What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-09 · 242 added, 212 removed, 543 unchanged (46% of the section changed)

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

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

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

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

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

increases in market interest rates that increase the

costs of our debt obligations;

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

increases in market interest rates that increase the costs of our debt obligations;

our ability to obtain

additional capital on terms acceptable to us;

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

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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 are the nation's premier operator of senior living communities, operating and managing 672 communities in 41 states as of September 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 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.

From February 2021 through October 2022, we increased our weighted average consolidated senior housing occupancy by 780 basis points to 77.2%.

Sequentially from the second quarter of 2022, our weighted average consolidated senior housing occupancy increased by 180 basis points to 76.4% for the third 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 % 77.9 % 78.4 % 78.2 %

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.

During the three and nine months ended September 30, 2022, various communities experienced restrictions on new resident move-ins due to the pandemic, and as of October 31, 2022, all of our communities were open for new resident move-ins.

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

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Pandemic Expenses.

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.

For the three and nine months ended September 30, 2022, we recognized $3.6 million and $15.9 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic.

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

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 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.

On a cumulative basis since the beginning of fiscal 2020 through September 30, 2022, we have incurred $189.2 million

of pandemic related facility operating expense.

Refer to "Results of Operations" below for information on non-cash impairment charges recognized as a result of the impacts of the COVID-19 pandemic.

Phase 4 Provider Relief Fund Grants .

During the three months ended December 31, 2021, we applied for the Phase 4 general distribution from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S.

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

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.

During the three months ended September 30, 2022, we 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.

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").

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.

We 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 we have 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, 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.

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

We have 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.

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

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

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

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

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

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

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.

During 2021 and the nine months ended September 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 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.

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

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

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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 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.

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 conditions described above.

We are working to reduce the use of premium labor.

Our labor expense in our same community portfolio for the three and nine months ended September 30, 2022 increased 11.0% and 12.7% from the three and nine months ended September 30, 2021, respectively.

The year-over-year increase in our same community labor expense for the nine months ended September 30, 2022 primarily resulted from our increased use of contract labor and overtime as well as merit and market wage rate adjustments.

The year-over-year increase in our same community labor expense for the three months ended September 30, 2022 primarily resulted from our merit and market wage rate

adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime, partially offset by a decrease in the use of contract labor.

Our labor expense in our same community portfolio for the three months ended September 30, 2022 increased 1.1% sequentially from the three months ended June 30, 2022 primarily due to an increase in hours worked by associates and an additional day, which was a holiday, partially offset by decreased use of contract labor.

Resident Fee Rates

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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 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.

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

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 4.5% net increase in same community RevPOR for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The rate adjustment was higher due to 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.

We expect our pricing actions in 2023 to incorporate labor and inflationary cost increases resulting in an annual rate increase effective January 1, 2023 that will be higher than our typical annual rate adjustment and the adjustment effective January 1, 2022.

Impacts of Hurricane Ian

On September 28, 2022, Hurricane Ian made landfall in Florida.

We operate 77 communities that were within the path of the storm.

Under our emergency evacuation plans, we evacuated nine communities prior to landfall.

All of the impacted communities returned to operation.

Several communities will experience some continuing disruption as storm damage is remediated.

During the three months ended September 30, 2022, we incurred $0.3 million of facility operating expenses related to hurricane response and evacuation.

In addition, during the three months ended September 30, 2022, we recognized $3.8 million of impairment expense for property, plant, and equipment casualty losses sustained at communities as a result of Hurricane Ian.

Based on our preliminary assessments, we expect additional facility operating expense related to the hurricane response and remediation of storm damage of approximately $8.0 million, net of expected reimbursement from our property and casualty and business interruption insurance policies, for the three months ended December 31, 2022.

We estimate that we will incur an additional approximately $10.0 million of capital expenditures for property remediation, primarily during the three months ended December 31, 2022, for which we expect approximately $3.0 million of reimbursement from our property and casualty insurance policies subsequent to 2022.

The foregoing estimates are preliminary estimates derived by management from the information available at this time.

The actual amounts and timing of amounts may differ.

Lease Amendment

In October 2022, we and a lessor entered into an amendment to our existing master lease pursuant to which we continue 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 we expect 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, we expect the amended leases for such communities to be prospectively classified as operating leases subsequent to December 31, 2022, the effective date of the amendment.

