What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2022-11-08 · 140 added, 219 removed, 379 unchanged (49% of the section changed)

3 unchanged sentences

(In thousands, except stock amounts)

September 30,

2023 December 31,

22 unchanged sentences

Trade accounts payable 88,730 71,000

Liabilities held for sale 19,455 —

Accrued expenses 238,356 237,148

6 unchanged sentences

Total liabilities 5,345,005 5,352,909

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

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at March 31, 2023 and December 31, 2022;

no shares issued and outstanding

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

Common stock, $ 0.01 par value, 400,000,000 shares authorized at March 31, 2023 and December 31, 2022;

198,762,220 and 197,776,991 shares issued and 188,234,695 and 187,249,466 shares outstanding (including 20,233 and 422,542 unvested restricted shares), respectively

1 unchanged sentence

Treasury stock, at cost;

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

10,527,525 shares at March 31, 2023 and December 31, 2022

( 102,774 ) ( 102,774 )

10 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Resident fees $ 713,404 $ 636,974

11 unchanged sentences

Costs incurred on behalf of managed communities 34,954 37,141

Total operating expense 738,252 690,509 2,193,170 2,277,331

Income (loss) from operations 7,822 ( 53,534 )

6 unchanged sentences

Equity in earnings (loss) of unconsolidated ventures ( 577 ) ( 4,894 )

Gain (loss) on sale of assets, net ( 56 ) 288,375 611 289,408

Non-operating gain (loss) on sale of assets, net — ( 294 )

Other non-operating income (loss) 3,149 ( 27 )

5 unchanged sentences

common stockholders $ ( 44,549 ) $ ( 100,013 )

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

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

common stockholders $ ( 0.20 ) $ ( 0.54 )

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

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

Weighted average common shares outstanding:

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

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

Weighted average shares used in computing basic and diluted net income (loss) per share 224,578 185,916

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Total equity, balance at beginning of period $ 584,153 $ 699,623

6 unchanged sentences

Balance at beginning of period $ 4,332,302 $ 4,208,675

Non-cash stock-based compensation expense 3,403 3,568 10,907 12,878

Issuance of common stock under Associate Stock Purchase Plan — 134 — 571

Compensation expense related to restricted stock grants 3,104 3,885

Restricted stock and restricted stock units, net ( 16 ) ( 9 )

Shares withheld for employee taxes ( 1,834 ) ( 4,191 )

Other, net — 8 — 18

Balance at end of period $ 4,333,556 $ 4,208,360

3 unchanged sentences

Balance at beginning of period $ ( 3,648,901 ) $ ( 3,410,474 )

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

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

common stockholders ( 44,549 ) ( 100,013 )

Balance at end of period $ ( 3,693,450 ) $ ( 3,510,487 )

2 unchanged sentences

Net income (loss) attributable to noncontrolling interest ( 14 ) ( 19 )

Noncontrolling interest distribution ( 760 ) — ( 760 ) —

Balance at end of period $ 1,534 $ 2,202

3 unchanged sentences

Balance at beginning of period 187,249 186,958

Issuance of common stock under Associate Stock Purchase Plan — 24 — 97

Restricted stock and restricted stock units, net 1,545 925

5 unchanged sentences

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities

12 unchanged sentences

Non-cash stock-based compensation expense 3,104 3,885

Other ( 996 ) ( 4,399 )

Property and casualty insurance income ( 3,295 ) ( 43 )

Changes in operating assets and liabilities:

8 unchanged sentences

Cash Flows from Investing Activities

Change in lease security deposits and lease acquisition deposits, net 317 19

Purchase of marketable securities ( 49,674 ) ( 125,990 )

1 unchanged sentence

Capital expenditures, net of related payables ( 49,700 ) ( 39,956 )

Acquisition of assets ( 6,004 ) —

Investment in unconsolidated ventures — ( 82 )

Distributions received from unconsolidated ventures — 2,155

Proceeds from sale of assets, net — 710

Property and casualty insurance proceeds 6,422 —

Other 933 155

5 unchanged sentences

Payments of employee taxes for withheld shares ( 1,680 ) ( 4,145 )

Other ( 760 ) 144

Net cash provided by (used in) financing activities 171 ( 403 )

11 unchanged sentences

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

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

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

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

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

As of March 31, 2023, the Company owned 346 communities, representing a majority of the Company's community portfolio, leased 295 communities, and managed 32 communities.

