior housing occupancy increased 200 basis points sequentially for the third quarter of 2021 compared to the second quarter of 2021.

During the three months ended September 30, 2021, the nationwide spread of the Delta variant caused some moderation in our sequential monthly occupancy growth rate.

We believe that some potential residents and their families were more cautious, or temporarily delayed their decision regarding, moving into senior living communities in certain areas as the Delta variant spread.

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

We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic while maintaining rate discipline.

From March 2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy.

From February 2021 through March 2022, we increased our weighted average consolidated senior housing occupancy by 420 basis points to 73.6%.

We typically experience a seasonal occupancy decline in winter months.

Despite our typical seasonal pattern, sequentially from the fourth quarter of 2021, our weighted average consolidated senior housing occupancy decreased slightly by 10 basis points to 73.4%, which represented the best first quarter sequential occupancy change in ten years.

The table below sets forth our recent consolidated occupancy trend.

Weighted average 69.6 % 70.5 % 72.5 % 73.5 % 73.4 %

Quarter end 70.6 % 72.6 % 74.2 % 74.5 % 75.0 %

2021 February

2021 September

Weighted average 73.4 % 73.3 % 73.6 % 73.9 %

Month end 74.2 % 74.4 % 75.0 % 75.3 %

As of July 31, 2021, all of our communities were open for visitors, new resident move-ins, and prospective residents.

During the three months ended September 30, 2021, several of our communities experienced restrictions on visitors, new resident move-ins, and prospective residents, with a peak of such restrictions occurring in mid-September 2021.

As of October 31, 2021, substantially all of our communities were open for visitors, new resident move-ins, and prospective residents.

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 our occupancy will return to pre-COVID-19 pandemic levels or the extent to which the pandemic’s effect on occupancy 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 $76.4 million and $303.4 million of lost resident fee revenue for the three and nine months ended September 30, 2021, respectively.

Estimated lost resident fee revenue includes $76.4 million and $252.4 million in our consolidated senior housing portfolio for the three and nine months ended September 30, 2021, respectively, and $51.0 million in our Health Care Services segment for the nine months ended September 30, 2021.

On a cumulative basis through September 30, 2021, we estimate that the pandemic has resulted in approximately $584.5 million of lost resident fee revenue, including $480.9 million in our consolidated senior housing portfolio.

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 nine months ended September 30, 2021, we recognized $7.2 million and $44.3 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

For the three and nine months ended September 30, 2020, we recognized $24.5 million and $95.1 million, respectively, of such facility operating expense.

During the three months ended March 31, 2022, various communities experienced restrictions on new resident move-ins due to the pandemic.

As of April 30, 2022, all of our communities were open for new resident move-ins.

We may revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of authorities having jurisdiction.

We cannot predict with reasonable certainty when our occupancy will return to pre-COVID-19 pandemic levels.

Pandemic Expenses.

For the three months ended March 31, 2022 and 2021, we recognized $10.4 million and $27.3 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

The direct costs include those for:

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

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

enhanced cleaning and environmental sanitation;

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

increased expense for general liability claims;

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

On a cumulative basis through September 30, 2021, we have incurred $169.8 million of pandemic related facility operating expense since the beginning of fiscal 2020.

For the three and nine months ended September 30, 2021, we recorded $0.6 million and $13.4 million, respectively, of non-cash impairment charges in our operating results for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities with impaired assets.

For the three and nine months ended September 30, 2020, we recorded $8.2 million and $95.2 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 September 30, 2021, our total liquidity was $645.8 million, consisting of $478.5 million of unrestricted cash and cash equivalents, $157.9 million of marketable securities, and $9.4 million of availability on our secured credit facility.

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 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 nine months ended September 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.

On a cumulative basis since the beginning of fiscal 2020 through March 31, 2022, we have incurred $183.6 million of pandemic related facility operating expense.

For the three months ended March 31, 2022 and 2021, we recorded $9.1 million and $10.7 million, respectively, of non-cash impairment charges in our operating results for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at certain communities.

Phase 4 Provider Relief Fund Grants .

During the three months ended December 31, 2021, we applied for the Phase 4 general distribution 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 received in the nine months ended September 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.

In September 2021, HHS announced that it has allocated $17.0 billion for a Phase 4 general distribution from the Provider Relief Fund.

According to HHS guidance, it intends to allocate 75% of the Phase 4 general distribution based on eligible applicants’ changes in revenues and operating expenses from patient care attributable to COVID-19 for the second half of 2020 and the first quarter of 2021, with smaller providers to receive a supplement in addition to a base payment.

HHS will determine the exact amount of the base payments and supplements after analyzing data from all the applications received.

HHS intends to allocate 25% of the Phase 4 general distribution for bonus payments that are based on the amount and type of services provided to Medicaid, Children's Health Insurance Program ("CHIP"), and Medicare patients.

We applied for the Phase 4 general distribution and intend to pursue any 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 the Centers for Medicare & Medicaid Services ("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 $2.5 million and $87.5 million was received in the three and nine months ended September 30, 2020, respectively.

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.

During the three and nine months ended September 30, 2021, $3.5 million and $17.8 million, respectively, 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 HCS Venture.

As of September 30, 2021, the outstanding balance of advanced payments related to our CCRCs segment was $6.1 million, of which we expect recoupment of approximately $3.0 million during the three months ended December 31, 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 sale of 80% of our equity in our Health Care Services segment, $9.6 million of such obligations related to our Health Care Services segment were retained by the unconsolidated HCS Venture.

We expect to pay $31.6 million of the deferred payments in both December 2021 and 2022.

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

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

During the nine months ended September 30, 2021, we recognized $9.9 million of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, of which none were recognized during the three months ended September 30, 2021.

During the three and nine months ended September 30, 2021, we received $1.1 million for the employee retention credits, which were previously recognized within other operating income.

We expect to receive the Phase 4 general distribution during the second quarter of 2022.

There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect or that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS.

Employee Retention Credit.

We were eligible to claim the employee retention credit for certain of our associates under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act").

During the year ended December 31, 2021, we recognized $9.9 million, including $9.0 million for the three months ended March 31, 2021, of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for which we have received $4.6 million in cash as of March 31, 2022.

We recognized a receivable for the remaining $5.3 million within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as of March 31, 2022.

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 and nine months ended September 30, 2021, we received and recognized $0.1 million and $1.4 million, respectively, of other operating income from grants from other government sources.

Vaccine Update.

In March 2022, the U.S.

Centers for Disease Control and Prevention updated its recommendations to allow people over the age of 50 who received an initial COVID-19 booster dose at least four months ago to be eligible for another mRNA booster to increase their protection against severe disease from COVID-19.

We are working to complete second vaccine booster clinics for our communities.

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 or variants of the disease, including the Delta variant;

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

potentially greater use of contract labor and overtime due to COVID-19 and general labor market conditions;

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;

increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to our health plan participants;

increased enforcement actions resulting from COVID-19;

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

Community Labor

We continue to experience pressures associated with the intensely competitive labor environment.