We expect the reclassification of such lease costs to operating lease expense will result in an approximately $22.0 million increase in cash paid for operating leases for the full year 2023 and an offsetting decrease in cash paid for financing leases.

Sale of Health Care Services

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

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

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

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

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

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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 and six months ended June 30, 2021.

Financial Statements” for selected financial data for the Health Care Services segment through 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.

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Results of Operations

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

As of September 30, 2022, our total operations included 672 communities with a capacity to serve over 60,000 residents.

As of that date, we owned 346 communities (31,588 units), leased 295 communities (20,570 units), and managed 31 communities (4,605 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 June 30, 2022 affect the comparability of our results of operations.

Transactions completed during the period of January 1, 2021 to September 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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We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments.

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

Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average

amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates.

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

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

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

Comparison of Three Months Ended June 30, 2022 and 2021

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 measure in accordance with generally accepted accounting principles in the United States ("GAAP").

Comparison of Three Months Ended September 30, 2022 and 2021

Summary Operating Results

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

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

Three Months Ended

June 30, Increase (Decrease)

September 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

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Facility operating expense 525,510 480,423 45,087 9.4 %

Net income (loss) (84,283) (83,604) (679) (0.8) %

Adjusted EBITDA 50,714 33,064 17,650 53.4 %

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 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 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 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.

Net income (loss) (28,374) 174,263 (202,637) NM

Adjusted EBITDA 106,851 34,582 72,269 NM

The increase in total resident fees and management fees revenue was primarily attributable to a 9.9% increase in same community RevPAR, comprised of a 400 basis point increase in same community weighted average occupancy and a 4.2% increase in same community RevPOR.

During the three months ended September 30, 2022 and 2021, we recognized $66.8 million and $0.1 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, including for the three months ended September 30, 2022, $61.1 million of grants from the Phase 4 general distribution from the Provider Relief Fund.

The increase in facility operating expense was primarily attributable to an 11.1% increase in same community facility operating expense, including a $33.2 million, or 11.0%, increase in our same community labor expense primarily resulting from merit and market wage rate adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime, partially offset by a decrease in the use of contract labor.

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

Facility operating expense for the three months ended September 30, 2022 and 2021 includes $3.6 million and $7.2 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The change in net income (loss) was primarily attributable to a net gain on sale of $288.2 million for the HCS Sale in the prior year period partially offset by an increase in other operating income compared to the prior year period and the net impact of the revenue and facility operating expense factors previously discussed.

The increase in Adjusted EBITDA was primarily attributable to an increase in other operating income compared to the prior year period, as well as the net impact of the revenue and facility operating expense factors previously discussed.

Operating Results - Senior Housing Segments

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

June 30, Increase (Decrease)

September 30, Increase (Decrease)

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

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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 June 30, 2022 and 2021, including operating results and data on a same community basis.

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

Three Months Ended

June 30, Increase (Decrease)

September 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 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.

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 9.8%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments and an increase in the use of overtime.

Additionally, broad inflationary pressure, higher repairs and maintenance volume, an increase in food costs due to increased occupancy during the period, and an increase in utilities costs due to higher usage contributed to the increase in the segment's same community facility operating expense.

The segment's facility operating expense for the three months ended September 30, 2022 and 2021 includes $0.4 million and $0.9 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.

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

Three Months Ended

June 30, Increase (Decrease)

September 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 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.

The increase in the segment's same community RevPOR was primarily the result of in-place rate increases, partially offset by lower care revenue as new resident acuity returned to pre-pandemic levels.

The increase in the segment's resident fees was partially offset by the disposition of six communities (478 units) since the beginning of the prior year period, which resulted in $4.9 million less in resident fees during the three months ended September 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 $25.0 million, or 11.5%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime, partially offset by a decrease in the use of contract labor.

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 $4.1 million less in facility operating expense during the three months ended September 30, 2022 compared to the prior year period.

The segment's facility operating expense for the three months ended September 30, 2022 and 2021 includes $2.5 million and $4.8 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.

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

Three Months Ended

June 30, Increase (Decrease)

September 30, Increase (Decrease)

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

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RevPOR $ 7,252 $ 7,005 $ 247 3.5 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 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 resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 3.5% increase in same community RevPOR and a 260 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 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.