Summary of Significant Accounting Policies

11 unchanged sentences

The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting.

The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board Accounting Standards Codification 810, Consolidation ("ASC 810").

ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics:

(a) the total equity investment at risk is insufficient to finance the entity's activities without additional subordinated financial support;

(b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity;

or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE.

Use of Estimates

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

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

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

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

2 unchanged sentences

government financial and regulatory relief efforts that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and conditions of financial relief;

restrictions on visitors and move-ins at its communities as a result of infections at a community or as necessary to comply with regulatory requirements or at the direction of authorities having jurisdiction;

perceptions regarding the safety of senior living communities during and after the pandemic;

4 unchanged sentences

the duration and costs of the Company's 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;

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

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

3 unchanged sentences

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

Phase 4 Provider Relief Fund Grants .

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

Department of Health and Human Services.

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

Employee Retention Credit.

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

The Company recognized $ 9.9 million for the nine months ended September 30, 2021 of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for which the Company has received $ 4.6 million in cash as of September 30, 2022.

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

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

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

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

During the years ended December 31, 2022 and 2021, the Company recognized $ 9.4 million and $ 9.9 million, respectively, of employee retention credits on wages paid from March 12, 2020 to December 31, 2021 within other operating income, for which the Company has received $ 9.9 million in cash as of March 31, 2023.

The Company has a receivable for the remaining $ 9.4 million included within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as of March 31, 2023.

Fair Value Measurements

Marketable Securities

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

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

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

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

As of March 31, 2023 and December 31, 2022, marketable securities of $ 69.0 million and $ 48.7 million, respectively, are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

Interest Rate Derivatives

The Company's derivative assets include interest rate cap and swap instruments that effectively manage the risk above certain interest rates for a portion of the Company's long-term variable rate debt.

The Company has not designated the interest rate cap and swap instruments as hedging instruments and as such, changes in the fair value of the instruments are recognized in earnings in the period of the change.

The interest rate derivative positions are valued using models developed by the respective counterparty that use as their basis readily available observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy.

The Company considers the credit risk of its counterparties when evaluating the fair value of its derivatives.

The following table summarizes the Company's London Interbank Offer Rate ("LIBOR") and Secured Overnight Financing Rate ("SOFR") interest rate cap instruments as of March 31, 2023.

($ in thousands)

Current notional balance $ 1,231,920

Weighted average fixed cap rate 4.34 %

Weighted average remaining term 1.1 years

Estimated asset fair value (included in other assets, net) at March 31, 2023 $ 9,125

Estimated asset fair value (included in other assets, net) at December 31, 2022 $ 10,599

The following table summarizes the Company's SOFR interest rate swap instrument as of March 31, 2023.

($ in thousands)

Current notional balance $ 220,000

Fixed interest rate 3.00 %

Remaining term 1.1 years

Estimated asset fair value (included in other assets, net) at March 31, 2023 $ 3,692

Estimated asset fair value (included in other assets, net) at December 31, 2022 $ 4,834

Long-term debt

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

The Company estimates the fair value of its convertible senior notes based on valuations provided by third-party pricing services.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.9 billion as of both March 31, 2023 and December 31, 2022.

Fair value of the long-term debt is approximately $ 3.4 billion as of both March 31, 2023 and December 31, 2022.

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

The Company disaggregates its revenue from contracts with customers by payor source as the Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

Resident fee revenue by payor source is as follows.

