What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-09 · 150 added, 87 removed, 448 unchanged (35% of the section changed)

3 unchanged sentences

(In thousands, except stock amounts)

September 30,

2022 December 31,

30 unchanged sentences

Total liabilities 5,601,154 5,710,844

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at June 30, 2022 and December 31, 2021;

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at September 30, 2022 and December 31, 2021;

no shares issued and outstanding

Common stock, $ 0.01 par value, 400,000,000 shares authorized at June 30, 2022 and December 31, 2021;

Common stock, $ 0.01 par value, 400,000,000 shares authorized at September 30, 2022 and December 31, 2021;

197,783,056 and 197,485,318 shares issued and 187,255,531 and 186,957,793 shares outstanding (including 450,016 and 1,549,059 unvested restricted shares), respectively

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Treasury stock, at cost;

10,527,525 shares at June 30, 2022 and December 31, 2021

10,527,525 shares at September 30, 2022 and December 31, 2021

( 102,774 ) ( 102,774 )

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

29 unchanged sentences

common stockholders $ ( 28,359 ) $ 174,282 $ ( 212,790 ) $ ( 17,588 )

Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc.

Net income (loss) per share attributable to Brookdale Senior Living Inc.

common stockholders:

Weighted average shares used in computing basic and diluted net income (loss) per share 186,761 185,182 186,341 184,600

Basic $ ( 0.15 ) $ 0.94 $ ( 1.14 ) $ ( 0.10 )

Diluted $ ( 0.15 ) $ 0.89 $ ( 1.14 ) $ ( 0.10 )

Weighted average common shares outstanding:

Basic 186,790 185,317 186,493 184,841

Diluted 186,790 196,230 186,493 184,841

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Net income (loss) attributable to noncontrolling interest ( 15 ) ( 19 ) 101 ( 56 )

Noncontrolling interest distribution ( 760 ) — ( 760 ) —

Balance at end of period $ 1,562 $ 2,239 $ 1,562 $ 2,239

11 unchanged sentences

(Unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

29 unchanged sentences

Investment in unconsolidated ventures ( 192 ) ( 5,359 )

Distributions received from unconsolidated ventures — 2,155

Proceeds from sale of assets, net 5,844 315,583

Other ( 545 ) —

Net cash provided by (used in) investing activities ( 57,493 ) 201,729

4 unchanged sentences

Payments of employee taxes for withheld shares ( 4,282 ) ( 4,772 )

Other ( 760 ) 144

Net cash provided by (used in) financing activities ( 37,847 ) ( 75,731 )

11 unchanged sentences

The Company's senior living communities and its comprehensive network help to provide seniors with care and services in an environment that feels like home.

As of June 30, 2022, the Company owned 346 communities, representing a majority of the Company's consolidated community portfolio, leased 295 communities, and managed 33 communities.

On July 1, 2021, the Company sold 80 % of its equity in its Health Care Services segment.

The accompanying unaudited condensed consolidated financial statements include the results of operations and cash flows of the Health Care Services segment for the six months ended June 30, 2021.

As of September 30, 2022, the Company owned 346 communities, representing a majority of the Company's consolidated community portfolio, leased 295 communities, and managed 31 communities.

On July 1, 2021, the Company sold 80 % of its equity in its Health Care Services segment ("HCS Sale").

The accompanying unaudited condensed consolidated financial statements include the results of operations and cash flows of the Health Care Services segment through June 30, 2021.

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

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COVID-19 Pandemic

The COVID-19 pandemic has adversely impacted the Company's occupancy and resident fee revenue beginning in March 2020 and resulted in incremental direct costs to respond to the pandemic and net cash used in operating activities.

The COVID-19 pandemic has adversely impacted the Company's occupancy and resident fee revenue beginning in March 2020 and resulted in incremental direct costs to respond to the pandemic.

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

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the duration and costs of the Company's 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;

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

the impact of COVID-19 on the Company's 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 its debt and lease documents;

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

Phase 4 Provider Relief Fund Grants .

During the three months ended September 30, 2022, the Company accepted and recognized as other operating income $ 61.1 million from the Phase 4 general distribution of the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S.