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 resident fees was partially offset by the disposition of one community (120 units) since the beginning of the prior year period, which resulted in $2.3 million less in resident fees during the three months ended September 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 $3.5 million, or 9.7%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime, partially offset by a decrease in the use of contract labor.

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 $2.5 million less in facility operating expense during the three months ended September 30, 2022 compared to the prior year period.

The segment's facility operating expense for the three months ended September 30, 2022 and 2021 includes $0.7 million and $1.5 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 June 30, 2022 and 2021.

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

Three Months Ended

June 30, Increase (Decrease)

September 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

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Depreciation and amortization 86,922 84,560 2,362 2.8 %

Asset impairment 2,599 2,078 521 25.1 %

Interest income 778 341 437 128.2 %

Asset impairment 5,688 639 5,049 NM

Interest income 2,192 286 1,906 NM

Interest expense 49,873 49,361 512 1.0 %

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

Equity in earnings (loss) of unconsolidated ventures (2,020) (1,474) (546) (37.0) %

Gain (loss) on sale of assets, net (56) 288,375 (288,431) NM

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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.

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

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, partially offset by an increase in reimbursed community labor costs for communities managed in both periods.

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.

The decrease in general and administrative expense was primarily attributable to decreases in estimated incentive compensation costs and transaction and organizational restructuring costs.

General and administrative expense includes transaction and organizational restructuring costs of $0.3 million and $0.9 million for the three months ended September 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.

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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.

During the three months ended September 30, 2022, we recorded $5.7 million of non-cash impairment charges, primarily for property damage sustained at certain communities, including property damage sustained from Hurricane Ian in September 2022.

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.

The increase in interest expense was primarily due to an increase in interest expense on long-term debt as a result of increases in variable interest rates, partially offset by 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 $17.0 million for the full year 2022 compared to 2021, which we expect will be partially offset by an approximately $4.0 million increase in interest income earned on our cash, cash equivalents, and marketable securities.

Gain (Loss) on Sale of Assets, net .

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

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

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

We 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.

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

Our valuation allowance as of September 30, 2022 and December 31, 2021 was $418.7 million and $368.0 million, respectively.

Comparison of Nine Months Ended September 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)

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

Nine Months Ended

September 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Total resident fees and management fees revenue $ 1,937,235 $ 1,955,608 $ (18,373) (0.9) %

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

Other operating income 75,546 12,132 63,414 NM

Facility operating expense 1,551,938 1,587,581 (35,643) (2.2) %

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

Net income (loss) (212,689) (17,644) (195,045) NM

Adjusted EBITDA 194,741 102,627 92,114 89.8 %

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Management fee revenue decreased $7.6 million primarily due to the transition of management agreements on 44 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.

During the nine months ended September 30, 2022 and 2021, we recognized $75.5 million and $12.1 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, including for the nine months ended September 30, 2022, $61.1 million of grants from the Phase 4 general distribution from the Provider Relief Fund.

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 11.2% increase in same community facility operating expense, including a $112.4 million, or 12.7%, 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.

Additionally, broad inflationary pressure, higher repairs and maintenance volume, and an increase in food costs due to increased occupancy during the period contributed to the increase in

our same community facility operating expense.

Facility operating expense for the nine months ended September 30, 2022 and 2021 includes $15.9 million and $44.3 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in net loss was primarily attributable to the a net gain on sale of $288.2 million for the HCS Sale in the prior year period and a decrease in equity in earnings of unconsolidated ventures compared to the prior year period.

These changes were partially offset by an increase in other operating income compared to the prior year period, the net impact of the revenue and facility operating expense factors previously discussed, and a decrease in general and administrative expense compared to the prior year period.

The increase in Adjusted EBITDA was primarily attributable to an increase in other operating income compared to the prior year period, the net impact of the revenue and facility operating expense factors previously discussed, and a decrease in general and administrative expense compared to the prior year period as a result of the HCS Sale and a decrease in estimated incentive compensation costs.

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.

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

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 1,927,610 $ 1,764,259 $ 163,351 9.3 %

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

Other operating income $ 75,546 $ 9,027 $ 66,519 NM

Facility operating expense $ 1,551,938 $ 1,416,128 $ 135,810 9.6 %

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Resident fees $ 1,858,440 $ 1,683,690 $ 174,750 10.4 %

Other operating income $ 8,373 $ 8,106 $ 267 3.3 %

Other operating income $ 72,892 $ 8,187 $ 64,705 NM

Facility operating expense $ 1,488,359 $ 1,338,448 $ 149,911 11.2 %

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Independent Living Segment

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)

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

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 378,088 $ 356,371 $ 21,717 6.1 %

Other operating income $ 1,161 $ 1,475 $ (314) (21.3) %

Other operating income $ 10,681 $ 1,484 $ 9,197 NM

Facility operating expense $ 265,981 $ 248,501 $ 17,480 7.0 %

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Resident fees $ 373,125 $ 352,387 $ 20,738 5.9 %

Other operating income $ 1,148 $ 1,456 $ (308) (21.2) %

Other operating income $ 10,424 $ 1,464 $ 8,960 NM

Facility operating expense $ 262,512 $ 245,316 $ 17,196 7.0 %

4 unchanged sentences

RevPOR $ 4,392 $ 4,285 $ 107 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 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 rent increases.

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 rent increases.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $9.6 million, or 6.5%, 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.

The segment's facility operating expense for the nine months ended September 30, 2022 and 2021 includes $2.0 million and $5.4 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 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)

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

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 1,308,683 $ 1,181,277 $ 127,406 10.8 %

Other operating income $ 6,768 $ 5,733 $ 1,035 18.1 %

Other operating income $ 56,489 $ 5,808 $ 50,681 NM

Facility operating expense $ 1,070,682 $ 963,266 $ 107,416 11.2 %

6 unchanged sentences

Resident fees $ 1,293,876 $ 1,157,606 $ 136,270 11.8 %

Other operating income $ 6,647 $ 5,527 $ 1,120 20.3 %

Other operating income $ 56,109 $ 5,596 $ 50,513 NM

Facility operating expense $ 1,057,330 $ 939,911 $ 117,419 12.5 %

6 unchanged sentences

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 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 same community RevPOR was primarily the result of in-place rent increases, partially offset by lower care revenue as new resident acuity returned to pre-pandemic levels.

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 $10.3 million less in resident fees during the nine months ended September 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 $90.4 million, or 14.3%, 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, 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.

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 $9.7 million less in facility operating expense during the nine months ended September 30, 2022 compared to the prior year period.

The segment's facility operating expense for the nine months ended September 30, 2022 and 2021 includes $11.4 million and $29.8 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

CCRCs Segment

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

Six Months Ended

June 30, Increase (Decrease)

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

Nine Months Ended

September 30, Increase (Decrease)

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

Resident fees $ 240,839 $ 226,611 $ 14,228 6.3 %

Other operating income $ 858 $ 1,730 $ (872) (50.4) %

Other operating income $ 8,376 $ 1,735 $ 6,641 NM

Facility operating expense $ 215,275 $ 204,361 $ 10,914 5.3 %

6 unchanged sentences

Resident fees $ 191,439 $ 173,697 $ 17,742 10.2 %

Other operating income $ 578 $ 1,123 $ (545) (48.5) %

Other operating income $ 6,359 $ 1,127 $ 5,232 NM

Facility operating expense $ 168,517 $ 153,221 $ 15,296 10.0 %

7 unchanged sentences

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.

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 $6.5 million less in resident fees during the nine months ended September 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 $12.4 million, or 11.9%, 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.

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 $7.1 million less in facility operating expense during the nine months ended September 30, 2022 compared to the prior year period.

The segment's facility operating expense for the nine months ended September 30, 2022 and 2021 includes $2.5 million and $6.9 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 six months ended June 30, 2022 and 2021.

Six Months Ended

June 30, Increase (Decrease)

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

Nine Months Ended

September 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

10 unchanged sentences

Gain (loss) on sale of assets, net 611 289,408 (288,797) (99.8) %

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

Other non-operating income (loss) 1,739 5,163 (3,424) (66.3) %

Benefit (provision) for income taxes 1,086 (15,239) 16,325 NM

2 unchanged sentences

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

General and Administrative Expense.

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.

General and administrative expense includes transaction and organizational restructuring costs of $0.9 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively.

5 unchanged sentences

Asset Impairment.

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.

During the nine months ended September 30, 2022 and 2021, we recorded $17.4 million and $13.4 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.

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.

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, partially offset by an increase in interest expense on long-term debt as a result of increases in variable interest rates.

Equity in Earnings (Loss) of Unconsolidated Ventures.

1 unchanged sentence

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.

Gain (Loss) on Sale of Assets, net .

The decrease in gain on sale of assets is due to the $288.2 million gain recognized for the HCS Sale in the prior year period.

Benefit (Provision) for Income Taxes.

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.

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

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

We 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, offset by a benefit of $69.3 million as a result of operating losses (exclusive of the HCS Sale).

Liquidity and Capital Resources

2 unchanged sentences

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.

Six Months Ended

June 30, Increase (Decrease)

Nine Months Ended

September 30, Increase (Decrease)

(in thousands) 2022 2021 Amount Percent

Net cash provided by (used in) operating activities $ (11,678) $ (20,447) $ (8,769) (42.9) %

Net cash provided by (used in) operating activities $ 51,843 $ (13,247) $ 65,090 NM

Net cash provided by (used in) investing activities (57,493) 201,729 (259,222) NM

Net cash provided by (used in) financing activities (37,847) (75,731) (37,884) (50.0) %

Net increase (decrease) in cash, cash equivalents, and restricted cash (109,772) (79,246) 30,526 38.5 %

Net increase (decrease) in cash, cash equivalents, and restricted cash (43,497) 112,751 (156,248) NM

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

1 unchanged sentence

Adjusted Free Cash Flow $ (97,827) $ (147,991) $ 50,164 33.9 %

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

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

The increase in net cash used in investing activities was primarily attributable to 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.

The change in net cash provided by (used in) operating activities was attributable primarily to a $64.8 million increase in government grants and credits received, an increase in same community revenue, and a decrease in general and administrative expense compared to the prior year period.

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

The change in net cash provided by (used in) investing activities was primarily attributable to $305.8 million of net proceeds from the HCS Sale received in the prior year period, a $24.8 million increase in cash paid for capital expenditures compared to the prior year period, and $6.0 million of cash paid for the acquisition of a previously leased community in the current year period.

These changes were partially offset by a $60.8 million increase in proceeds from sales and maturities of marketable securities and a $17.7 million decrease in purchases of marketable securities compared to the prior year period.

The decrease in net cash used in financing activities was primarily attributable to a $31.9 million decrease in repayment of debt and financing lease obligations and a $6.9 million increase in debt proceeds compared to the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable to a $64.8 million increase in government grants and credits received, 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 $37.4 million increase in non-development capital expenditures, net.

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

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

We also have received pandemic-related government relief in the form of cash grants and employee retention credits, and we have elected to utilize the pandemic-related payroll tax deferral program.

Our liquidity requirements have historically arisen from:

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

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

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

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

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• working capital;

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

• operating costs such as labor costs, general and administrative expense, and supply costs, including those related to Hurricane Ian;

• debt, interest, and lease payments;

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

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

• capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities, and the remediation or replacement of assets as a result of casualty losses;

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

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

As of June 30, 2022, we have three principal corporate-level debt obligations and credit facilities:

As of September 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 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%.

• $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 September 30, 2022.

• Separate secured letter of credit facility providing for 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.

As of September 30, 2022, we had $3.8 billion of debt outstanding, at a weighted average interest rate of 4.49%.

As of such date, 93.9%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

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.

Refer to “Item 3.

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

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.

As of September 30, 2022, 61.9%, or $2.4 billion, of our long-term debt had a weighted average fixed interest rate of 3.94%.

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

As of September 30, 2022, 91% of our $1.5 billion of outstanding variable rate debt is indexed to the one-month London Interbank Offer Rate ("LIBOR") plus a weighted average margin of 233 basis points and 9% of our outstanding variable rate debt is indexed to the one-month Secured Overnight Financing Rate ("SOFR") plus a weighted average margin of 223 basis points.

As of September 30, 2022, $1.3 billion, or 91%, of our variable rate debt is subject to interest rate cap agreements, and $128.7 million of our variable rate debt is not subject to any interest rate cap agreements.

For our LIBOR and SOFR interest rate cap agreements as of September 30, 2022, the weighted average fixed cap rate is 4.39%, and the weighted average remaining term is 1.4 years.

Many of our variable rate debt instruments include provisions that obligate us to acquire additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements.

The costs of acquiring additional interest rate cap agreements may offset the benefits of our existing interest rate cap agreements.

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

For the twelve months ending September 30, 2023, we will be required to make approximatel y $279.1 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $395.6 million as of September 30, 2022 included $299.2 million of unrestricted cash and cash equivalents (excluding restricted cash of $95.6 million), $89.5 million of marketable securities, and $6.9 million of availability on our secured credit facility.

Total liquidity as of September 30, 2022 decreased $141.3 million from total liquidity of $536.8 million as of December 31, 2021.

The decrease was primarily attributable to negative $97.8 million of Adjusted Free Cash Flow and $28.3 million of payments of mortgage debt.

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.

Our current liabilities also include $177.5 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.

On October 13, 2022, we 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 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 us to maintain liquidity of at least $130.0 million and 25% of the loan amount is subject to a guaranty by us.

The proceeds from the financing were primarily utilized to repay $199.6 million of outstanding mortgage debt maturing in 2023 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.

As of September 30, 2022, our current liabilities exceeded current assets by $75.6 million.

Included in our current liabilities is $182.3 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.

We currently estimate our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next 12 months.

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

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

Until our communities' performance recovers, we plan to refinance maturities using non-agency financing, and 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.

Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 and 2022 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness.

We have completed the refinancing of substantially all of our debt maturities due in 2022 and 2023.

Our inability to obtain refinancing proceeds sufficient to cover 2024 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.

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.

Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned

capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy.

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

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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 six months ended June 30, 2022 for our consolidated business.

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

(in millions)

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

In the aggregate, we expect our full-year 2022 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $160.0 million.

In the aggregate, we expect our full-year 2022 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $170.0 million, including approximately $10.0 million of capital expenditures for property remediation resulting from the impact of Hurricane Ian based on our preliminary assessments.

The foregoing amounts exclude expected reimbursement subsequent to 2022 from our property and casualty insurance policies of capital expenditures resulting from the impact of Hurricane Ian.

In addition, we expect our full-year 2022 development capital expenditures to be approximately $10.0 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities.

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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 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.

Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of September 30, 2022.

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

As of September 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 $6.9 million of availability.

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

Long-Term Leases

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

As of September 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.

Approximatel y 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.

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 September 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 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.

For the three and nine months ended September 30, 2022, our cash lease payments for our operating leases were $51.7 million and $154.5 million, respectively, and for our financing leases were $17.4 million and $52.6 million, respectively.

For the twelve months ending September 30, 2023, we will be required to make $279.1 million of cash lease payments in connection with our existing operating and financing leases.

Debt and Lease Covenants

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

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

leaseback transactions and deferred entrance fee revenue.

The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment.

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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 June 30, 2022, we are in compliance with the financial covenants of our debt agreements and long-term leases.

As of September 30, 2022, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with U.S.

generally accepted accounting principles ("GAAP").

This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with GAAP.

Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity.

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(i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure;

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

(ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets

and may be indicative of future needs for capital expenditures;

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

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021 2022 2021

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$ 106,851 $ 34,582 $ 194,741 $ 102,627

(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.

(1) Adjusted EBITDA includes a $66.8 million and $75.5 million benefit for the three and nine months ended September 30, 2022, respectively, and a $0.1 million and $12.1 million benefit for the three and nine months ended September 30, 2021, respectively, of government grants and credits recognized in other operating income.

Adjusted Free Cash Flow

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(ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity;

and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.

and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure

for short-term comparisons.

Additionally, Adjusted Free Cash Flow excludes cash used to purchase interest rate cap instruments, as well as any cash provided by settlements of interest rate cap instruments.

The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021 2022 2021

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(1) Adjusted Free Cash Flow includes:

• $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.

• $62.8 million and $68.1 million benefit for the three and nine months ended September 30, 2022, respectively, and $1.1 million and $3.3 million benefit for the three and nine months ended September 30, 2021, respectively, from government grants and credits received.

• $3.1 million recoupment for the nine months ended September 30, 2022, of accelerated/advanced Medicare payments, of which none were recouped during the three months ended September 30, 2022, and $3.5 million and $17.8 million recoupment for the three and nine months ended September 30, 2021, respectively, of accelerated/advanced Medicare payments.

• $0.3 million and $0.9 million for the three and nine months ended September 30, 2022, respectively, and $0.9 million and $3.5 million for the three and nine months ended September 30, 2021, respectively, for transaction and organizational costs.

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