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

2022 2021 2022 2021

Private pay 93.6 % 93.0 % 93.5 % 84.9 %

Government reimbursement 5.1 % 5.5 % 5.1 % 11.8 %

Other third-party payor programs 1.3 % 1.5 % 1.4 % 3.3 %

The sale of 80 % of the Company's equity in its Health Care Services segment on July 1, 2021 reduced its revenue from government reimbursement programs.

For the three months ended March 31, 2023 and 2022, the Company generated 93.6 % and 93.4 %, respectively, of its resident fee revenue from private pay customers and the remainder from government reimbursement programs and other payor sources.

Refer to Note 15 for disaggregation of revenue by reportable segment.

4 unchanged sentences

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

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

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

The Company had total deferred revenue (included within refundable fees and deferred revenue, liabilities held for sale, and other liabilities within the condensed consolidated balance sheets) of $ 80.9 million and $ 67.3 million, including $ 35.3 million and $ 25.2 million of monthly resident fees billed and received in advance, as of March 31, 2023 and December 31, 2022, respectively.

For the three months ended March 31, 2023 and 2022, the Company recognized $ 36.9 million and $ 40.1 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2023 and 2022, respectively.

Property, Plant and Equipment and Leasehold Intangibles, Net

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

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

As of March 31, 2023 and December 31, 2022, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.

(in thousands) March 31, 2023 December 31, 2022

Land $ 503,488 $ 506,968

7 unchanged sentences

Property, plant and equipment and leasehold intangibles, net $ 4,493,002 $ 4,535,702

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

Assets under financing leases and leasehold improvements includes $ 93.2 million and $ 98.4 million of financing lease right-of-use assets, net of accumulated amortization, as of March 31, 2023 and December 31, 2022, respectively.

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

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

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

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

For the three months ended March 31, 2023 and 2022, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 84.9 million and $ 85.7 million, respectively.

Long-term debt consists of the following.

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

(in thousands) March 31, 2023 December 31, 2022

Fixed rate mortgage notes payable due 2024 through 2047;

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

weighted average interest rate of 4.14 % as of both March 31, 2023 and December 31, 2022

$ 2,050,914 $ 2,055,867

Variable rate mortgage notes payable due 2023 through 2030;

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

weighted average interest rate of 7.15 % and 6.68 % as of March 31, 2023 and December 31, 2022, respectively

1,565,259 1,568,555

Convertible notes payable due October 2026;

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

interest rate of 2.00 % as of both March 31, 2023 and December 31, 2022

230,000 230,000

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

Tangible equity units senior amortizing notes due November 2025;

interest rate of 10.25 % as of both March 31, 2023 and December 31, 2022

23,850 25,586

Other notes payable due 2023;

interest rate of 5.90 % as of March 31, 2023

Deferred financing costs, net ( 28,091 ) ( 29,866 )

2 unchanged sentences

Total long-term debt, less current portion $ 3,772,254 $ 3,784,099

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

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

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

2022 Financing

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

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

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

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

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

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

As of March 31, 2023, 91.6 %, or $ 3.5 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of March 31, 2023, $ 72.6 million of letters of credit and no cash borrowings were outstanding under the Company's $ 80.0 million secured credit facility maturing January 2024.

The Company also had a separate secured letter of credit facility providing up to $ 15.0 million of letters of credit as of March 31, 2023 under which $ 13.9 million had been issued as of that date.

Financial Covenants

4 unchanged sentences

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

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

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

As of March 31, 2023, the Company is in compliance with the financial covenants of its debt agreements.

As of March 31, 2023, the Company operated 295 communities under long-term leases ( 246 operating leases and 49 financing leases).

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

8 unchanged sentences

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

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

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

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

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

As of March 31, 2023, the Company is in compliance with the financial covenants of its long-term leases.

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

The Company recognized $ 1.9 million and $ 11.5 million for the three and nine months ended September 30, 2022, respectively, of non-cash impairment charges in its operating results for its operating lease right-of-use assets, primarily due to decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic and property damage sustained at certain communities.

The Company recognized $ 10.5 million for the nine months ended September 30, 2021, of non-cash impairment charges in its operating results for its operating lease right-of-use assets, of which none were recognized for the three months ended September 30, 2021, primarily due to decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic.