During 2021 and the three months ended March 31, 2022, the pressures included increased associate turnover, difficulty in timely filling open positions, and increasing wages.

Continued increased competition for, or a shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low levels of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits package to compete effectively for such associates.

We have increased our recruiting efforts to fill open positions.

We have reviewed wage rates in all of our markets and made appropriate adjustments, and we will monitor to remain competitive.

We seek to ensure that our communities are staffed with full and part-time associates.

To cover open positions, we have increased our use of more expensive contract labor and overtime.

Third-party staffing agencies from which we source contract labor have increased the rates they charge which has resulted in increases in the cost of contract labor.

Our labor expense in our same community portfolio for the three months ended March 31, 2022 increased 4.4% sequentially from the three months ended December 31, 2021 and 13.2% year-over-year from the three months ended March 31, 2021.

The year-over-year increase in our same community labor expense primarily resulted from our

increased use of contract labor and overtime to cover open positions as well as merit and market wage rate adjustments initiated in 2021.

We expect to continue to experience labor cost pressure as a result of merit wage rate adjustments made in March 2022, an anticipated increase in hours worked as our occupancy levels grow, and the labor environment conditions described above.

As we fill more full and part-time positions, we expect to use less contract labor and overtime.

Resident Fee Rates

The rates charged at communities are highly dependent on local market conditions and the competitive environment in which the communities operate.

Substantially all of our private pay senior housing residency agreements allow for adjustments in the monthly rate on 90 or fewer days' notice which enables us to seek increases in monthly rates due to inflation or other factors.

Increases for level of care changes or additional services are typically allowed immediately upon notice of the change.

Generally, we have increased our monthly rates, including rates for care and other services, for private pay residents on an annual basis beginning January 1 each year.

We made the annual rate adjustment effective January 1, 2022 for our in-place private pay residents, which was higher than our typical annual rate adjustment and resulted in a 5.1% net increase in same community RevPOR for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Such adjustment reflects our increased costs associated with additional efforts to serve and care for our residents during the pandemic, the current inflationary environment, and the intensely competitive labor environment.

The rate adjustment could result in a decrease in occupancy in our communities, and any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR results.

In addition, the rate adjustment may not be sufficient to offset our increased costs.

Sale of Health Care Services

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("HCA Healthcare") for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, 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 (the "HCS Sale").

We received net cash proceeds of $305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021.

We received net cash proceeds of $312.6 million, including $305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021.

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

Pursuant to the Purchase Agreement, at closing of the transaction, we retained a 20% equity interest in the HCS Venture.

The results and financial position of our Health Care Services segment were deconsolidated from our consolidated financial statements as of July 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date.

At closing of the transaction, we retained a 20% equity interest in the venture with HCA Healthcare ("HCS Venture").

The results and financial position of the Health Care Services segment were deconsolidated from our consolidated financial statements as of July 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date.

As of July 1, 2021, we recognized a $100.0 million asset within investment in unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling interest in the HCS Venture.

We recognized a $288.2 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 HCS Sale.

Refer to Note 17 to the condensed consolidated financial statements for selected financial data for the Health Care Services segment through June 30, 2021.

In September 2021, the HCS Venture entered into a Securities Purchase Agreement with LHC Group Inc., providing for the sale of home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare.

Upon the completion of the sale on November 1, 2021, we received $35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which further enhanced our liquidity.

We continue to retain a 20% equity interest in the remaining HCS Venture, which continues to operate home health, hospice, and outpatient therapy agencies in areas served by HCA Healthcare.

Community Transactions

During the period from January 1, 2020 through September 30, 2021, we terminated triple-net lease 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").

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

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

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

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 nine months ended September 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.

We expect to close on the disposition of three owned unencumbered communities (250 units) classified as held for sale as of September 30, 2021.

The closings of the sales of the communities are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals.

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

During the three months ended September 30, 2021, we received $3.0 million of additional cash distributions from the new unconsolidated entry fee CCRC venture.

Community Labor

We continue to see pressures associated with the intensely competitive labor environment.

We have increased our recruiting efforts to fill open positions and, in certain markets, are actively adjusting wages to remain competitive.

We seek to ensure that our communities are staffed with full and part-time associates, though our use of more expensive contract labor and overtime has increased to fill open positions.

We expect the intensity of this competitive environment will be transitory, though likely to continue into 2022.

Convertible Senior Notes Offering

On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes").

We received net proceeds of $224.3 million at closing after the deduction of the initial purchasers’ discount.

We used approximately $15.9 million of the net proceeds to pay the cost of the capped call transactions described below.

We also used a portion of the net proceeds to repay a $45.0 million note payable and $29.2 million of mortgage debt and intend to use the remaining net proceeds for general corporate purposes, including refinancing or repaying maturing debt.

The Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between us and American Stock Transfer & Trust Company, LLC, as trustee.

The Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of payment to any of our indebtedness that is not so subordinated.

The Notes are effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of our current or future subsidiaries.

The Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning on April 15, 2022.

The Notes will mature on October 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms.

Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day;

(3) if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption;

or (4) upon the occurrence of specified corporate events.

On or after July 15, 2026, holders may convert all or any portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election.

The conversion rate for the Notes is initially 123.4568 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $8.10 per share of common stock).

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert our Notes in connection with such a corporate event or who elects to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.

We may not redeem the Notes prior to October 21, 2024.

We may redeem for cash all or (subject to certain limitations) any portion of the Notes, at our option, on or after October 21, 2024 and prior to the 51st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

No sinking fund is provided for the Notes.

If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal

amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws.

The Notes were issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering.

The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believed are “qualified institutional buyers,” as defined in, and in accordance with, Rule 144A under the Securities Act.

In connection with the offering of the Notes, we entered into privately negotiated capped call transactions ("Capped Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties").

The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the Notes and initially have an exercise price of $8.10 per share of common stock.

The cap price of the Capped Call Transactions is initially approximately $9.90 per share of our common stock, representing a premium of 65% above the last reported sale price of $6.00 per share of our common stock on September 28, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions.

The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of our common stock upon conversion of the Notes and/or offset the potential cash payments that we could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price.

The Capped Call Transactions are separate transactions entered into by us with the Capped Call counterparties and are not part of the terms of the Notes.

The Capped Call Transactions had a cost of $15.9 million, which was paid on October 1, 2021 from the proceeds of the Notes.

We will separately account for Capped Call Transactions from the Notes and will recognize the cost as a reduction of additional paid-in capital in the three months ending December 31, 2021 as the Capped Call Transactions are indexed to our common stock.

We recognized a $286.5 million gain on sale, net of transaction costs, within our consolidated statement of operations for the year ended December 31, 2021 for the HCS Sale.

Refer to Note 15 to the condensed consolidated financial statements contained in "Item 1.

Financial Statements” for selected financial data for the Health Care Services segment for the three months ended March 31, 2021.

On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare to LHC Group Inc.

Upon the completion of the sale, we received $35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which decreased our investment in unconsolidated ventures.

We continue to own a 20% equity interest in the remaining HCS Venture, which continues to operate home health, hospice, and outpatient therapy agencies in areas served by HCA Healthcare.

Results of Operations

As of September 30, 2021, our total operations included 682 communities with a capacity to serve over 60,000 residents.

As of March 31, 2022, our total operations included 678 communities with a capacity to serve over 60,000 residents.

As of that date, we owned 347 communities (31,635 units), leased 298 communities (20,846 units), and managed 33 communities (4,842 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 September 30, 2021 affect the comparability of our results of operations.

Transactions completed during the period of January 1, 2021 to March 31, 2022 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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Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects.

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

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

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

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

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

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

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

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

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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 September 30, 2021 and 2020

Comparison of Three Months Ended March 31, 2022 and 2021

Summary Operating Results

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

The following table summarizes our overall operating results for the three months ended March 31, 2022 and 2021.

Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

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Facility operating expense 512,764 556,312 (43,548) (7.8) %

Net income (loss) 174,263 (124,993) 299,256 NM

Adjusted EBITDA 34,582 (64,019) 98,601 NM

The decrease in total resident fees and management fees revenue was primarily attributable to the deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in a decrease of $89.9 million of resident fees compared to the three months ended September 30, 2020.

The disposition of 12 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year period resulted in $7.4 million less in resident fees during the three months ended September 30, 2021 compared to the prior year period.

The decrease was also attributable to a 0.9% decrease in same community RevPAR, comprised of a 300 basis point decrease in same community weighted average occupancy and a 3.1% increase in same community RevPOR.

Net income (loss) (100,032) (108,303) 8,271 7.6 %

Adjusted EBITDA 37,176 34,981 2,195 6.3 %

The decrease in total resident fees and management fees revenue was primarily attributable to deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in a decrease of $86.9 million of resident fees compared to the prior year period.

The decrease in resident fees was partially offset by an 11.0% increase in same community RevPAR, comprised of a 390 basis point increase in same community weighted average occupancy and a 5.1% increase in same community RevPOR.

Management fee revenue decreased $5.2 million primarily due to the transition of management agreements on 42 net communities since the beginning of the prior year period.

During the three months ended September 30, 2021 and 2020, we recognized $0.1 million and $10.8 million, respectively, of government grants as other operating income based on our estimates of our satisfaction of the conditions of the grants during the period.

The decrease in facility operating expense was primarily attributable to the deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in a decrease of $94.3 million of facility operating expense compared to the three months ended September 30, 2020.

Additionally, the disposition of communities since the beginning of the prior year period resulted in $7.7 million less in facility operating expense during the three months ended September 30, 2021 compared

to the prior year period.

These decreases in facility operating expense were partially offset by a 2.9% increase in same community facility operating expense, including an increase in labor expense arising from increased contract labor and overtime costs due to the intensely competitive labor market, partially offset by a $14.0 million decrease in incremental direct costs to respond to the COVID-19 pandemic.

Facility operating expense for the three months ended September 30, 2021 and 2020 includes $7.2 million and $24.5 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in net income was primarily attributable to the HCS Sale resulting in a net gain on sale of $288.2 million and decreases in facility operating lease expense, depreciation and amortization expense, non-cash asset impairment expense, and general and administrative expense, partially offset by the net impact of the revenue, other operating income, and facility operating expense factors previously discussed.

The increase in Adjusted EBITDA was primarily attributable to the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 and a decrease in general and administrative expense (excluding non-cash stock based compensation expense and transaction and organizational restructuring costs), partially offset by the net impact of the revenue, other operating income, and facility operating expense factors previously discussed.

During the three months ended March 31, 2022 and 2021, we recognized $0.4 million and $10.7 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 deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in an $87.0 million decrease in facility operating expenses.

The decrease in facility operating expense was partially offset by a 10.7% increase in same community facility operating expense, including a $38.8 million, or 13.2%, increase in our same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions as well as merit and market wage rate adjustments, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic.

Additionally, an increase in food costs due to increased occupancy during the period and an increase in repairs and maintenance costs contributed to the increase in our same community facility operating expense.

Facility operating expense for the three months ended March 31, 2022 and 2021 includes $10.4 million and $27.3 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The decrease in net loss was primarily attributable to decreases in interest expense, general and administrative expense, and facility operating lease expense compared to the prior year period, as well as the net impact of the revenue, other operating income, and facility operating expense factors previously discussed.

The increase in Adjusted EBITDA was primarily attributable to a decrease in general and administrative expense (excluding non-cash stock based compensation expense and transaction and organizational restructuring costs) compared to the prior year period as a result of the sale of 80% of our equity in our Health Care Services segment, as well as the net impact of the revenue, other operating income, and facility operating expense factors previously discussed.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended September 30, 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 March 31, 2022 and 2021, 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.

Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent

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Number of communities (period end) 645 650 (5) (0.8) %

Number of units (period end) 52,809 53,110 (301) (0.6) %

Total average units 52,586 52,971 (385) (0.7) %

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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 September 30, 2021 and 2020, including operating results and data on a same community basis.

The following table summarizes the operating results and data for our Independent Living segment for the three months ended March 31, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent

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Number of communities (period end) 68 68 — —

Number of units (period end) 12,567 12,534 33 0.3 %

Total average units 12,568 12,539 29 0.2 %

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RevPOR $ 4,435 $ 4,310 $ 125 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 510 basis point decrease in same community weighted average occupancy and an 1.1% increase in same community RevPOR.

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.

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

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 $1.3 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.

These decreases in the segment's same community facility operating expense were partially offset by an increase in repairs and maintenance costs due to more move-ins during the period.

The segment's facility operating expense for the three months ended September 30, 2021 and 2020 includes $0.9 million and $2.2 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 2.9% increase in same community RevPOR and a 110 basis point increase in same community weighted average occupancy.

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

The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $2.0 million, or 4.1%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic.

The segment's facility operating expense for the three months ended March 31, 2022 and 2021 includes $1.3 million and $3.0 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Assisted Living and Memory Care Segment

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

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended March 31, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent

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Number of communities (period end) 558 562 (4) (0.7) %

Number of units (period end) 34,891 35,124 (233) (0.7) %

Total average units 34,817 35,110 (293) (0.8) %

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RevPOR $ 5,689 $ 5,409 $ 280 5.2 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 260 basis point decrease in same community weighted average occupancy and a 2.7% increase in same community RevPOR.

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

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

Additionally, the disposition of 10 communities (836 units) since the beginning of the prior year period resulted in $2.8 million less in resident fees during the three months ended September 30, 2021 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including an increase in labor expense arising from increased contract labor and overtime costs due to the intensely competitive labor market.

The increase in the segment's same community facility operating expense was partially offset by a $10.7 million decrease in incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $2.8 million less in facility operating expense during the three months ended September 30, 2021 compared to the prior year period.

The segment's facility operating expense for the three months ended September 30, 2021 and 2020 includes $4.8 million and $15.5 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 470 basis point increase in same community weighted average occupancy and a 5.2% increase in same community RevPOR.

The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic.

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

The increase in the segment's resident fees was partially offset by the disposition of five communities (399 units) since the beginning of the prior year period, which resulted in $2.3 million less in resident fees during the three months ended March 31, 2022 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $32.2 million, or 15.3%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions as well as merit and market wage rate adjustments, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic.

Additionally, an increase in food costs due to increased occupancy during the period and an increase in repairs and maintenance costs contributed to the increase in the segment's same community facility operating expense.

The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $2.2 million less in facility operating expense during the three months ended March 31, 2022 compared to the prior year period.

The segment's facility operating expense for the three months ended March 31, 2022 and 2021 includes $7.6 million and $18.9 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

CCRCs Segment

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

The following table summarizes the operating results and data for our CCRCs segment for the three months ended March 31, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended

September 30, Increase (Decrease)

March 31, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent

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Number of communities (period end) 19 20 (1) (5.0) %

Number of units (period end) 5,351 5,452 (101) (1.9) %

Total average units 5,201 5,322 (121) (2.3) %

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RevPOR $ 7,267 $ 6,833 $ 434 6.4 %

The increase in the segment's resident fees was primarily attributable to the increase in the segment's same community RevPAR, comprised of an 8.0% increase in same community RevPOR and a 60 basis point increase 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 increase 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.

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

The increase in resident fees was partially offset by disposition of two communities (456 units) since the beginning of the prior year period, which resulted in $4.6 million less in resident fees during the three months ended September 30, 2021 compared to the prior year period.

These increases in the segment's same community facility operating expense were partially offset by a $2.1 million decrease in incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $4.9 million less in facility operating expense during the three months ended September 30, 2021 compared to the prior year period.

The segment's facility operating expense for the three months ended September 30, 2021 and 2020 includes $1.5 million and $4.4 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Operating Results - Management Services Segment

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

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 550 basis point increase in same community weighted average occupancy and a 6.4% increase in same community RevPOR.

The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic.

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

The increase in resident fees was partially offset by the disposition of one community (120 units) since the beginning of the prior year period, which resulted in $1.6 million less in resident fees during the three months ended March 31, 2022 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $4.7 million, or 13.8%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic.

The increase in the segment's facility operating expense was partially offset by the disposition of one community since the beginning of the prior year period, which resulted in $2.0 million less in facility operating expense during the three months ended March 31, 2022 compared to the prior year period.

The segment's facility operating expense for the three months ended March 31, 2022 and 2021 includes $1.5 million and $4.0 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

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, 2022 and 2021.

Three Months Ended

September 30, Increase (Decrease)

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

March 31, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Management fees $ 3,329 $ 8,566 $ (5,237) (61.1) %

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Costs incurred on behalf of managed communities 37,141 65,794 (28,653) (43.5) %

Number of communities (period end) 34 74 (40) (54.1) %

Number of units (period end) 4,913 9,980 (5,067) (50.8) %

Total average units 5,328 10,446 (5,118) (49.0) %

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 $3.6 million for the three months ended September 30, 2021 include $0.2 million of management fees attributable to communities for which our management agreements were terminated during such period.

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

Operating Results - Other Income and Expense Items

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

Three Months Ended

September 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

General and administrative expense 45,126 49,943 (4,817) (9.6) %

4 unchanged sentences

Interest expense 43,354 48,607 (5,253) (10.8) %

Gain (loss) on debt modification and extinguishment, net

— (7,917) 7,917 NM

Equity in earnings (loss) of unconsolidated ventures (4,894) (531) (4,363) NM

Gain (loss) on sale of assets, net (294) 1,112 (1,406) NM

Other non-operating income (loss) 571 948 (377) (39.8) %

Benefit (provision) for income taxes (15,279) (14,884) (395) (2.7) %

General and Administrative Expense.

The decrease in general and administrative expense was primarily attributable to decreases in transaction costs, compensation costs as a result of a reduction in our corporate headcount related to the sale of 80% of our equity in our Health Care Services segment, and non-cash stock-based compensation expense.

General and administrative expense includes transaction and organizational restructuring costs of $0.9 million and $6.3 million for the three months ended September 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.

In addition to

the reductions in general and administrative expense directly attributable to the HCS Sale, we expect reductions of general and administrative expense for indirect scaling initiatives, including initiatives previously completed.

Facility Operating Lease Expense.

The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the prior year period 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 September 30, 2021 and 2020, we recorded $0.6 million and $8.2 million, respectively, of non-cash impairment charges, primarily for natural disaster related property damage at certain communities and for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.

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

The decrease in loss on debt modification and extinguishment was primarily due to $7.8 million of costs incurred during the three months ended September 30, 2020 for debt modifications and extinguishments.

Gain (loss) on sale of assets, net.

The increase in gain on sale of assets is due to the $288.2 million gain recognized for the HCS Sale.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the three months ended September 30, 2021 and 2020 was primarily due to the HCS Sale that occurred in the three months ended September 30, 2021.

We recorded an aggregate deferred federal, state, and local tax expense of $81.0 million and a reduction in the valuation allowance of $71.8 million, primarily a result of the HCS Sale in the three months ended September 30, 2021.

The change in the valuation allowance for the three months ended September 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 $27.4 million as a result of the operating loss for the three months ended September 30, 2020, which was offset by an increase in the valuation allowance of $40.0 million.

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

We 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 September 30, 2021 and December 31, 2020 was $354.5 million and $381.0 million, respectively.

Comparison of Nine Months Ended September 30, 2021 and 2020

Summary Operating Results

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

Nine Months Ended

September 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

Total resident fees and management fees revenue $ 1,955,608 $ 2,335,567 $ (379,959) (16.3) %

Other operating income 12,132 37,458 (25,326) (67.6) %

Facility operating expense 1,587,581 1,765,046 (177,465) (10.1) %

Net income (loss) (17,644) 126,084 (143,728) NM

Adjusted EBITDA 102,627 165,783 (63,156) (38.1) %

The decrease in total resident fees and management fees revenue was primarily attributable to a $276.7 million decrease in resident fees, including a 7.7% decrease in same community RevPAR, comprised of an 850 basis point decrease in same community weighted average occupancy and a 3.4% increase in same community RevPOR.

In addition, the deconsolidation of results of the Health Care Services segment effective July 1, 2021 resulted in a decrease of $89.9 million of resident fees compared to the nine months ended September 30, 2020.

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 $35.3 million less in resident fees during the nine months ended September 30, 2021 compared to the prior year period.

Management fee revenue decreased $103.3 million primarily due to $100.0 million of management fee revenue recognized during the three months ended March 31, 2020 for the management termination fee payment from Healthpeak and transition of management agreements on 66 net communities subsequent to the beginning of the prior year period.

During the nine months ended September 30, 2021 and 2020, we recognized $12.1 million and $37.5 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 $124.3 million decrease in facility operating expenses for the Health Care Services segment, primarily due to deconsolidation of results of the segment effective July 1, 2021, which resulted in a $94.3 million decrease in facility operating expenses.

Additionally, the disposition of communities since the beginning of the prior year period resulted in $34.1 million less in facility operating expense during the nine months ended September 30, 2021 compared to the prior year period.

Same community facility operating expense decreased 1.5% which was primarily due to a $42.8 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 same community facility operating expense were partially offset by an increase in labor costs arising from an increase in contract labor and overtime costs due to a competitive labor market and an increase in advertising costs as we scaled back advertising during the prior year period due to the pandemic.

Facility operating expense for the nine months ended September 30, 2021 and 2020 includes $44.3 million and $95.1 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The decrease in net income was primarily attributable to the net impact of the revenue, other operating income, and facility operating expense factors previously discussed, as well as an $84.6 million decrease in net gain on sale of assets, primarily due to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year period compared to the $288.2 million gain related to the sale of 80% of our equity in our Health Care Services segment in the current period.

These decreases were partially offset by decreases in non-cash asset impairment expense, facility operating lease expense, depreciation and impairment expense, and general and administrative 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 $163.0 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 nine months ended September 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.

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 1,764,259 $ 1,940,215 $ (175,956) (9.1) %

Other operating income $ 9,027 $ 14,571 $ (5,544) (38.0) %

Facility operating expense $ 1,416,128 $ 1,469,300 $ (53,172) (3.6) %

Number of communities (period end) 648 652 (4) (0.6) %

Number of units (period end) 52,809 53,110 (301) (0.6) %

Total average units 52,898 53,888 (990) (1.8) %

RevPAR $ 3,702 $ 3,997 $ (295) (7.4) %

Occupancy rate (weighted average) 70.9 % 79.1 % (820) bps n/a

RevPOR $ 5,225 $ 5,054 $ 171 3.4 %

Same Community Operating Results and Data

Resident fees $ 1,673,510 $ 1,813,002 $ (139,492) (7.7) %

Other operating income $ 8,249 $ 10,148 $ (1,899) (18.7) %

Facility operating expense $ 1,335,267 $ 1,355,460 $ (20,193) (1.5) %

Number of communities 634 634 — —

Total average units 50,148 50,146 2 —

RevPAR $ 3,708 $ 4,017 $ (309) (7.7) %

Occupancy rate (weighted average) 70.8 % 79.3 % (850) bps n/a

RevPOR $ 5,236 $ 5,065 $ 171 3.4 %

Independent Living Segment

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

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 356,371 $ 391,902 $ (35,531) (9.1) %

Other operating income $ 1,484 $ 96 $ 1,388 NM

Facility operating expense $ 248,501 $ 257,108 $ (8,607) (3.3) %

Number of communities (period end) 68 68 — —

Number of units (period end) 12,567 12,534 33 0.3 %

Total average units 12,553 12,532 21 0.2 %

RevPAR $ 3,154 $ 3,475 $ (321) (9.2) %

Occupancy rate (weighted average) 73.9 % 83.5 % (960) bps n/a

RevPOR $ 4,266 $ 4,160 $ 106 2.5 %

Same Community Operating Results and Data

Resident fees $ 346,283 $ 382,119 $ (35,836) (9.4) %

Other operating income $ 1,446 $ 96 $ 1,350 NM

Facility operating expense $ 240,819 $ 249,683 $ (8,864) (3.6) %

Number of communities 66 66 — —

Total average units 12,163 12,157 6 —

RevPAR $ 3,163 $ 3,492 $ (329) (9.4) %

Occupancy rate (weighted average) 73.9 % 83.5 % (960) bps n/a

RevPOR $ 4,279 $ 4,183 $ 96 2.3 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 960 basis point decrease in same community weighted average occupancy and a 2.3% increase in same community RevPOR.

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

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 $7.5 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 nine months ended September 30, 2021 and 2020 includes $5.4 million and $13.0 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 nine months ended September 30, 2021 and 2020, including operating results and data on a same community basis.

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 1,181,277 $ 1,298,330 $ (117,053) (9.0) %

Other operating income $ 5,808 $ 2,088 $ 3,720 178.2 %

Facility operating expense $ 963,266 $ 993,557 $ (30,291) (3.0) %

Number of communities (period end) 560 563 (3) (0.5) %

Number of units (period end) 34,891 35,124 (233) (0.7) %

Total average units 35,007 35,666 (659) (1.8) %

RevPAR $ 3,748 $ 4,045 $ (297) (7.3) %

Occupancy rate (weighted average) 69.9 % 78.1 % (820) bps n/a

RevPOR $ 5,363 $ 5,181 $ 182 3.5 %

Same Community Operating Results and Data

Resident fees $ 1,162,599 $ 1,262,793 $ (100,194) (7.9) %

Other operating income $ 5,648 $ 2,088 $ 3,560 170.5 %

Facility operating expense $ 946,728 $ 962,294 $ (15,566) (1.6) %

Number of communities 554 554 — —

Total average units 34,382 34,386 (4) —

RevPAR $ 3,757 $ 4,080 $ (323) (7.9) %

Occupancy rate (weighted average) 69.8 % 78.1 % (830) bps n/a

RevPOR $ 5,383 $ 5,222 $ 161 3.1 %

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of an 830 basis point decrease in same community weighted average occupancy and a 3.1% increase in same community RevPOR.

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

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 $16.6 million less in resident fees during the nine months ended September 30, 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 $16.1 million less in facility operating expense during the nine months ended September 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 $31.3 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.

These decreases in the segment's same community facility operating expense were partially offset by an increase in labor costs arising from an increase in contract labor and overtime 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.

The segment's facility operating expense for the nine months ended September 30, 2021 and 2020 includes $29.8 million and $61.9 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 nine months ended September 30, 2021 and 2020, including operating results and data on a same community basis.

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 226,611 $ 249,983 $ (23,372) (9.3) %

Other operating income $ 1,735 $ 12,387 $ (10,652) (86.0) %

Facility operating expense $ 204,361 $ 218,635 $ (14,274) (6.5) %

Number of communities (period end) 20 21 (1) (4.8) %

Number of units (period end) 5,351 5,452 (101) (1.9) %

Total average units 5,338 5,690 (352) (6.2) %

RevPAR $ 4,689 $ 4,850 $ (161) (3.3) %

Occupancy rate (weighted average) 70.0 % 75.7 % (570) bps n/a

RevPOR $ 6,702 $ 6,405 $ 297 4.6 %

Same Community Operating Results and Data

Resident fees $ 164,628 $ 168,090 $ (3,462) (2.1) %

Other operating income $ 1,155 $ 7,964 $ (6,809) (85.5) %

Facility operating expense $ 147,720 $ 143,483 $ 4,237 3.0 %

Number of communities 14 14 — —

Total average units 3,603 3,603 — —

RevPAR $ 5,077 $ 5,184 $ (107) (2.1) %

Occupancy rate (weighted average) 70.1 % 76.3 % (620) bps n/a

RevPOR $ 7,246 $ 6,793 $ 453 6.7 %

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 $18.7 million less in resident fees during the nine months ended September 30, 2021 compared to the prior year period.

Additionally, there was a decrease in the segment's same community RevPAR, comprised of a 620 basis point decrease in same community weighted average occupancy and a 6.7% increase in same community RevPOR.

The segment’s period end occupancy increased on a sequential basis for each of the three months ended March 31, 2021, June 30, 2021, and September 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 $18.1 million less in facility operating expense during the nine months ended September 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 and overtime costs due to a competitive labor market and wage rate increases and an increase in healthcare supplies costs to respond to increased skilled nursing occupancy during the current year period.

These increases in the segment's same community facility operating expense were partially offset by a $4.0 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.

The segment's facility operating expense for the nine months ended September 30, 2021 and 2020 includes $6.9 million and $14.3 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Operating Results - Management Services Segment

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

Nine Months Ended

September 30, Increase (Decrease)

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

Other non-operating income (loss) (27) 1,644 (1,671) NM

Benefit (provision) for income taxes 1,976 (752) 2,728 NM

Management Fees.

Reimbursed costs incurred on behalf of managed communities $ 146,651 $ 315,003 $ (168,352) (53.4) %

Costs incurred on behalf of managed communities $ 146,651 $ 315,003 $ (168,352) (53.4) %

Number of communities (period end) 34 74 (40) (54.1) %

Number of units (period end) 4,913 9,980 (5,067) (50.8) %

Total average units 6,647 11,559 (4,912) (42.5) %

The decrease in management fees was primarily attributable to $100.0 million of management agreement termination fees recognized for the nine months ended September 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 September 30, 2021, we have completed the transition of management arrangements on 66 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 $17.2 million for the nine months ended September 30, 2021 include $5.2 million of management agreement termination fees and $2.6 million of other management fees attributable to communities for which our management agreements were terminated during such period.

The decrease in management fees was primarily attributable to the transition of management arrangements on 42 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.

Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on Behalf of Managed Communities.

Operating Results - Other Income and Expense Items

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

Nine Months Ended

September 30, Increase (Decrease)

(in thousands) 2021 2020 Amount Percent

General and Administrative Expense.

Facility operating lease expense 131,508 178,480 (46,972) (26.3) %

Depreciation and amortization 252,042 271,713 (19,671) (7.2) %

Asset impairment 13,394 96,729 (83,335) (86.2) %

Interest income 1,048 4,305 (3,257) (75.7) %

Interest expense 147,025 159,328 (12,303) (7.7) %

Gain (loss) on debt modification and extinguishment, net

— 11,107 (11,107) NM

Equity in earnings (loss) of unconsolidated ventures 11,941 (863) 12,804 NM

Gain (loss) on sale of assets, net 289,408 374,019 (84,611) (22.6) %

Other non-operating income (loss) 5,163 4,598 565 12.3 %

Benefit (provision) for income taxes (15,239) (7,560) (7,679) (101.6) %

General and Administrative Expense.

The decrease in general and administrative expense was primarily attributable to decreases in transaction and organizational restructuring costs, compensation costs as a result of a reduction in our corporate headcount related to the sale of 80% of our equity in our Health Care Services segment and as we scaled our general and administrative costs in connection with community dispositions, non-cash stock-based compensation expense, 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 $3.5 million and $11.6 million for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in general and administrative expense was primarily attributable to decreases in compensation costs as a result of reductions in our corporate headcount related to the HCS Sale, transaction and organizational restructuring costs, and non-cash stock-based compensation expense.

General and administrative expense includes transaction and organizational restructuring costs of $0.4 million and $1.9 million for the three months ended March 31, 2022 and 2021, respectively.

Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, 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 $146.2 million for the nine months ended September 30, 2021 includes direct general and administrative expense attributable to the Health Care Services segment, which was deconsolidated on July 1, 2021.

In addition to the reductions in general and administrative expense directly attributable to the HCS Sale, we expect reductions of general and administrative expense for indirect scaling initiatives, including initiatives previously completed.

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.

The decrease in facility operating lease expense was primarily due to expense reductions for lease incentives received for capital expenditures since the beginning of the prior year period, expense reductions subsequent to the recognition of impairment of operating lease right-of-use assets since the beginning of the prior year period, and lease termination activity since the beginning of the prior year period.

Depreciation and Amortization .

The increase in depreciation and amortization expense was primarily due to the completion of community renovations, apartment upgrades, and other major building infrastructure projects for leased communities since the beginning of the prior year period.

Asset Impairment.

During the current year period, we recorded $13.4 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the period.

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

During the three months ended March 31, 2022 and 2021, we recorded $9.1 million and $10.7 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 and property damage at certain communities.

Interest Expense .

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

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

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

This gain was partially offset by $7.8 million of costs incurred during the three months ended September 30, 2020 for debt modifications and extinguishments.

The decrease in interest expense was primarily due to increases in the fair value of interest rate derivatives, reflecting the impact of increases in forward interest rates, and a decrease in interest expense on long-term debt, reflecting the impact of a lower weighted average interest rate for our fixed interest rate debt obligations as a result of financing activities 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.

The decrease in gain on sale of assets, net was primarily due to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year period compared to the $288.2 million gain related to the HCS Sale in the current period.

The increase in equity in loss of unconsolidated ventures was primarily for our share of the operating results of the new HCS Venture, including the impact of organizational restructuring costs for adjustments to its operational structure.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the nine months ended September 30, 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 as well as the HCS Sale in the three months ended September 30, 2021.

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

We recorded an aggregate deferred federal, state, and local tax expense of $35.0 million for the nine months ended September 30, 2021, of which $104.3 million was recorded as the result of the HCS Sale, offset by a benefit of $69.3 million as a result of the operating loss for the nine months ended September 30, 2021.

The tax expense was offset by a decrease in the valuation allowance of $26.5 million, resulting from the HCS Sale, current operating losses, and the anticipated reversal of future tax liabilities offset by future tax deductions.

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

The 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 $39.5 million.

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

The difference between our effective tax rate for the three months ended March 31, 2022 and 2021 was due to the increase in the net deferred tax benefit recognized on operational losses and an increase in the tax benefit recognized on the vesting of restricted stock units and restricted stock awards due to an increase in our stock price during the three months ended March 31, 2022.

We recorded an aggregate deferred federal, state, and local tax benefit of $24.9 million, which was offset by an increase in the valuation allowance of $22.6 million in the three months ended March 31, 2022.

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.

Our valuation allowance as of March 31, 2022 and December 31, 2021 was $390.6 million and $368.0 million, respectively.

Liquidity and Capital Resources

1 unchanged sentence

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

Liquidity and Indebtedness

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

Nine Months Ended

September 30, Increase (Decrease)

Three Months Ended

March 31, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Net cash provided by (used in) operating activities $ (13,247) $ 132,150 $ (145,397) NM

Net cash provided by (used in) operating activities $ (23,255) $ (23,857) $ (602) (2.5) %

Net cash provided by (used in) investing activities (36,163) (3,806) 32,357 NM

Net cash provided by (used in) financing activities (75,731) 403,192 (478,923) NM

Net cash provided by (used in) financing activities (403) (35,562) (35,159) (98.9) %

Net increase (decrease) in cash, cash equivalents, and restricted cash (59,821) (63,225) (3,404) (5.4) %

112,751 191,378 (78,627) (41.1) %

Cash, cash equivalents, and restricted cash at beginning of period 438,314 465,148 (26,834) (5.8) %

465,148 301,697 163,451 54.2 %

Cash, cash equivalents, and restricted cash at end of period $ 378,493 $ 401,923 $ (23,430) (5.8) %

$ 577,899 $ 493,075 $ 84,824 17.2 %

Adjusted Free Cash Flow $ (147,991) $ 4,306 $ (152,297) NM

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, $87.5 million of cash received under the Medicare accelerated and advance payment program in the prior year period, $50.1 million of the employer portion of social security payroll taxes deferred during the prior year period, and a $35.3 million decrease in government grants accepted and credits received compared to the prior year period.

These changes were partially offset by a $163.0 million decrease in cash facility operating lease payments, including the impact of the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction with Ventas effective July 26, 2020.

The change in net cash provided by (used in) investing activities was primarily attributable to $472.2 million of cash paid for the acquisition of communities during the prior year period, a $74.2 million increase in proceeds from sales and maturities of marketable securities, a $14.9 million decrease in cash paid for capital expenditures, and a $7.5 million decrease in purchases of marketable securities compared to the prior year period.

These changes were partially offset by a $15.5 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 $936.7 million decrease in debt proceeds compared to the prior year period, partially offset by a $422.6 million decrease in repayment of debt and financing lease obligations, an $18.1 million decrease in cash paid for share repurchases, and a $17.9 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 distributions from unconsolidated ventures and changes in prepaid insurance premiums financed with notes payable.

Adjusted Free Cash Flow $ (53,493) $ (50,674) $ (2,819) (5.6) %

The decrease in net cash used in operating activities was attributable primarily to an increase in same community revenue and a decrease in general and administrative expense compared to the prior year period.

These changes were partially offset by an increase in same community facility operating expense and a decrease in lessor reimbursements for capital expenditures for operating leases.

The increase in net cash used in investing activities was primarily attributable to a $46.1 million increase in purchases of marketable securities and a $3.1 million decrease in net proceeds from the sale of assets compared to the prior year period.

These changes were partially offset by an $11.0 million increase in proceeds from sales and maturities of marketable securities and a $5.1 million decrease in investments in unconsolidated ventures compared to the prior year period.

The decrease in net cash used in financing activities was primarily attributable to a $28.5 million decrease in repayment of debt and financing lease obligations and a $6.7 million increase in debt proceeds compared to the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable to an $11.9 million increase in non-development capital expenditures, net and an increase in same community facility operating expense compared to the prior year period.

changes were partially offset by an increase in same community revenue and a decrease in general and administrative expense compared to the prior year period.

Our principal sources of liquidity have historically been from:

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

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.

We also have received pandemic-related government relief, including cash grants and advanced Medicare payments, and we have elected to utilize the pandemic-related payroll tax deferral program.

Our liquidity requirements have historically arisen from:

• working capital;

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

• operating costs such as labor costs, severance costs, general and administrative expense, and supply costs;

• debt, interest, and lease payments;

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

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

• capital expenditures and improvements, including the expansion, repositioning, redeveloping, and major renovation of our current communities and the development of new communities;

• cash collateral required to be posted in connection with our financial instruments and insurance programs;

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• working capital;

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

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

• debt, interest, and lease payments;

• payment of deferred payroll taxes under the CARES Act;

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

• acquisition consideration;

• transaction costs and investment in our health care and wellness initiatives;

• transaction costs and investment in our healthcare and wellness initiatives;

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

As of March 31, 2022, we have three principal corporate-level debt obligations and credit facilities:

• $230.0 million principal amount of 2.00% convertible senior notes due 2026.

• $80.0 million secured credit facility maturing January 2024, under which $72.6 million of letters of credit and no cash borrowings have been issued as of such date.

• Separate secured letter of credit facility providing for up to $15.0 million of letters of credit as of March 31, 2022, under which $13.6 million had been issued as of that date.

As of March 31, 2022, we had $3.8 billion of debt outstanding, at a weighted average interest rate of 3.5%.

As of such date, 93.7%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

As of September 30, 2021, $1.4 billion of our long-term debt is variable rate debt subject to interest rate cap agreements.

As of March 31, 2022, $1.2 billion of our long-term debt is variable rate debt subject to interest rate cap agreements.

The remaining $226.9 million of our long-term variable rate debt is not subject to any interest rate cap agreements.

As of September 30, 2021, $70.6 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 September 30, 2021 under which $13.6 million had been issued as of that date.

On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 and we received net proceeds of $224.3 million at closing after the deduction of the initial purchasers' discount as described above.

We utilized $15.9 million of the net proceeds to pay our cost of the capped call transactions described above.

Additionally, we used a portion of the net proceeds to repay a $45.0 million note payable and $29.2 million of mortgage debt and we intend to use the remaining net proceeds for general corporate purposes, including refinancing or repaying maturing debt.

As of September 30, 2021, we had $1.4 billion of operating and financing lease obligations.

For the twelve months ending September 30, 2022, we will be required to make approximately $271.9 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $645.8 million as of September 30, 2021 included $478.5 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of $102.1 million in the aggregate), $157.9 million of marketable securities, and $9.4 million of availability on our secured credit facility.

Total liquidity as of September 30, 2021 increased $70.3 million from total liquidity of $575.5 million as of December 31, 2020.

The increase was primarily attributable to the sale of 80% of our equity in our Health Care Services segment on July 1, 2021, for net cash proceeds of $305.8 million at closing,

partially offset by negative $148.0 million of Adjusted Free Cash Flow and $60.7 million of payments of mortgage debt during the nine months ended September 30, 2021.

As described above, we received cash proceeds of $208.3 million at closing for the issuance of convertible senior notes, net of the initial purchasers' discount and the cost of the capped call transactions, on October 1, 2021, which further enhanced our liquidity.

We currently estimate our net cash proceeds from the convertible senior notes transactions 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.

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 COVID-19 pandemic.

As of September 30, 2021, we have no remaining 2021 mortgage debt maturities and our 2022 mortgage debt maturities are $310.6 million, excluding recurring monthly principal payments.

We have continued efforts on our plan to repay or refinance those maturities.

We are subject to market risks from changes in interest rates charged on our credit facilities and other variable rate indebtedness.

Refer to “Item 3.

Quantitative and Qualitative Disclosures About Market Risk” for further information on our interest rate risk.

As of March 31, 2022, we had $1.4 billion of operating and financing lease obligations.

