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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-22 · 180 added, 360 removed, 449 unchanged (55% of the section changed)

6 unchanged sentences

Executive Overview and Recent Developments

We are the nation's premier operator of senior living communities, operating and managing 673 communities in 41 states as of December 31, 2022, with the ability to serve more than 60,000 residents.

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

We operate and manage independent living, assisted living, memory care, and continuing care retirement communities.

Our senior living communities and our comprehensive network help to provide seniors with care and services in an environment that feels like home.

Our expertise in healthcare, hospitality, and real estate provides residents with opportunities to improve wellness, pursue passions, and stay connected with friends and loved ones.

By providing residents with a range of

service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time.

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

Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider.

Brookdale continues to be driven by its mission—to enrich the lives of those we serve with compassion, respect, excellence, and integrity.

During this pandemic recovery phase, we have continued to focus on the health and wellbeing of our residents and associates and "Winning the Recovery" by providing valued high quality care and personalized service.

We believe successful execution on this strategy provides the best opportunity to create attractive long-term stockholder value.

We are focused on priorities that will position us for growth and capitalize on positive trends in demographics, customer preferences, and lower new supply in the industry, while using scale to our advantage.

Our key strategic priorities are as follows:

• Get every available room in service at the best profitable rate.

We believe that we provide highly valuable services to seniors, and we continue to strive to expand the number of seniors we serve through targeted efforts to increase our occupancy levels and improve controllable expense management, while remaining focused on driving rate and improving margin.

With this strategic priority, we intend to ensure all communities are appropriately priced within their market.

Through our targeted sales and marketing efforts, we plan to drive increased move-ins through enhanced outreach with impactful points of differentiation based on quality, a portfolio of choices, and personalized service delivered by caring and engaged associates.

• Attract, engage, develop, and retain the best associates.

Brookdale’s culture is based on servant leadership.

We believe engaged associates lead to an enhanced resident experience, higher retention, and ultimately improved operations that drive accelerated growth.

Through this strategic priority, we intend to expand successful pilot programs to further support and extend length of employment with Brookdale.

We expect to diversify and optimize our recruiting plans, improve training, educational, and career development opportunities for associates and enhance our already compelling value proposition for our associates in the areas of compensation, leadership, career growth, and meaningful work.

• Earn resident and family trust and satisfaction by providing valued high quality care and personalized service.

We believe that earning the trust of our residents and their families will allow us to build relationships that create passionate advocates and generate referrals.

We intend to create a consistent high quality experience for residents, including through the implementation and execution of our high quality clinical, operational, and resident engagement programs.

We are a learning organization that uses multiple tools to obtain feedback from residents, their families, and our associates to improve our services to meet the changing needs of residents.

We expect to strengthen associate engagement for an enhanced resident experience.

The above three priorities coupled with improving supply-demand fundamentals are intended to provide long-term returns to our stockholders by focusing on growing RevPAR, Adjusted EBITDA, and cash flow.

As we execute our "Winning the Recovery" strategy, we expect RevPAR will be driven by both occupancy and RevPOR growth, propelled by (i) our strategic priorities, (ii) accelerating growth within our target demographic, and (iii) significantly lower supply growth.

Our goal is to reach or exceed our historical occupancy high over the long term.

As occupancy grows, we anticipate benefiting from operating leverage, resulting in improving margins.

With the combination of RevPAR growth and operating leverage, we expect to drive Adjusted EBITDA and cash flow growth.

Strategic innovation also continues to be an important factor for our long-term growth.

We are piloting programs in several areas and plan to roll out initiatives to accelerate our growth further.

We plan to explore additional products and services that we may offer to our residents or to seniors living outside of our communities and, in the longer term where opportunities arise, pursue development, investment, and acquisition opportunities.

• Enhance healthcare and wellness.

Our vision is to enable those we serve to live well by offering our residents a high-quality healthcare and wellness platform.

We believe Brookdale is uniquely positioned to be a key participant and partner in the value-based healthcare ecosystem.

Our initiatives include piloting redesigned delivery of clinical care within assisted living communities and embedding technology-enabled care management capabilities, in order to better align our communities with payors, providers, and healthcare systems by demonstrating improved outcomes for residents.