The Company recognized $ 8.6 million for the three months ended March 31, 2022 of non-cash impairment charges in its operating results for its operating lease right-of-use assets, primarily for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.

The Company did not recognize any impairment charges for the three months ended March 31, 2023.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Operating Leases (in thousands)

2022 2021 2022 2021

Facility operating expense $ 1,626 $ 1,523

2 unchanged sentences

Operating lease expense adjustment (1)

8,714 6,273 25,329 16,263

Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements ( 2,244 ) ( 1,490 )

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

Financing Leases (in thousands)

2022 2021 2022 2021

Depreciation and amortization $ 5,228 $ 7,665

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Total net cash outflows from financing leases $ 12,404 $ 14,341

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

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of March 31, 2023 are as follows (in thousands).

Year Ending December 31, Operating Leases Financing Leases

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

2023 (nine months) $ 174,844 $ 36,463

2024 218,481 49,309

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Total lease obligations $ 753,497 $ 243,032

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

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

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

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

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

Subsequent to the three months ended March 31, 2023, the Company and Welltower Inc.

("Welltower") entered into amendments to the Company’s existing lease arrangements pursuant to which the Company continues to lease 74 communities.

In connection with the amendments, the Company extended the maturity of one lease involving 39 communities from December 31, 2026 until June 30, 2032.

As a result, the Company's amended lease arrangements provide that the current term for 69 of the communities will expire on June 30, 2032 and the current term for five of the communities will expire on December 31, 2024.

The amendments did not change the amount of required lease payments over the previous term of the leases or the annual lease escalators.

In addition, Welltower agreed to make available a pool in the aggregate amount of up to $ 17.0 million to fund costs associated with certain capital expenditure projects for 69 of the communities.

Upon reimbursement of such expenditures, the annual minimum rent under the lease will prospectively increase by the amount of the reimbursement multiplied by the sum of the then current SOFR (subject to a floor of 3.0 %) and a margin of 4.0 %, and such amount will escalate annually consistent with the minimum rent escalation provisions of the 39 community lease.

The Company preliminarily estimates that the amendment to the lease arrangements will increase the right-of-use assets and lease obligations recognized on its condensed consolidated balance sheet each by approximately $ 125.0 million.

The amendments replaced the net worth covenant provisions requiring the Company to maintain at least $ 400.0 million of stockholders' equity with a consolidated tangible net worth covenant requiring the Company to maintain at least $ 2.0 billion of tangible net worth, generally calculated as stockholders' equity plus accumulated depreciation and amortization less intangible assets and further adjusted for certain other items.

Such calculation is generally similar to the tangible net worth covenants within certain of the Company’s long-term debt documents.

So long as it maintains tangible net worth as defined in the leases of at least $ 1.5 billion, the Company will also be able to cure any breach by posting collateral with Welltower.

Investment in Unconsolidated Ventures

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

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

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

The Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance.

As of March 31, 2023, the Company owns a 20 % equity interest, and affiliates of HCA Healthcare Inc.

own an 80 % interest, in a health care services venture (the "HCS Venture"), which operates home health and hospice agencies in the United States.

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

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

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

The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture is $ 49.1 million, which is included in investment in unconsolidated ventures on the accompanying unaudited condensed consolidated balance sheet as of March 31, 2023.

As of March 31, 2023, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to the HCS Venture.

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

2 unchanged sentences

The Company's current policies provide for deductibles for each claim and contain various exclusions from coverage.

Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits.

The Company uses its wholly-owned captive insurance company for the purpose of insuring certain portions of its risk retention under its general and professional liability insurance programs.

Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of the Company's wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits.

The senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement actions, or litigation related to regulatory compliance matters.

In addition, the Company is subject to various government reviews, audits, and investigations to verify compliance with Medicare and Medicaid programs and other applicable laws and regulations.

The Centers for Medicare & Medicaid Services ("CMS") has engaged third-party firms to review claims data to evaluate appropriateness of billings.