For the twelve months ending March 31, 2023, we will be required to make approximately $273.7 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $475.9 million as of March 31, 2022 included $289.2 million of unrestricted cash and cash equivalents (excluding restricted cash of $89.2 million), $179.3 million of marketable securities, and $7.4 million of availability on our secured credit facility.

Total liquidity as of March 31, 2022 decreased $60.9 million from total liquidity of $536.8 million as of December 31, 2021.

The decrease was primarily attributable to negative $53.5 million of Adjusted Free Cash Flow and $9.7 million of payments of mortgage debt.

As of March 31, 2022, our current liabilities exceeded current assets by $138.0 million.

Included in our current liabilities is $207.8 million of the current portion of long-term debt.

Our current liabilities also include $176.4 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.

We currently estimate 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.

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

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A.

Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021, Part II, "Item 1A", and elsewhere in this Quarterly Report on Form 10-Q.

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

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

In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities.

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

Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 15, 2022.

The amount of mortgage financing available for our communities is generally dependent on their appraised values and performance.

In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac.

Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness.

Until our communities' performance recovers, we plan to refinance maturities using non-agency financing, and we expect our loan proceeds from such financing generally will be insufficient to fully cover maturing mortgage indebtedness.

As of March 31, 2022, we have no remaining 2022 mortgage debt maturities.

Our inability to obtain refinancing proceeds sufficient to cover 2023 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable.

Increases in market interest rates may increase our future borrowing costs for any new financing.

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

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

Capital Expenditures

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

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

Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and, prior to July 1, 2021, healthcare services programs, and the remediation or replacement of assets as a result of casualty losses.

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

Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities.

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These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications.

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

The following table summarizes our capital expenditures for the three months ended March 31, 2022 for our consolidated business.

(in millions)

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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 September 30, 2021.

Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of September 30, 2021.

Amounts drawn under the facility will bear interest at 30-day London Interbank Offer Rate ("LIBOR") plus an applicable margin which was 2.75% as of March 31, 2022.

Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of March 31, 2022.

The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities.

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 September 30, 2021, $70.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility and the facility had $9.4 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 September 30, 2021 under which $13.6 million had been issued as of that date.

As of March 31, 2022, $72.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility and the facility had $7.4 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 March 31, 2022 under which $13.6 million had been issued as of that date.

Long-Term Leases

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

As of March 31, 2022, we operated 298 communities under long-term leases (231 operating leases and 67 financing leases).

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

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The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios.

In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

Our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.

In addition, certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements.

Certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements.

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

For the three and nine months ended September 30, 2021, our cash lease payments for our operating leases were $51.1 million and $158.8 million, respectively and for our financing leases were $16.7 million and $49.2 million, respectively.

For the twelve months ending September 30, 2022, we will be required to make $271.9 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.

Additionally, we are required to spend an average of approximately $26 million per year for each of the following four years and approximately $17 million thereafter under the initial lease terms of such leases.

For the three months ended March 31, 2022, our cash lease payments for our operating leases and financing leases were $51.4 million and $17.5 million, respectively.

For the twelve months ending March 31, 2023, we will be required to make $273.7 million of cash lease payments in connection with our existing operating and financing leases.

Debt and Lease Covenants

Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis.

Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis.

Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue.

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Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor.

Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or

Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors).

We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.

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

Contractual Commitments

Significant ongoing commitments consist primarily of leases, debt, and certain other long-term liabilities.

For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021.

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

As described above, on October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026.

Off-Balance Sheet Arrangements

As of September 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.

We own interests in certain unconsolidated ventures as described under Note 2 to the condensed consolidated financial statements.

Except in limited circumstances, our risk of loss is limited to our investment in each venture.

As of March 31, 2022, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Non-GAAP Financial Measures

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and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods.

For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs.

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.

For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility operating lease termination, operating lease expense adjustment, non-cash stock-based compensation expense, and transaction and organizational restructuring costs.

Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, 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.

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(ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures;

and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

The table below reconciles Adjusted EBITDA from net income (loss).

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021

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Equity in (earnings) loss of unconsolidated ventures 4,894 531

Loss (gain) on debt modification and extinguishment, net — 7,917 — (11,107)

Loss (gain) on sale of assets, net 294 (1,112)

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$ 37,176 $ 34,981

(1) Adjusted EBITDA includes:

• $0.1 million and $12.1 million benefit for the three and nine months ended September 30, 2021, respectively, and $10.8 million and $37.5 million benefit for the three and nine months ended September 30, 2020 of government grants and credits recognized in other operating income

• $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 for the three and nine months ended September 30, 2020

• $100.0 million benefit for the nine months ended September 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

(1) Adjusted EBITDA includes $0.4 million and $10.7 million benefit for the three months ended March 31, 2022 and 2021, respectively, of government grants and credits recognized in other operating income.

Adjusted Free Cash Flow

Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before:

distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases;

distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease assets and liabilities for lease termination, cash paid/received for gain/loss on facility operating lease termination, and lessor capital expenditure reimbursements under operating leases;

property insurance proceeds and proceeds from refundable entrance fees, net of refunds;

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community expansions, major community redevelopment and repositioning projects, and the development of new communities.

We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in

share repurchases, and make capital expenditures, including development capital expenditures;

and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021

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Net increase (decrease) in cash, cash equivalents, and restricted cash $ (59,821) $ (63,225)

$ 191,997 $ (29,055) $ 112,751 $ 191,378

Net cash provided by (used in) operating activities $ (23,255) $ (23,857)

Distributions from unconsolidated ventures from cumulative share of net earnings (561) —

(836) (766) (6,191) (766)

Changes in prepaid insurance premiums financed with notes payable 16,629 12,985

(4,151) (5,841) 4,634 5,823

Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases (1,490) (7,563)

(11,551) (3,131) (27,057) (13,640)

Non-development capital expenditures, net (39,326) (27,450)

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$ (53,493) $ (50,674)

(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $0.9 million and $3.5 million for the three and nine months ended September 30, 2021, respectively, and $6.3 million and $11.6 million for the three and nine months ended September 30, 2020, respectively.

Additionally, Adjusted Free Cash Flow includes:

• $1.1 million and $3.3 million benefit for the three and nine months ended September 30, 2021, respectively, and $4.4 million and $38.6 million benefit for the three and nine months ended September 30, 2020, respectively, from Provider Relief Funds and other government grants and credits accepted or received

• $3.5 million and $17.8 million recoupment of accelerated/advanced Medicare payments for the three and nine months ended September 30, 2021, respectively

• $2.5 million and $87.5 million benefit from accelerated/advanced Medicare payments received for the three and nine months ended September 30, 2020, respectively

• $23.6 million and $50.1 million benefit from payroll taxes deferred for the three and nine months ended September 30, 2020, respectively

• $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 for the three and nine months ended September 30, 2020

(1) Adjusted Free Cash Flow includes:

• $0.8 million and $1.7 million benefit for the three months ended March 31, 2022 and 2021, respectively, from government grants and credits received

• $1.8 million recoupment of accelerated/advanced Medicare payments for the three months ended March 31, 2022

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