We are also piloting the expansion of our private duty services business to serve those living outside of our communities.

We believe the successful execution of these initiatives will improve resident health and wellbeing and drive incremental revenue and value creation (including through increasing move-ins and extending residents' average length of stay resulting in increased occupancy).

• Drive innovation and leverage technology.

We are engaged in a variety of innovation initiatives and over time plan to pilot and test new ideas, technologies, and operating models in order to enhance our residents' engagement and experience, improve outcomes, and increase average length of stay and occupancy.

With our technology platform, we also expect to identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to collaborate with third parties.

• Improve and grow our senior living portfolio.

As we look to return to pre-pandemic results, we intend to (i) exit non-strategic or underperforming owned assets or leases when possible, (ii) expand our footprint and services in core markets where we have, or can achieve, a clear leadership position, and (iii) explore further growth opportunities.

Over the longer term, we will also continue to invest in our development capital expenditures program through which we expand, reposition, and redevelop selected existing senior living communities where economically advantageous.

We believe that our successful execution on these strategic priorities and our longer-term growth plans will allow us to achieve our goal to improve profitability and be the first choice in senior living by being the nation’s most trusted and effective senior living provider.

COVID-19 Pandemic

The COVID-19 pandemic continued to significantly affect our operations during 2022.

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

Occupancy and Revenue Recovery

We believe that recovering our occupancy lost due to the pandemic while maintaining rate discipline is critical to turning around our operational losses.

During 2020 and, to a lesser degree, 2021, we had in place restrictive measures at many of our communities, including restrictions on visitors and move-ins.

For information regarding our business, including our strategy and recent developments regarding macroeconomic conditions and resident fee increases, refer to "Item 1.

In December 2023, we completed two financing transactions, which refinanced all of our remaining 2024 debt maturities.

After giving effect to these transactions, our next debt maturity without extension options is September 2025.

In the first transaction, we obtained $179.5 million of debt secured by non-recourse first mortgages on 47 communities, which also continue to secure $580.4 million of additional outstanding mortgages with a later maturity.

The facility includes certain "borrow-up" provisions,

which we expect will enable us to obtain additional funding in 2024 under the loan based on the performance of the underlying communities.

At the closing, we repaid $260.1 million of debt under the facility, which was scheduled to mature in 2024, using proceeds from the $179.5 million loan and cash on hand.

In the second transaction, we amended our revolving credit agreement to provide an expanded commitment of up to $100.0 million which can be drawn in cash or as letters of credit and represents a $20.0 million increase from the previously existing commitment.

Additionally, in December 2023, we sold our remaining 20% equity interest in our Health Care Services unconsolidated venture and received proceeds of $27.4 million.

We recognized a non-cash impairment charge of $26.0 million as a result of our decision to sell the equity interest prior to the recovery of its market value.

Refer to Notes 3 and 7 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for additional information on the sale and financing transactions, respectively.

As of December 31, 2023, our total liquidity was $340.7 million, consisting of $278.0 million of unrestricted cash and cash equivalents, $29.8 million of marketable securities, and $32.9 million of availability on our secured credit facility.

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

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

On February 9, 2024, we obtained $50.0 million of debt secured by first priority mortgages on 11 communities.

The loan bears interest at a variable rate equal to SOFR plus a margin of 350 basis points.

The debt matures in February 2027 with two one-year renewal options, exercisable subject to certain performance criteria.

COVID-19 Pandemic Update

The COVID-19 pandemic has adversely impacted our occupancy and resident fee revenue beginning in March 2020.

From March 2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy due to the pandemic, resulting in our lowest weighted average occupancy of 69.4% during February 2021.

In the aggregate, for the three years ended December 31, 2022, we estimate the pandemic resulted in $1.0 billion of lost resident fee revenue in our consolidated senior housing portfolio and former Health Care Services segment compared to our pre-pandemic expectations, including an estimated $0.4 billion of lost resident fee revenue for the year ended December 31, 2022.

Throughout 2022, we continued to execute on key initiatives to rebuild our occupancy.