The Centers for Medicare & Medicaid Services has engaged third-party firms to review claims data to evaluate appropriateness of billings.

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

An adverse outcome of government scrutiny may

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

In addition, states' Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry.

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

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

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

The complaints incorporate substantively similar allegations to the securities lawsuit described above.

The complaints incorporate substantively similar allegations to the securities lawsuit previously described.

Stock-Based Compensation

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Three months ended March 31, 2023 3,959 $ 2.97 $ 11,778

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

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

Earnings Per Share

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

Three Months Ended

September 30, Nine Months Ended

September 30,

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

Income attributable to common stockholders:

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

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

Effect of dilutive securities:

Warrants — 9,451 — —

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

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

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

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

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

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

As of September 30,

(in millions) 2022 2021

Restricted stock and restricted stock units 5.4 5.2

Warrants 16.3 16.3

Convertible senior notes 38.3 —

Total 60.0 21.5

Potentially dilutive common stock equivalents for the Company include convertible senior notes, warrants, unvested restricted stock, restricted stock units, and prepaid stock purchase contracts.

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

As of March 31, 2023, the maximum number of shares issuable upon settlement of the Notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

On July 26, 2020, the Company issued to Ventas, Inc.

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

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

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

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

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

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

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

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

During the three months ended December 31, 2022, the Company issued 2,875,000 of its 7.00 % tangible equity units (the “Units”) at a public offering price of $ 50.00 per Unit for an aggregate offering of $ 143.8 million.

The Company received proceeds of $ 139.4 million after the deduction of the underwriters’ discount.

Each Unit is comprised of a prepaid stock purchase contract and a senior amortizing note with an initial principal amount of $ 8.8996 .

Unless settled early in accordance with the terms of the instruments, under each purchase contract, the Company is obligated to deliver to the holder on November 15, 2025 a minimum of 12.9341 , and a maximum of 15.1976 , shares of the Company’s common stock depending on the daily volume-weighted average price ("VWAPs") of its common stock for the 20 trading days preceding the settlement date.

As of March 31, 2023, the maximum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts is 43.7 million.

Basic earnings per share ("EPS") is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding, after giving effect to the minimum number of shares issuable upon settlement of the prepaid stock purchase contract component of the Units.

For the three months ended March 31, 2023, 37.2 million shares are included in weighted average basic shares outstanding for the minimum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts.

Three Months Ended March 31,

Weighted average common shares outstanding 187,392 185,916

Weighted average minimum shares issuable under purchase contracts 37,186 —

Weighted average shares outstanding - basic 224,578 185,916

Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents.

Diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock.

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

As of March 31,

(in millions) 2023 2022

Convertible senior notes 38.3 38.3

Warrants 16.3 16.3

Restricted stock and restricted stock units 6.6 5.7

Incremental shares issuable under purchase contracts 6.5 —

Total 67.7 60.3

The difference between the Company's effective tax rate for the three months ended March 31, 2023 and 2022 was primarily due to an increase in the valuation allowance recorded during the three months ended March 31, 2023, as well as a decrease in the tax benefit on the vesting of restricted stock units and restricted stock awards due to a lower market price for the Company’s stock for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 9.4 million for the three months ended March 31, 2023, which was offset by an increase to the valuation allowance of $ 9.7 million.

The Company recorded an aggregate deferred federal, state, and local tax expense of $ 24.9 million for the three months ended March 31, 2022, which was partially offset by a reduction to the valuation allowance of $ 22.6 million.

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

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

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

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

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

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

The Company's valuation allowance as of March 31, 2023 and December 31, 2022 was $ 434.7 million and $ 425.0 million, respectively.

The increase in the valuation allowance for the three months ended March 31, 2023 and 2022 is the result of current operating losses during the three months ended March 31, 2023 and 2022 and by the anticipated reversal of future tax liabilities offset by future tax deductions.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three months ended March 31, 2023 and 2022 which are included in income tax expense or benefit for the period.