Department of Health and Human Services.

The grant has been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

Employee Retention Credit.

The Company was eligible to claim the employee retention credit for certain of its associates under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act").

The Company 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 the Company has received $ 4.6 million in cash as of June 30, 2022.

The Company recognized $ 9.9 million for the nine months ended September 30, 2021 of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for which the Company has received $ 4.6 million in cash as of September 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, the Company recognized $ 4.7 million of employee retention credits on wages paid in 2021 within other operating income based upon its current estimates.

The Company has 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.

Phase 4 Provider Relief Fund Grants .

During the three months ended December 31, 2021, the Company 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 Company accepted approximately

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

The Company has not recognized any Phase 4 grant amounts in income for the three or six months ended June 30, 2022.

During the three and nine months ended September 30, 2022, the Company recognized $ 4.7 million and $ 9.4 million, respectively, of employee retention credits on wages paid in 2021 within other operating income.

The Company has a receivable for the remaining $ 14.7 million included within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as of September 30, 2022.

Fair Value Measurements

Marketable Securities

As of June 30, 2022 and December 31, 2021, marketable securities of $ 165.5 million and $ 182.4 million, respectively, are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

As of September 30, 2022 and December 31, 2021, marketable securities of $ 89.5 million and $ 182.4 million, respectively, are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.8 billion as of both June 30, 2022 and December 31, 2021.

Fair value of the long-term debt is approximately $ 3.4 billion as of June 30, 2022 and approximates the carrying amount as of December 31, 2021.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.8 billion as of both September 30, 2022 and December 31, 2021.

Fair value of the long-term debt is approximately $ 3.3 billion as of September 30, 2022 and approximates the carrying amount as of December 31, 2021.

The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.

1 unchanged sentence

Resident fee revenue by payor source is as follows.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

9 unchanged sentences

Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 71.8 million and $ 67.5 million, including $ 30.9 million and $ 27.5 million of monthly resident fees billed and received in advance, as of June 30, 2022 and December 31, 2021, respectively.

For the six months ended June 30, 2022 and 2021, the Company recognized $ 48.6 million and $ 46.2 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2022 and 2021, respectively.

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 74.9 million and $ 67.5 million, including $ 31.9 million and $ 27.5 million of monthly resident fees billed and received in advance, as of September 30, 2022 and December 31, 2021, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recognized $ 53.1 million and $ 56.2 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2022 and 2021, respectively.

Property, Plant and Equipment and Leasehold Intangibles, Net

As of June 30, 2022 and December 31, 2021, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.

(in thousands) June 30, 2022 December 31, 2021

As of September 30, 2022 and December 31, 2021, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.

(in thousands) September 30, 2022 December 31, 2021

Land $ 508,110 $ 502,610

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Property, plant and equipment and leasehold intangibles, net $ 4,801,988 $ 4,904,292

Assets under financing leases and leasehold improvements includes $ 315.4 million and $ 332.3 million of financing lease right-of-use assets, net of accumulated amortization, as of June 30, 2022 and December 31, 2021, respectively.

Assets under financing leases and leasehold improvements includes $ 307.8 million and $ 332.3 million of financing lease right-of-use assets, net of accumulated amortization, as of September 30, 2022 and December 31, 2021, respectively.

Refer to Note 8 for further information on the Company's financing leases.

Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 86.6 million and $ 83.6 million for the three months ended June 30, 2022 and 2021, respectively, and $ 172.3 million and $ 167.5 million for the six months ended June 30, 2022 and 2021, respectively.

The Company recognized $ 1.6 million and $ 0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $ 2.1 million and $ 2.3 million for the six months ended June 30, 2022 and 2021, respectively, of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold intangibles assets, primarily due to property damage at certain communities and decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 86.9 million and $ 84.6 million for the three months ended September 30, 2022 and 2021, respectively, and $ 259.2 million and $ 252.0 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company recognized $ 3.8 million and $ 0.6 million for the three months ended September 30, 2022 and 2021, respectively, and $ 5.9 million and $ 2.9 million for the nine months ended September 30, 2022 and 2021, respectively, of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold intangibles assets, primarily due to property damage at certain communities and decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic.

Long-term debt consists of the following.

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Fixed rate mortgage notes payable due 2023 through 2047;

weighted average interest rate of 4.14 % as of both June 30, 2022 and December 31, 2021

weighted average interest rate of 4.14 % as of both September 30, 2022 and December 31, 2021

$ 2,148,850 $ 2,164,115

Variable rate mortgage notes payable due 2023 through 2030;

weighted average interest rate of 4.04 % and 2.44 % as of June 30, 2022 and December 31, 2021, respectively

weighted average interest rate of 5.40 % and 2.44 % as of September 30, 2022 and December 31, 2021, respectively

1,463,868 1,476,943

Convertible notes payable due October 2026;

interest rate of 2.00 % as of both June 30, 2022 and December 31, 2021

interest rate of 2.00 % as of both September 30, 2022 and December 31, 2021

230,000 230,000

Other notes payable due 2022, interest rate of 2.10 % as of June 30, 2022

Other notes payable due 2022, interest rate of 2.10 % as of September 30, 2022

Deferred financing costs, net ( 25,872 ) ( 29,846 )

2 unchanged sentences

Total long-term debt, less current portion $ 3,758,929 $ 3,778,087

As of June 30, 2022, 93.8 %, or $ 3.6 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of June 30, 2022, $ 72.6 million of letters of credit and no cash borrowings were outstanding under the Company's $ 80.0 million secured credit facility.

The Company 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.

As of September 30, 2022, 93.9 %, or $ 3.6 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of September 30, 2022, $ 72.6 million of letters of credit and no cash borrowings were outstanding under the Company's $ 80.0 million secured credit facility maturing January 2024.

The Company also had a separate secured letter of credit facility providing up to $ 15.0 million of letters of credit as of September 30, 2022 under which $ 13.9 million had been issued as of that date.

2022 Financing

On October 13, 2022, the Company obtained $ 220.0 million of debt secured by first priority mortgages on 24 communities.

The loan bears interest at a variable rate equal to the one-month Secured Overnight Financing Rate ("SOFR") plus a margin of 245 basis points, and is interest only for the first three years .

The debt matures in October 2025 with two one-year renewal options, exercisable subject to certain performance criteria.

The debt documents contain a requirement for the Company to maintain liquidity of at least $ 130.0 million and 25 % of the loan amount is subject to a guaranty by the Company.

The proceeds from the financing were primarily utilized to repay $ 199.6 million of outstanding mortgage debt maturing in 2023 (which is included within long-term debt, less current portion on the condensed consolidated balance sheet as of September 30, 2022) and to purchase a SOFR interest rate swap instrument for $ 6.1 million.

The interest rate swap instrument has a $ 220.0 million notional amount, a fixed interest rate of 3.0 %, and a term of eighteen months .

Financial Covenants

4 unchanged sentences

Furthermore, the Company's debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of June 30, 2022, the Company is in compliance with the financial covenants of its debt agreements.

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

As of September 30, 2022, the Company is in compliance with the financial covenants of its debt agreements.

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

The substantial majority of the Company's lease arrangements are structured as master leases.

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The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents.

Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).

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

Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of June 30, 2022, the Company is in compliance with the financial covenants of its long-term leases.

As of September 30, 2022, the Company is in compliance with the financial covenants of its long-term leases.

Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company recognized $ 1.0 million and $ 1.5 million for the three months ended June 30, 2022 and 2021, respectively, and $ 9.6 million and $ 10.5 million for the six months ended June 30, 2022 and 2021, respectively, of non-cash impairment charges in its operating results for its operating lease right-of-use assets, 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.

The Company recognized $ 1.9 million and $ 11.5 million for the three and nine months ended September 30, 2022, respectively, of non-cash impairment charges in its operating results for its operating lease right-of-use assets, 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 and property damage sustained at certain communities.

The Company recognized $ 10.5 million for the nine months ended September 30, 2021, of non-cash impairment charges in its operating results for its operating lease right-of-use assets, of which none were recognized for the three months ended September 30, 2021, 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.

A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Operating Leases (in thousands)

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Financing Leases (in thousands)

8 unchanged sentences

Total net cash outflows from financing leases $ 14,695 $ 12,577 $ 42,870 $ 41,658

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of June 30, 2022 are as follows (in thousands).

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of September 30, 2022 are as follows (in thousands).

Year Ending December 31, Operating Leases Financing Leases

2022 (six months) $ 102,321 $ 34,171

2022 (three months) $ 51,658 $ 17,168

2023 210,831 69,739

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Total lease obligations $ 738,858 $ 546,544

In October 2022, the Company and a lessor entered into an amendment to the Company's existing master lease pursuant to which the Company continues to lease 24 communities.

The amendment removed certain asset repurchase clauses and adjusted the extension option provisions.

The amendment did not change the amount of required lease payments or the initial term of the lease.

The leases for certain communities are accounted for as failed sale-leaseback transactions as of September 30, 2022 and the Company expects the amended leases to result in sale accounting for such communities and a non-cash gain on sale of assets recognized in the three months ended December 31, 2022.

In addition, the Company expects the amended leases for such communities to be prospectively classified as operating leases subsequent to December 31, 2022, the effective date of the amendment.

Investment in Unconsolidated Ventures

As of June 30, 2022, the Company holds a 20 % equity interest, and affiliates of HCA Healthcare Inc.

own an 80 % interest, in the HCS Venture, and the Company has determined the HCS Venture is a VIE.

As of September 30, 2022, the Company holds a 20 % equity interest, and affiliates of HCA Healthcare Inc.

("HCA Healthcare") own an 80 % interest, in the HCS Venture, and the Company has determined the HCS Venture is a VIE.

The HCS Venture operates home health and hospice agencies in the United States.

1 unchanged sentence

The Company's interest in the HCS Venture is accounted for under the equity method of accounting.

The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture was $ 54.3 million, which is included in investment in unconsolidated ventures on the accompanying unaudited condensed consolidated balance sheet as of June 30, 2022.

As of June 30, 2022, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to the HCS Venture.

The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture was $ 52.3 million, which is included in investment in unconsolidated ventures on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2022.

As of September 30, 2022, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to the HCS Venture.

The Company has been and is currently involved in litigation and claims incidental to the conduct of its business, which it believes are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at the Company's communities and compliance with consumer protection laws and the Americans with Disabilities Act.

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In addition to identifying overpayments, audit contractors can refer suspected violations to government authorities.

An adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and damage to the Company’s business reputation.

An adverse outcome of government scrutiny may

result in citations, sanctions, other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and damage to the Company's business reputation.

The Company's costs to respond to and defend any such audits, reviews, and investigations may be significant.

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The district court dismissed the lawsuit and entered judgment in favor of the defendants in September 2021, and the plaintiffs did not file an appeal.

Between October 2020 and June 2021, alleged stockholders of the Company filed several stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, which was subsequently transferred to the Middle District of Tennessee.

Between October 2020 and June 2021, alleged stockholders of the Company filed several stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, which were subsequently transferred to the Middle District of Tennessee.

The derivative lawsuits are currently pending and assert claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company.

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Three months ended June 30, 2022 26 $ 6.40 $ 166

Three months ended September 30, 2022 7 $ 4.86 $ 33

Earnings Per Share

During the three and six months ended June 30, 2022 and 2021, the Company reported consolidated net losses.

As a result of the net losses reported for the periods, all unvested restricted stock, restricted stock units, and potential shares issuable under warrants and convertible senior notes were antidilutive for the periods and as such were not included in the computation of diluted weighted average shares outstanding.

The following potentially outstanding shares of common stock were excluded from the computation of diluted net income (loss) per share attributable to common stockholders because including the shares would have been antidilutive.

As of June 30,

The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the condensed consolidated statements of operations:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except for per share amounts) 2022 2021 2022 2021

Income attributable to common stockholders:

Net income (loss) $ ( 28,359 ) $ 174,282 $ ( 212,790 ) $ ( 17,588 )

Weighted average shares outstanding - basic 186,790 185,317 186,493 184,841

Effect of dilutive securities:

Warrants — 9,451 — —

Restricted stock and restricted stock units — 1,462 — —

Weighted average shares outstanding - diluted 186,790 196,230 186,493 184,841

Net income (loss) per share attributable to common stockholders - basic $ ( 0.15 ) $ 0.94 $ ( 1.14 ) $ ( 0.10 )

Net income (loss) per share attributable to common stockholders - diluted $ ( 0.15 ) $ 0.89 $ ( 1.14 ) $ ( 0.10 )

For the purposes of computing diluted earnings per share, weighted average shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are included based on the attainment of the applicable performance metrics as of the end of the reporting period.

The Company has the following potentially outstanding shares of common stock, which were excluded from the computation of diluted net income (loss) per share attributable to common stockholders in periods in which including them would have been antidilutive.

As of September 30,

(in millions) 2022 2021

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

As of June 30, 2022, the maximum number of shares issuable upon conversion of convertible senior notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

The difference between the Company's 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.

The difference between the Company's 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.

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

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

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 20.8 million for the three months ended June 30, 2021, which was offset by an increase to the valuation allowance of $ 19.8 million.

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

As of September 30, 2022, the maximum number of shares issuable upon conversion of convertible senior notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

The difference between the Company's effective tax rate for the three and nine months ended September 30, 2022 and 2021 was primarily due to the HCS Sale in the three months ended September 30, 2021.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 7.3 million for the three months ended September 30, 2022, which was partially offset by an increase to the valuation allowance of $ 6.7 million.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 52.8 million for the nine months ended September 30, 2022, which was partially offset by an increase to the valuation allowance of $ 50.7 million.

The Company recorded an aggregate deferred federal, state, and local tax expense of $ 81.0 million for the three months ended September 30, 2021, which was partially offset by a reduction to the valuation allowance of $ 71.8 million.

The Company recorded an aggregate deferred federal, state, and local tax expense of $ 35.0 million for the nine months ended September 30, 2021, which was partially offset by a reduction to the valuation allowance of $ 26.5 million.

The deferred income tax expense for the nine months ended September 30, 2021 included $ 104.3 million as a result of the gain on the HCS Sale, partially offset by a benefit of $ 69.3 million as a result of operating losses (exclusive of the HCS Sale).

The Company evaluates its 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.

The Company's valuation allowance as of June 30, 2022 and December 31, 2021 was $ 412.0 million and $ 368.0 million, respectively.

The increase in the valuation allowance for the six months ended June 30, 2022 is the result of current operating losses during the six months ended June 30, 2022 and by the anticipated reversal of future tax liabilities offset by future tax deductions.

The increase in the valuation allowance for the six months ended June 30, 2021 is the result of current operating losses during the six months ended June 30, 2021.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and six months ended June 30, 2022 and 2021 which are included in income tax expense or benefit for the period.

As of June 30, 2022, tax returns for years 2018 through 2020 are subject to future examination by tax authorities.

The Company's valuation allowance as of September 30, 2022 and December 31, 2021 was $ 418.7 million and $ 368.0 million, respectively.

The increase in the valuation allowance for the nine months ended September 30, 2022 is the result of current operating losses during the nine months ended September 30, 2022 and by the anticipated reversal of future tax liabilities offset by future tax deductions.

The decrease in the valuation allowance for the nine months ended September 30, 2021 is primarily the result of a $ 95.2 million reduction recorded as a result of the HCS Sale, partially offset by an increase in the valuation allowance of $ 68.6 million established against current operating losses during the nine months ended September 30, 2021.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and nine months ended September 30, 2022 and 2021 which are included in income tax expense or benefit for the period.

As of September 30, 2022, tax returns for years 2018 through 2020 are subject to future examination by tax authorities.

In addition, the net operating losses from prior years are subject to adjustment under examination.

Supplemental Disclosure of Cash Flow Information

During the period from January 1, 2021 through June 30, 2022, the Company disposed of five owned communities and the Company's triple-net lease obligations on six communities were terminated (including through the acquisition of one formerly leased community).

During the six months ended June 30, 2022, the Company completed the sale of two owned communities for cash proceeds of $ 4.4 million, net of transaction costs, and recognized a net gain on sale of assets of $ 0.7 million for these sales.

During the six months ended June 30, 2021, the Company completed the sale of two owned communities for cash proceeds of $ 8.5 million, net of transaction costs, and recognized a net gain on sale of assets of $ 0.5 million for these sales.

Six Months Ended

During the period from January 1, 2021 through September 30, 2022, the Company disposed of five owned communities and the Company's triple-net lease obligations on six communities were terminated (including through the acquisition of one formerly leased community).

During the nine months ended September 30, 2022, the Company completed the sale of two owned communities for cash proceeds of $ 4.4 million, net of transaction costs, and recognized a net gain on sale of assets of $ 0.7 million for these sales.

During the nine months ended September 30, 2021, the Company completed the sale of two owned

communities for cash proceeds of $ 8.5 million, net of transaction costs, and recognized a net gain on sale of assets of $ 0.5 million for these sales.

On July 1, 2021, the Company completed the sale of 80 % of its equity in its Health Care Services segment to affiliates of 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 HCS Sale.

The Company 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.

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

Refer to Note 15 for selected financial data for the Health Care Services segment through June 30, 2021.

Nine Months Ended

September 30,

(in thousands) 2022 2021

8 unchanged sentences

Net cash paid $ 150,572 $ 125,817

Proceeds from sale of assets, net:

Proceeds from HCS Sale, net:

Accounts receivable, net $ — $ ( 57,582 )

Property, plant and equipment and leasehold intangibles, net — ( 1,806 )

Operating lease right-of-use assets — ( 8,145 )

Investment in unconsolidated ventures — 100,000

Goodwill — ( 126,810 )

Prepaid expenses and other assets, net — ( 26,409 )

Trade accounts payable — 1,387

Accrued expenses — 25,226

Refundable fees and deferred revenue — 57,314

Operating lease obligations — 8,145

Other liabilities — 11,135

Loss (gain) on sale of assets, net — ( 288,233 )

Net cash received $ — $ ( 305,778 )

Proceeds from sale of assets, net (excluding HCS Sale):

Prepaid expenses and other assets, net $ ( 1,301 ) $ —

Assets held for sale ( 3,668 ) ( 8,040 )

4 unchanged sentences

Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:

Assets designated as held for sale:

Assets held for sale $ — $ 3,612

Property, plant and equipment and leasehold intangibles, net — ( 3,612 )

Non-cash lease transactions, net:

5 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Reconciliation of cash, cash equivalents, and restricted cash:

4 unchanged sentences

Segment Information

As of June 30, 2022, the Company has three reportable segments:

As of September 30, 2022, the Company has three reportable segments:

Independent Living;

22 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021 2022 2021

9 unchanged sentences

Total revenue and other operating income $ 757,458 $ 641,654 $ 2,124,794 $ 2,114,391

Three Months Ended

June 30, Six Months Ended

(in thousands) 2022 2021 2022 2021

Segment operating income:

10 unchanged sentences

Income (loss) from operations $ 19,206 $ ( 48,855 ) $ ( 68,376 ) $ ( 162,940 )

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Total assets:

6 unchanged sentences

(1) All revenue and other operating income is earned from external third parties in the United States.

(2) Includes other operating income recognized for the credits or grants pursuant to the employee retention credit and other government sources.

(2) Includes other operating income recognized for the credits or grants pursuant to the Provider Relief Fund, employee retention credit, and other government sources as described in Note 3.

Allocations to the applicable segment generally reflect the credits earned by the segment, the segment's receipt and acceptance of the grant, or the segment's proportional utilization of the grant.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021 2022 2021

6 unchanged sentences

(3) Segment operating income is defined as segment revenues and other operating income less segment facility operating expenses (excluding facility depreciation and amortization) and costs incurred on behalf of managed communities.

(4) The Company's Independent Living segment had a carrying amount of goodwill of $ 27.3 million as of both June 30, 2022 and December 31, 2021.

(4) The Company's Independent Living segment had a carrying amount of goodwill of $ 27.3 million as of both September 30, 2022 and December 31, 2021.

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 1. Financial Statements