By December 31, 2022, we had recovered 760 basis points of weighted average consolidated senior housing occupancy, ending with December 2022 occupancy of 77.0%.

We also increased our consolidated senior housing RevPOR by 4.5% during 2022 compared to the prior year.

During 2023, we intend to continue to focus on rebuilding our occupancy back to, or above, pre-pandemic levels.

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

We continued to execute on key initiatives to rebuild our occupancy in recent years.

As of December 2023, we recovered 890 basis points of weighted average consolidated senior housing occupancy, and December 2023 weighted average occupancy was 78.3%.

While the Federal COVID-19 Public Health Emergency Declaration expired on May 11, 2023, we cannot predict with reasonable certainty the impacts that the COVID-19 pandemic and the continued recovery ultimately will have on our business, results of operations, cash flow, and liquidity.

The table below sets forth our recent consolidated occupancy trend.

2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022

Weighted average 83.2 % 78.7 % 75.3 % 72.7 % 69.6 % 70.5 % 72.5 % 73.5 % 73.4 % 74.6 % 76.4 % 77.1 %

Quarter end 82.2 % 77.8 % 75.0 % 71.5 % 70.6 % 72.6 % 74.2 % 74.5 % 75.0 % 76.6 % 78.4 % 78.1 %

2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 Jan 2023

Weighted average 73.4 % 73.3 % 73.6 % 73.9 % 74.6 % 75.2 % 75.9 % 76.4 % 76.9 % 77.2 % 77.0 % 77.0 % 76.6 %

Month end 74.2 % 74.4 % 75.0 % 75.3 % 76.2 % 76.6 % 77.1 % 77.9 % 78.4 % 78.2 % 78.1 % 78.1 % 77.6 %

Reductions to Pandemic-Related Costs

With significantly lower case volumes in 2022, our incremental direct costs to respond to the pandemic were $17.4 million for the year ended December 31, 2022, representing a 63.5% decrease compared to the year ended December 31, 2021.

On a cumulative basis, for the three years ended December 31, 2022, we have incurred $190.6 million of facility operating expense for such incremental direct costs to respond to the pandemic.

The direct costs include those for:

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

enhanced cleaning and environmental sanitation;

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

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

Government Provided Financial Relief

In the aggregate, government provided financial relief has offset our incremental direct costs to respond to the pandemic and a minor portion of our estimated lost revenue.

During the year ended December 31, 2022, we recognized $80.5 million of other operating income for government provided grants and employee retention credits, including $61.1 million of grants from the Provider Relief Fund.

For the three years ended December 31, 2022, we recognized an aggregate of $208.6 million of other operating income for government provided grants and employee retention credits, including pursuant to the Provider Relief Fund.

We were eligible to claim employee retention credits for certain of our associates under COVID-related legislation.

During the years ended December 31, 2022 and 2021, we recognized $9.4 million and $9.9 million of such employee retention credits within other operating income, respectively.

As of December 31, 2022, we had a receivable of approximately $14.7 million for such credits.

During the year ended December 31, 2022, we repaid the final amounts of the employer portion of social security payroll taxes deferred pursuant to pandemic-related legislation, and all remaining amounts of our advanced payments under the Accelerated and Advance Payment Program administered by CMS were recouped.

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 delay or negatively impact our strategic initiatives, including plans for future growth.

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

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;

restrictions on visitors and move-ins at our 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;

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 other premium labor 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.

Macroeconomic Conditions

A confluence of macroeconomic conditions, including an intensely competitive labor environment and higher inflation and interest rates, affected our operations during 2022 and continue to do so.

Labor Pressures

Labor costs comprise approximately two-thirds of our total facility operating expense.

We began to experience pressures associated with the intensely competitive labor environment during 2021, which continued throughout 2022.

The United States’ unemployment rate remained at or below 4.0% each month during 2022, and more than half of states experienced record low unemployment rates.

Labor pressures have resulted in higher-than-typical associate turnover and wage growth, and we have experienced difficulty in filling open positions timely.

We have increased our recruiting efforts to fill existing open positions, resulting in increasing the size of our workforce by approximately 4,800 community associates during 2022.

We continue to review wage rates in our markets and make competitive adjustments.

To cover existing open positions, during 2021 and continuing into 2022, we needed to rely on more expensive premium labor, primarily contract labor and overtime.

From its peak in December 2021 to December 2022, we have decreased our monthly contract labor expense by approximately 80%, while maintaining focus on resident satisfaction and high-quality care.

We continue to work to reduce our reliance on premium labor.

The labor component of our facility operating expense increased $122.1 million, or 9.6%, during 2022 compared to the prior year.

In our same community portfolio, such expense increased 11.0% during 2022 compared to the prior year.

These increases primarily resulted from merit and market wage rate adjustments, more hours worked with higher occupancy during the period, and an increase in the use of premium labor, primarily overtime.

For 2023, we expect to continue to experience labor cost pressure as a result of the continuing labor conditions previously described and an anticipated increase in hours worked as our occupancy levels grow.

Continued increased competition for, or a shortage of, nurses or other associates and general inflationary pressures have required and may require that we enhance our pay and benefits package to compete effectively for such associates.

Our non-labor facility operating expense comprises approximately one-third of our total facility operating expense and is subject to inflationary pressures.

The United States consumer price index increased 6.5% during 2022, with food and energy prices increasing above 10%.

We mitigated a portion of the increase in food costs with the scale benefit of a higher number of residents, along with appropriate product substitution.

We mitigated a portion of the rising utility costs through sustainability investments we made in 2022 and recent years, such as lighting retrofits and water consumption projects.

Despite our mitigation efforts and with higher occupancy, for 2022 our non-labor facility operating expense increased $57.1 million, or 8.9%, compared to the prior year.

In our same community portfolio, such expense increased 9.2% during 2022 compared to the prior year.

For 2023, we expect to continue to experience inflationary pressures.

Interest Rates

As of December 31, 2022, we had approximately $1.6 billion of long-term variable rate debt outstanding which is indexed to LIBOR or SOFR, plus a weighted average margin of approximately 230 basis points.

Accordingly, our annual interest expense related to long-term variable rate debt is directly affected by movements in LIBOR or SOFR.

The LIBOR and SOFR steadily increased throughout 2022, ending the year more than 400 basis points higher than year-end 2021.

Approximately 92% of our long-term variable rate debt is subject to interest rate cap or swap agreements, which had a weighted average fixed interest rate of 4.14% and a weighted average remaining term of 1.2 years as of December 31, 2022.

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

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

For the year ended December 31, 2022, our debt interest expense increased $16.5 million, or 11.6%, compared to the prior year, substantially all due to an increase in our interest expense associated with our long-term variable rate debt.

Interest earned on our cash, cash equivalents, and marketable securities partially offset such increased interest expense.

Resident Fee Increases

The rates we charge our residents are highly dependent on local market conditions and the competitive environment in which the communities operate.

As the senior living industry rebuilds occupancy lost due to the pandemic, we continue to experience a highly competitive environment for new residents.

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 4.5% net increase in same community RevPOR for 2022 compared to 2021.

We have recently made the annual rate adjustment effective January 1, 2023 for our in-place private pay residents.

The increase was again higher than our typical annual rate adjustment in order to help offset our recent increased costs as a result of labor pressures, high inflation, and increased interest rates previously described.

As a result of rate and occupancy increases, consolidated RevPAR for January 2023 increased approximately 13% compared to January 2022.

Due to the competitive environment for new residents in our recovering industry, the higher rate adjustment could slow our occupancy recovery progress or result in a decrease in occupancy in our communities.

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

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

Tangible Equity Units

During the three months ended December 31, 2022, we issued 2,875,000 of our 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.

We received proceeds of $139.4 million after the deduction of the underwriters’ discount and intend to use the proceeds for general corporate purposes.

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

Under each purchase contract, we are obligated to deliver to the holder on November 15, 2025 a minimum of 12.9341, and a maximum of 15.1976, shares of our common stock depending on the volume-weighted average price of our common stock for the 20 trading days preceding the settlement date.

Each amortizing note bears interest at the rate of 10.25% per annum, requires quarterly installment payments of principal and interest, and has a final installment payment date of November 15, 2025.

The cash installment payments will be equivalent to 7.00% per year with respect to each $50.00 stated amount of Unit.

The Units, purchase contracts, and amortizing notes are subject to the terms and conditions set forth in the Purchase Contract Agreement dated November 21, 2022 between us and American Stock Transfer & Trust Company, LLC ("AST") as purchase contract agent, and the Indenture and First Supplemental Indenture, each dated November 21, 2022, between us and AST as trustee, including certain early settlement, repurchase, and adjustment events as set forth therein.

Years Ended December 31,

2019 2020 2021 2022 2023

Weighted average occupancy 83.9 % 77.5 % 71.5 % 75.4 % 77.2 %

Transaction Activity

Sale of Health Care Services

On July 1, 2021, we completed the sale of 80% of our equity in our 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 Health Care Services segment (the "HCS Sale").

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

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

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 HCS Venture is accounted for under the equity method of accounting subsequent to that date.

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

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

Refer to Note 21 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" 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.

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

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

Community Transactions

During 2022, we continued execution on our ongoing capital recycling program through which we have exited non-strategic or underperforming owned assets or leases.

During the year ended December 31, 2022, we completed the sale of two owned communities (130 units) for cash proceeds of $4.4 million, net of transaction costs, and the termination of triple-net lease obligations on four communities (386 units) (including through the acquisition of one formerly leased community (114 units)).

During the year ended December 31, 2021, we completed the sale of three owned communities (249 units) for cash proceeds of $16.5 million, net of transaction costs, and the termination of triple-net lease obligations on two communities (164 units).

During 2023, we completed the sale of two owned communities for cash proceeds of $25.6 million, net of $29.6 million in mortgage debt repaid and transaction costs, and recognized a net gain on sale of communities of $36.3 million.

During 2023, we elected not to exercise our lease renewal option under the current terms for a master lease and completed the termination of our triple-net lease obligations on the 18 communities for which the master lease was scheduled to expire on December 31, 2023.

Additionally, we acquired the remaining 50% equity interest in one community during 2023 for $0.6 million.

During 2022, we completed the sale of two owned communities for cash proceeds of $4.4 million, net of transaction costs, and the termination of triple-net lease obligations on four communities (including through the acquisition of one formerly leased community).

Welltower Lease Amendments

During the three months ended June 30, 2023, we entered into amendments to our existing lease arrangements with Welltower Inc.

("Welltower") pursuant to which we continue to lease 74 communities.

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

As a result, our 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 amended leases for 35 of such communities were prospectively classified as operating leases subsequent to the amendment.

For 2023, the classification of such lease costs as operating lease expense resulted in a $19.3 million increase in cash lease payments for operating leases and an offsetting decrease in cash lease payments for financing leases.

The amendments replaced the net worth covenant provisions requiring us to maintain at least $400.0 million of stockholders' equity with a consolidated tangible net worth covenant requiring us 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 our long-term debt documents.

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

Resident Fee Revenue and Facility Operating Expense Impacts of Transaction Activity

The table below sets forth our resident fee revenue and facility operating expense attributable to our former Health Care Services segment and communities disposed since January 1, 2021.

Refer to Note 3 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for more information about our former Health Care Services segment.

Years Ended December 31,

(in thousands) 2023 2022 2021

Resident fee revenue attributable to Health Care Services and disposed

communities $ 6,578 $ 202,337 $ 437,598

Facility operating expense attributable to Health Care Services and

disposed communities 6,408 199,366 455,435

Resident fee revenue attributable to Health Care Services and disposed communities $ 49,611 $ 67,667 $ 259,151

Facility operating expense attributable to Health Care Services and disposed communities 41,303 59,867 248,869

Results of Operations

As of December 31, 2022, our total operations included 673 communities with a capacity to serve over 60,000 residents.

As of December 31, 2023, our total operations included 652 communities with a capacity to serve approximately 59,000 residents.

As of that date, we owned 345 communities (31,205 units), leased 277 communities (19,844 units), and managed 30 communities (4,579 units).

8 unchanged sentences

Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations.

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

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

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

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

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

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

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

11 unchanged sentences

These segments were determined based on the way that our chief operating decision maker organizes our business activities for making operating decisions, assessing performance, developing strategy, and allocating capital resources.

On July 1, 2021, we sold 80% of our equity in our Health Care Services segment.

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

Discussion of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below.

7 unchanged sentences

Total resident fees and management fees revenue $ 2,867,431 $ 2,597,549 $ 269,882 10.4 %

Other operating income 80,469 12,368 68,101 NM

Other operating income 9,073 80,469 (71,396) (88.7) %

Facility operating expense 2,129,800 2,083,605 46,195 2.2 %

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Adjusted EBITDA 335,538 241,305 94,233 39.1 %

The increase in total resident fees and management fees revenue was primarily attributable to a 10.2% increase in same community RevPAR, comprised of a 390 basis point increase in same community weighted average occupancy and a 4.5% increase in same community RevPOR.

The increase in resident fees was partially offset by the deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in a decrease of $174.2 million of resident fees compared to the prior year.

Management fee revenue decreased $8.6 million primarily due to the transition of management agreements on 43 net communities since the beginning of the prior year.

During the years ended December 31, 2022 and 2021, we recognized $80.5 million and $12.4 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 year, including $61.1 million during 2022 of grants from the Phase 4 general distribution from the Provider Relief Fund.

The increase in facility operating expense was primarily attributable to a 10.4% increase in same community facility operating expense, including a $131.7 million, or 11.0%, increase in our same community labor expense primarily resulting from merit and market wage rate adjustments, more hours worked with higher occupancy during the period, and an increase in the use of premium labor, primarily overtime.

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

The increase in facility operating expense was partially offset by the 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.

Facility operating expense for the years ended December 31, 2022 and 2021 includes $17.4 million and $47.7 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

Same community facility operating expense for the years ended December 31, 2022 and 2021 excludes $8.2 million and $1.6 million, respectively, of natural disaster expense, consisting primarily of remediation of storm damage as a result of Hurricane Ian and Winter Storm Elliott in 2022.

The increase in net loss was primarily attributable to the net gain on sale of $286.5 million for the HCS Sale in the prior year, a decrease in equity in earnings of unconsolidated ventures compared to the prior year, and an increase in debt interest expense compared to the prior year.

These changes were partially offset by the increases in other operating income and resident fee revenue previously discussed and a $73.9 million non-cash gain on sale of communities recognized for the amendment of leases for 16 communities that were previously accounted for as failed sale-leaseback transactions.

Refer to Note 9 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for more information about the lease amendment.

The increase in Adjusted EBITDA was primarily attributable to an increase in other operating income compared to the prior year, 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 primarily as a result of the HCS Sale and a decrease in estimated incentive compensation costs.

The increase in total resident fees and management fees revenue was primarily attributable to an 11.4% increase in same community RevPAR, comprised of an 8.6% increase in same community RevPOR and a 190 basis point increase in same

community weighted average occupancy.

The increase was partially offset by the disposition of 25 communities since the beginning of the prior year.

During the years ended December 31, 2023 and 2022, we recognized $9.1 million and $80.5 million, respectively, of government grants and employee retention credits as other operating income based on our estimates of our satisfaction of the conditions of the grants and credits during the year, including for the year ended December 31, 2022, $61.1 million of grants from the Phase 4 general distribution from the Public Health and Social Services Emergency Fund ("Provider Relief Fund").

The increase in facility operating expense was primarily attributable to a 3.3% increase in same community facility operating expense, primarily resulting from broad inflationary pressure and increased costs with higher occupancy, partially offset by a decrease in the use of premium labor, primarily contract labor.

The increase was partially offset by the disposition of 25 communities since the beginning of the prior year.

The decrease in net loss was primarily attributable to the increase in resident fee revenue.

These changes were partially offset by a decrease in other operating income recognized, an increase in debt interest expense, an increase in facility operating expense, and a $37.6 million decrease in gain on sale of communities, net recognized compared to the prior year.

The increase in Adjusted EBITDA was primarily attributable to an increase in resident fee revenue, partially offset by the decrease in other operating income, the increase in facility operating expense, and the change in classification of $41.6 million of lease payments for 51 communities as cash facility operating lease payments as a result of lease amendments subsequent to the beginning of the prior year.