As of March 31, 2023, tax returns for years 2018 through 2021 are subject to future examination by tax authorities.

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

Supplemental Disclosure of Cash Flow Information

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

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

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

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

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

Healthcare for a purchase price of $ 400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the HCS Sale.

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

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

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

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

Nine Months Ended

September 30,

During the period from January 1, 2022 through March 31, 2023, the Company disposed of two owned communities and the Company's triple-net lease obligations on four communities were terminated (including through the acquisition of one formerly leased community).

The Company completed the sale of its one remaining entrance fee community on May 1, 2023.

The Company received cash proceeds of $ 12.3 million, net of $ 29.6 million in mortgage debt repaid and transaction costs, at closing.

As of March 31, 2023, the community was classified as held for sale in the CCRCs segment, resulting in $ 23.6 million being recorded as assets held for sale and $ 19.5 million, representing primarily refundable fees and deferred revenue from entrance fee residency agreements, recorded as liabilities held for sale within the condensed consolidated balance sheets.

Three Months Ended

(in thousands) 2023 2022

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Net cash paid $ 49,700 $ 39,956

Proceeds from HCS Sale, net:

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

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

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

Investment in unconsolidated ventures — 100,000

Goodwill — ( 126,810 )

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

Trade accounts payable — 1,387

Accrued expenses — 25,226

Refundable fees and deferred revenue — 57,314

Operating lease obligations — 8,145

Other liabilities — 11,135

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

Net cash received $ — $ ( 305,778 )

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

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

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

Property, plant and equipment and leasehold intangibles, net ( 100 ) ( 568 )

Other liabilities ( 164 ) ( 22 )

Loss (gain) on sale of assets, net ( 611 ) ( 1,175 )

Net cash received $ ( 5,844 ) $ ( 9,805 )

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

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Property, plant and equipment and leasehold intangibles, net ( 23,555 ) —

Non-cash lease transactions, net:

Property, plant and equipment and leasehold intangibles, net $ 11,067 $ 3,521

Operating lease right-of-use assets 11,219 17,013

Financing lease obligations ( 6,307 ) ( 3,521 )

Operating lease obligations ( 15,979 ) ( 17,013 )

Liabilities held for sale ( 19,455 ) —

Refundable fees and deferred revenue 9,362 —

Other liabilities 10,093 —

Restricted cash consists principally of deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs, escrow deposits for real estate taxes, property insurance, and capital expenditures, and debt service reserve accounts required by certain lenders under mortgage debt agreements.

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

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

(in thousands) March 31, 2023 December 31, 2022

Reconciliation of cash, cash equivalents, and restricted cash:

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Segment Information

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

As of March 31, 2023, the Company has three reportable segments:

Independent Living;

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and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

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

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

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

Independent Living .

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Under the management agreements for these communities, the Company receives management fees as well as reimbursement of expenses it incurs on behalf of the owners.

Health Care Services .

The Company's former Health Care Services segment included the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities.

The Health Care Services segment did not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

The following tables set forth selected segment financial data.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022

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All Other 37,531 40,470

Health Care Services (1)(2)

— — — 177,269

Total revenue and other operating income $ 753,263 $ 677,820

Three Months Ended

(in thousands) 2022 2021

Segment operating income:

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All Other 2,577 3,329

Health Care Services — — — 5,816

Total segment operating income 187,502 127,915

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Income (loss) from operations $ 7,822 $ ( 53,534 )

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

(in thousands) March 31, 2023 December 31, 2022

Total assets:

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

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

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

Other operating income by segment is as follows.

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021 2022 2021

Other operating income:

Independent Living $ 9,520 $ 9 $ 10,681 $ 1,484

Assisted Living and Memory Care 49,721 75 56,489 5,808

CCRCs 7,518 5 8,376 1,735

Health Care Services — — — 3,105

Total other operating income $ 66,759 $ 89 $ 75,546 $ 12,132

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

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

(3) The Company's Independent Living segment had a carrying amount of goodwill of $ 27.3 million as of both March 31, 2023 and December 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements