What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-06 · 301 added, 119 removed, 454 unchanged (48% of the section changed)

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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 678 communities in 41 states as of March 31, 2022, with the ability to serve more than 60,000 residents.

Unless otherwise specified, references to "Brookdale," "we," "us," "our," or "the Company" in this Quarterly Report on Form 10-Q mean Brookdale Senior Living Inc.

together with its consolidated subsidiaries.

We are the nation's premier operator of senior living communities, operating and managing 674 communities in 41 states as of June 30, 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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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.

From February 2021 through July 2022, we increased our weighted average consolidated senior housing occupancy by 650 basis points to 75.9%.

Sequentially from the first quarter of 2022, our weighted average consolidated senior housing occupancy increased by 120 bps to 74.6% for the second quarter of 2022.

The table below sets forth our recent consolidated occupancy trend.

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Month end 74.2 % 74.4 % 75.0 % 75.3 % 76.2 % 76.6 % 77.1 %

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.

During the three and six months ended June 30, 2022, various communities experienced restrictions on new resident move-ins due to the pandemic.

As of July 31, 2022, substantially 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.

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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.

For the three and six months ended June 30, 2022, we recognized $1.9 million and $12.3 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

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

The direct costs include those for:

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

On a cumulative basis 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.

On a cumulative basis since the beginning of fiscal 2020 through June 30, 2022, we have incurred $185.5 million of pandemic related facility operating expense.

For the three and six months ended June 30, 2022, we recorded $2.6 million and $11.7

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 decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic.

For the three and six months ended June 30, 2021, we recorded $2.1 million and $12.8 million, respectively, of such non-cash impairment charges.

Phase 4 Provider Relief Fund Grants .

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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.

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.

We accepted approximately $60.0 million of Phase 4 grants on August 5, 2022.

We expect to recognize the Phase 4 grants in income during the three months ended September 30, 2022.

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.

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 recognized $0.9 million and $9.9 million for the three and six months ended June 30, 2021, respectively, 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 June 30, 2022.

The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021.

During the three and six months ended June 30, 2022, we recognized $4.7 million of employee retention credits on wages paid in 2021 within other operating income based upon our current estimates.

We have a receivable for the remaining $10.1 million included within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as of June 30, 2022.

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

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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.

During 2021 and the six months ended June 30, 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 increased our recruiting efforts to fill open positions and have increased our workforce since December 31, 2021.

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

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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.

Our labor expense in our same community portfolio for the three and six months ended June 30, 2022 increased 14.0% and 13.6% from the three and six months ended June 30, 2021, respectively.

The year-over-year increases in our same community labor expense primarily resulted from our increased use of contract labor and overtime as well as merit and market wage rate adjustments.

Our labor expense in our same community portfolio for the three months ended June 30, 2022 increased 0.2% sequentially from the three

months ended March 31, 2022 due to increases in hours worked by associates, recent wage rate adjustments, and an additional day of expense during the three months ended June 30, 2022, which were offset by a decreased use of contract labor and a moderation of COVID-19 related labor costs.

We expect to continue to experience labor cost pressure as a result of 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.

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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.

Substantially all of our private pay senior housing residency agreements allow for adjustments to 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.

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 4.6% net increase in same community RevPOR for the six months ended June 30, 2022 compared to the six months ended June 30, 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.

Any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR results.

Sale of Health Care Services

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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.

Financial Statements” for selected financial data for the Health Care Services segment for the three and six months ended June 30, 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.

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

Results of Operations

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

As of June 30, 2022, our total operations included 674 communities with a capacity to serve over 60,000 residents.

As of that date, we owned 346 communities (31,603 units), leased 295 communities (20,567 units), and managed 33 communities (4,810 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, 2021 to March 31, 2022 affect the comparability of our results of operations.

Transactions completed during the period of January 1, 2021 to June 30, 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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See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.

Comparison of Three Months Ended March 31, 2022 and 2021

Comparison of Three Months Ended June 30, 2022 and 2021

Summary Operating Results

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

The following table summarizes our overall operating results for the three months ended June 30, 2022 and 2021.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Total resident fees and management fees revenue $ 643,717 $ 678,976 $ (35,259) (5.2) %

Other operating income 376 10,735 (10,359) (96.5) %

Other operating income 8,411 1,308 7,103 NM

Facility operating expense 513,664 550,846 (37,182) (6.7) %

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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 $87.3 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.

The decrease in resident fees was partially offset by a 10.4% increase in same community RevPAR, comprised of a 420 basis point increase in same community weighted average occupancy and a 4.2% increase in same community RevPOR.

Management fee revenue decreased $1.7 million primarily due to the transition of management agreements on 12 net communities since the beginning of the prior year period.

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.

During the three months ended June 30, 2022 and 2021, we recognized $8.4 million and $1.3 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 $84.4 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.

The decrease in facility operating expense was partially offset by an 11.8% increase in same community facility operating expense, including a $40.6 million, or 14.0%, increase in our same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments.

Additionally, an increase in food costs due to increased occupancy and higher prices 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 June 30, 2022 and 2021 includes $1.9 million and $9.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in net loss was primarily attributable to a decrease in equity in earnings of unconsolidated ventures compared to the prior year period, partially offset by a decrease in general and administrative expense compared to the prior year period and 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 compared to the prior year period as a result of the sale of 80% of our equity in our Health Care Services segment and a decrease in estimated incentive compensation costs, 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 March 31, 2022 and 2021, including operating results and data on a same community basis.

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

March 31, Increase (Decrease)

June 30, Increase (Decrease)

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

Resident fees $ 640,388 $ 586,665 $ 53,723 9.2 %

Other operating income $ 8,411 $ 786 $ 7,625 NM

Facility operating expense $ 513,664 $ 466,424 $ 47,240 10.1 %

Number of communities (period end) 641 648 (7) (1.1) %

Total average units 52,368 52,911 (543) (1.0) %

RevPAR $ 4,071 $ 3,692 $ 379 10.3 %

Occupancy rate (weighted average) 74.6 % 70.5 % 410 bps n/a

RevPOR $ 5,459 $ 5,237 $ 222 4.2 %

Same Community Operating Results and Data

Resident fees $ 617,730 $ 559,667 $ 58,063 10.4 %

Other operating income $ 8,015 $ 763 $ 7,252 NM

Facility operating expense $ 492,939 $ 440,870 $ 52,069 11.8 %

Number of communities 633 633 — —

Total average units 50,594 50,589 5 —

RevPAR $ 4,070 $ 3,688 $ 382 10.4 %

Occupancy rate (weighted average) 74.6 % 70.4 % 420 bps n/a

RevPOR $ 5,456 $ 5,236 $ 220 4.2 %

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the three months ended June 30, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended

June 30, Increase (Decrease)

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

Resident fees $ 125,578 $ 118,005 $ 7,573 6.4 %

Other operating income $ 1,159 $ 111 $ 1,048 NM

Facility operating expense $ 88,028 $ 82,824 $ 5,204 6.3 %

Number of communities (period end) 68 68 — —

Total average units 12,569 12,552 17 0.1 %

RevPAR $ 3,330 $ 3,134 $ 196 6.3 %

Occupancy rate (weighted average) 76.0 % 73.5 % 250 bps n/a

RevPOR $ 4,380 $ 4,266 $ 114 2.7 %

Same Community Operating Results and Data

Resident fees $ 123,890 $ 116,715 $ 7,175 6.1 %

Other operating income $ 1,146 $ 111 $ 1,035 NM

Facility operating expense $ 86,879 $ 81,773 $ 5,106 6.2 %

Number of communities 67 67 — —

Total average units 12,379 12,376 3 —

RevPAR $ 3,336 $ 3,144 $ 192 6.1 %

Occupancy rate (weighted average) 75.9 % 73.4 % 250 bps n/a

RevPOR $ 4,393 $ 4,285 $ 108 2.5 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 250 basis point increase in same community weighted average occupancy and a 2.5% 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 facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $2.8 million, or 5.7%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments.

The segment's facility operating expense for the three months ended June 30, 2022 and 2021 includes $0.3 million and $1.4 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 June 30, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended

June 30, Increase (Decrease)

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

Resident fees $ 434,454 $ 391,718 $ 42,736 10.9 %

Other operating income $ 6,412 $ 629 $ 5,783 NM

Facility operating expense $ 353,278 $ 315,285 $ 37,993 12.1 %

Number of communities (period end) 554 560 (6) (1.1) %

Total average units 34,598 35,018 (420) (1.2) %

RevPAR $ 4,183 $ 3,728 $ 455 12.2 %

Occupancy rate (weighted average) 74.2 % 69.5 % 470 bps n/a

RevPOR $ 5,636 $ 5,365 $ 271 5.1 %

Same Community Operating Results and Data

Resident fees $ 429,970 $ 384,404 $ 45,566 11.9 %

Other operating income $ 6,291 $ 609 $ 5,682 NM

Facility operating expense $ 349,423 $ 308,097 $ 41,326 13.4 %

Number of communities 551 551 — —

Total average units 34,240 34,238 2 —

RevPAR $ 4,186 $ 3,742 $ 444 11.9 %

Occupancy rate (weighted average) 74.2 % 69.4 % 480 bps n/a

RevPOR $ 5,642 $ 5,390 $ 252 4.7 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 480 basis point increase in same community weighted average occupancy and a 4.7% 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 eight communities (653 units) since the beginning of the prior year period, which resulted in $3.3 million less in resident fees during the three months ended June 30, 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 $33.5 million, or 16.2%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments, an increase in the use of contract labor and overtime, and an increase in hours worked due to increased occupancy during the period.

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 $3.2 million less in facility operating expense during the three months ended June 30, 2022 compared to the prior year period.

The segment's facility operating expense for the three months ended June 30, 2022 and 2021 includes $1.3 million and $6.1 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 June 30, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended

June 30, Increase (Decrease)

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

Resident fees $ 80,356 $ 76,942 $ 3,414 4.4 %

Other operating income $ 840 $ 46 $ 794 NM

Facility operating expense $ 72,358 $ 68,315 $ 4,043 5.9 %

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

Total average units 5,201 5,341 (140) (2.6) %

RevPAR $ 5,115 $ 4,770 $ 345 7.2 %

Occupancy rate (weighted average) 73.4 % 70.2 % 320 bps n/a

RevPOR $ 6,970 $ 6,790 $ 180 2.7 %

Same Community Operating Results and Data

Resident fees $ 63,870 $ 58,548 $ 5,322 9.1 %

Other operating income $ 578 $ 43 $ 535 NM

Facility operating expense $ 56,637 $ 51,000 $ 5,637 11.1 %

Number of communities 15 15 — —

Total average units 3,975 3,975 — —

RevPAR $ 5,356 $ 4,910 $ 446 9.1 %

Occupancy rate (weighted average) 73.9 % 69.9 % 400 bps n/a

RevPOR $ 7,246 $ 7,028 $ 218 3.1 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 400 basis point increase in same community weighted average occupancy and a 3.1% 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 one community (120 units) since the beginning of the prior year period, which resulted in $2.5 million less in resident fees during the three months ended June 30, 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 $4.3 million, or 12.3%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments.

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 $2.6 million less in facility operating expense during the three months ended June 30, 2022 compared to the prior year period.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the three months ended June 30, 2022 and 2021.

Three Months Ended

June 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Management fees $ 3,329 $ 4,998 $ (1,669) (33.4) %

Reimbursed costs incurred on behalf of managed communities 37,388 43,008 (5,620) (13.1) %

Costs incurred on behalf of managed communities 37,388 43,008 (5,620) (13.1) %

General and administrative expense 41,752 52,400 (10,648) (20.3) %

Facility operating lease expense 41,538 43,864 (2,326) (5.3) %

Depreciation and amortization 86,623 83,591 3,032 3.6 %

Asset impairment 2,599 2,078 521 25.1 %

Interest income 778 341 437 128.2 %

Interest expense 48,234 49,057 (823) (1.7) %

Equity in earnings (loss) of unconsolidated ventures (2,439) 13,946 (16,385) NM

Gain (loss) on sale of assets, net 961 (79) 1,040 NM

Other non-operating income (loss) (111) 2,948 (3,059) NM

Benefit (provision) for income taxes (1,190) 792 (1,982) NM

Management Fees.

The decrease in management fees was primarily attributable to the transition of management arrangements on 12 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.

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.

General and Administrative Expense.

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, estimated incentive compensation costs, and non-cash stock-based compensation expense.

General and administrative expense includes transaction and organizational restructuring costs of $0.2 million and $0.7 million for the three months ended June 30, 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.

Facility Operating Lease Expense.

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 three months ended June 30, 2022 and 2021, we recorded $2.6 million and $2.1 million, respectively, of non-cash impairment charges, primarily for certain leased communities with decreased occupancy and future cash flow estimates as a result of the continuing impacts of the COVID-19 pandemic.

Interest Expense .

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.

Based upon our estimates of variable interest rates we expect debt interest expense to increase approximately $15.0 million for the full year 2022 compared to 2021.

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 entrance fee venture for the sale of the two remaining entry fee CCRCs during the prior year period.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the three months ended June 30, 2022 and 2021 was due to the increase in the net deferred tax expense resulting from a valuation allowance recorded in excess of the benefit recorded on operational losses for the three months ended June 30, 2022.

We recorded an aggregate deferred federal, state, and local tax benefit of $20.6 million, which was offset by an increase in the valuation allowance of $21.4 million in the three months ended June 30, 2022.

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

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

Our valuation allowance as of June 30, 2022 and December 31, 2021 was $412.0 million and $368.0 million, respectively.

Comparison of Six Months Ended June 30, 2022 and 2021

Summary Operating Results

The following table summarizes our overall operating results for the six months ended June 30, 2022 and 2021.

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Total resident fees and management fees revenue $ 1,284,020 $ 1,351,892 $ (67,872) (5.0) %

Other operating income 8,787 12,043 (3,256) (27.0) %

Facility operating expense 1,026,428 1,107,158 (80,730) (7.3) %

Net income (loss) (184,315) (191,907) 7,592 4.0 %

Adjusted EBITDA 87,890 68,045 19,845 29.2 %

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 $174.2 million of resident fees compared to the prior year period.

The decrease in resident fees was partially offset by a 10.6% increase in same community RevPAR, comprised of a 400 basis point increase in same community weighted average occupancy and a 4.6% increase in same community RevPOR.

Management fee revenue decreased $6.9 million primarily due to the transition of management agreements on 42 net communities since the beginning of the prior year period.

During the six months ended June 30, 2022 and 2021, we recognized $8.8 million and $12.0 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 a $171.5 million decrease in facility operating expenses.

The decrease in facility operating expense was partially offset by an 11.3% increase in same community facility operating expense, including a $79.4 million, or 13.6%, increase in our same community labor expense primarily resulting from an increase in the use of contract labor and overtime 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.

Facility operating expense for the six months ended June 30, 2022 and 2021 includes $12.3 million and $37.1 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The decrease in net loss was primarily attributable to decreases in general and administrative expense, interest 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.

These changes were partially offset by a decrease in equity in earnings of unconsolidated ventures compared to the prior year period.

Operating Results - Senior Housing Segments

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

Six Months Ended

June 30, Increase (Decrease)

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

Resident fees $ 1,277,362 $ 1,164,164 $ 113,198 9.7 %

Other operating income $ 8,787 $ 8,938 $ (151) (1.7) %

Facility operating expense $ 1,026,428 $ 935,705 $ 90,723 9.7 %

Number of communities (period end) 641 648 (7) (1.1) %

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Independent Living Segment

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

Three Months Ended

March 31, Increase (Decrease)

The following table summarizes the operating results and data for our Independent Living segment for the six months ended June 30, 2022 and 2021, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

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

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The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 2.7% increase in same community RevPOR and a 190 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 RevPOR was primarily the result of in-place rent 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.

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 $4.9 million, or 4.9%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime 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.

The segment's facility operating expense for the six months ended June 30, 2022 and 2021 includes $1.6 million and $4.5 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Assisted Living and Memory Care Segment

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

Three Months Ended

March 31, Increase (Decrease)

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the six months ended June 30, 2022 and 2021, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

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

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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.

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

The increase in the segment's resident fees was partially offset by the disposition of nine communities (695 units) since the beginning of the prior year period, which resulted in $5.6 million less in resident fees during the six months ended June 30, 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 $65.6 million, or 15.8%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime 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.

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 $5.7 million less in facility operating expense during the six months ended June 30, 2022 compared to the prior year period.

The segment's facility operating expense for the six months ended June 30, 2022 and 2021 includes $8.9 million and $25.0 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

CCRCs Segment

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

Three Months Ended

March 31, Increase (Decrease)

The following table summarizes the operating results and data for our CCRCs segment for the six months ended June 30, 2022 and 2021, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

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

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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.

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

The increase in the segment's resident fees was partially offset by the disposition of one community (120 units) since the beginning of the prior year period, which resulted in $4.1 million less in resident fees during the six months ended June 30, 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 an $8.9 million, or 13.0%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments.

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 $4.7 million less in facility operating expense during the six months ended June 30, 2022 compared to the prior year period.

The segment's facility operating expense for the six months ended June 30, 2022 and 2021 includes $1.8 million and $5.4 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

March 31, Increase (Decrease)

The following table summarizes other income and expense items in our operating results for the six months ended June 30, 2022 and 2021.

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

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Equity in earnings (loss) of unconsolidated ventures (7,333) 13,415 (20,748) NM

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

Gain (loss) on sale of assets, net 667 1,033 (366) (35.4) %

Other non-operating income (loss) (138) 4,592 (4,730) NM

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General and Administrative Expense.

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.

General and administrative expense includes transaction and organizational restructuring costs of $0.6 million and $2.6 million for the six months ended June 30, 2022 and 2021, respectively.

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Asset Impairment.

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.

During the six months ended June 30, 2022 and 2021, we recorded $11.7 million and $12.8 million, respectively, of non-cash impairment charges, primarily for certain leased communities with decreased occupancy and future cash flow estimates as a result of the continuing impacts of the COVID-19 pandemic.

Interest Expense.

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.

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.

Based upon our estimates of variable interest rates we expect debt interest expense to increase approximately $15.0 million for the full year 2022 compared to 2021.

Equity in Earnings (Loss) of Unconsolidated Ventures.

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.

The equity in loss of unconsolidated ventures for the current year period 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 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.

The difference between our effective tax rate for the six months ended June 30, 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.

We recorded an aggregate deferred federal, state, and local tax benefit of $45.5 million, which was offset by an increase in the valuation allowance of $44.0 million in the six months ended June 30, 2022.

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

Liquidity and Capital Resources

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

Three Months Ended

March 31, Increase (Decrease)

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

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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.

The increase in net cash used in investing activities was primarily attributable to an $85.5 million increase in purchases of marketable securities, a $17.3 million increase in cash paid for capital expenditures, a $6.0 million increase in cash paid for the acquisition of a previously leased community, and a $3.9 million decrease in net proceeds from the sale of assets compared to the prior year period.

These changes were partially offset by a $29.5 million increase in proceeds from sales and maturities of marketable securities and a $5.2 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 $29.9 million decrease in repayment of debt and financing lease obligations and an $8.3 million increase in debt proceeds compared to the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable 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 compared to the prior year period and a $21.8 million increase in non-development capital expenditures, net.

Our principal sources of liquidity have historically been from:

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

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

As of June 30, 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%.

• $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 June 30, 2022.

• Separate secured letter of credit facility providing for up to $15.0 million of letters of credit as of June 30, 2022, under which $13.9 million had been issued as of that date.

As of June 30, 2022, we had $3.8 billion of debt outstanding, at a weighted average interest rate of 3.98%.

As of such date, 93.8%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

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

As of June 30, 2022, $1.2 billion of our long-term debt is variable rate debt subject to interest rate cap agreements.

The remaining $227.0 million of our long-term variable rate debt is not subject to any interest rate cap agreements.

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

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.

As of June 30, 2022, we had $1.3 billion of operating and financing lease obligations.

For the twelve months ending June 30, 2023, we will be required to make approximately $275.4 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $411.7 million as of June 30, 2022 included $238.8 million of unrestricted cash and cash equivalents (excluding restricted cash of $89.8 million), $165.5 million of marketable securities, and $7.4 million of availability on our secured credit facility.

Total liquidity as of June 30, 2022 decreased $125.1 million from total liquidity of $536.8 million as of December 31, 2021.

The decrease was primarily attributable to negative $102.0 million of Adjusted Free Cash Flow and $19.3 million of payments of mortgage debt.

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

As of June 30, 2022, our current liabilities exceeded current assets by $266.5 million.

Included in our current liabilities is $268.3 million of the current portion of long-term debt.

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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.

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.

We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining expense discipline, continuing to refinance maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets.

There is no assurance that financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in monetizing certain assets.

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

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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.

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

As of June 30, 2022, we have no remaining 2022 mortgage debt maturities and have $227.7 million of mortgage debt maturities due in 2023, which we plan to refinance.

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.

We expect increases in market interest rates to increase our future borrowing costs for new financings obtained in the near-term.

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

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

The following table summarizes our capital expenditures for the six months ended June 30, 2022 for our consolidated business.

(in millions)

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(1) Reflects the amount invested, net of lessor reimbursements of $11.8 million.

(2) Includes $0.3 million of remediation costs at our communities resulting from natural disasters.

(2) Amount is included in Adjusted Free Cash Flow.

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The agreement matures on January 15, 2024.

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.

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 June 30, 2022.

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

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.

As of June 30, 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 June 30, 2022 under which $13.9 million had been issued as of that date.

Long-Term Leases

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

As of June 30, 2022, we operated 295 communities under long-term leases (230 operating leases and 65 financing leases).

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

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The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue.

Approximately 89% of our community lease payments are subject to a weighted average maximum annual increase of 2.7% for community leases subject to fixed annual escalators or variable annual escalators based on the consumer price index subject to a cap.

The remaining community lease payments are subject to variable annual escalators primarily based upon the change in the consumer price index.

An additional 1% increase in the consumer price index would have resulted in additional cash lease payments of approximately $0.2 million for the twelve months ended June 30, 2022.

We are responsible for all operating costs, including repairs, property taxes, and insurance.

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 2022, our cash lease payments for our operating leases were $51.4 million and $102.8 million, respectively, and for our financing leases were $17.6 million and $35.2 million, respectively.

For the twelve months ending June 30, 2023, we will be required to make $275.4 million of cash lease payments in connection with our existing operating and financing leases.

Debt and Lease Covenants

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

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

As of June 30, 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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Three Months Ended

June 30, Six Months Ended

(in thousands) 2022 2021 2022 2021

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$ 50,714 $ 33,064 $ 87,890 $ 68,045

(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.

(1) Adjusted EBITDA includes $8.4 million and $8.8 million benefit for the three and six months ended June 30, 2022, respectively, and $1.3 million and $12.0 million benefit for the three and six months ended June 30, 2021, respectively, of government grants and credits recognized in other operating income.

Adjusted Free Cash Flow

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2022 2021 2022 2021

12 unchanged sentences

(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

• $0.2 million and $0.6 million for the three and six months ended June 30, 2022, respectively, and $0.7 million and $2.6 million for the three and six months ended June 30, 2021, respectively, for transaction and organizational costs.

• $4.6 million and $5.4 million benefit for the three and six months ended June 30, 2022, respectively, and $0.4 million and $2.1 million benefit for the three and six months ended June 30, 2021, respectively, from government grants and credits received.

• $1.2 million and $3.1 million recoupment for the three and six months ended June 30, 2022, respectively, and $14.3 million recoupment for both the three and six months ended June 30, 2021, respectively, of accelerated/advanced Medicare payments.

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