Operating Results - Senior Housing Segments

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Resident fees $ 2,857,270 $ 2,585,529 $ 271,741 10.5 %

Other operating income $ 80,469 $ 9,263 $ 71,206 NM

Other operating income $ 9,073 $ 80,469 $ (71,396) (88.7) %

Facility operating expense $ 2,129,800 $ 2,083,605 $ 46,195 2.2 %

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Resident fees $ 2,758,618 $ 2,476,619 $ 281,999 11.4 %

Other operating income $ 77,627 $ 8,423 $ 69,204 NM

Other operating income $ 8,729 $ 76,330 $ (67,601) (88.6) %

Facility operating expense $ 2,043,956 $ 1,978,262 $ 65,694 3.3 %

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The following table summarizes the operating results and data for our Independent Living segment for the years ended December 31, 2023 and 2022, including operating results and data on a same community basis.

All 68 of the communities in our Independent Living segment are included within our same community portfolio.

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) Years Ended

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Resident fees $ 564,012 $ 507,793 $ 56,219 11.1 %

Other operating income $ 10,906 $ 1,512 $ 9,394 NM

Other operating income $ 487 $ 10,906 $ (10,419) (95.5) %

Facility operating expense $ 379,854 $ 359,749 $ 20,105 5.6 %

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RevPOR $ 4,711 $ 4,371 $ 340 7.8 %

Same Community Operating Results and Data

Resident fees $ 501,115 $ 470,072 $ 31,043 6.6 %

Other operating income $ 10,649 $ 1,492 $ 9,157 NM

Facility operating expense $ 353,334 $ 326,695 $ 26,639 8.2 %

Number of communities 67 67 — — %

Total average units 12,379 12,376 3 — %

RevPAR $ 3,373 $ 3,165 $ 208 6.6 %

Occupancy rate (weighted average) 77.0 % 74.2 % 280 bps n/a

RevPOR $ 4,384 $ 4,269 $ 115 2.7 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 280 basis point increase in same community weighted average occupancy and a 2.7% increase in same community RevPOR.

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

The increase in the segment's same community RevPOR was primarily the result of in-place 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 $15.0 million, or 7.7%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments as well as an increase in the use of premium labor, primarily overtime and contract labor.

The segment's facility operating expense for the years ended December 31, 2022 and 2021 includes $2.3 million and $5.9 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's resident fees was primarily attributable to an increase in the segment's RevPAR, comprised of a 7.8% increase in RevPOR and a 240 basis point increase in weighted average occupancy.

The increase in the segment's RevPOR was primarily the result of the current year rate increase.

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

The increase in the segment's facility operating expense was primarily attributable to broad inflationary pressure and the costs of increased wireless internet access provided for residents, partially offset by a decrease in the use of premium labor, primarily contract labor.

The labor component of the segment's facility operating expense increased 3.3% compared to the prior year.

Assisted Living and Memory Care Segment

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Resident fees $ 1,960,432 $ 1,755,092 $ 205,340 11.7 %

Other operating income $ 60,630 $ 5,963 $ 54,667 NM

Other operating income $ 8,008 $ 60,630 $ (52,622) (86.8) %

Facility operating expense $ 1,466,123 $ 1,435,764 $ 30,359 2.1 %

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Resident fees $ 1,898,771 $ 1,695,838 $ 202,933 12.0 %

Other operating income $ 60,207 $ 5,751 $ 54,456 NM

Other operating income $ 7,862 $ 57,988 $ (50,126) (86.4) %

Facility operating expense $ 1,415,671 $ 1,377,991 $ 37,680 2.7 %

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RevPOR $ 6,162 $ 5,646 $ 516 9.1 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 440 basis point increase in same community weighted average occupancy and a 4.9% increase in same community RevPOR.

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 9.1% increase in same community RevPOR and a 200 basis point increase in same community weighted average occupancy.

The increase in the segment's same community RevPOR was primarily the result of the current year rate increase.

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, which resulted in $15.0 million less in resident fees during the year ended December 31, 2022 compared to the prior year.

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 $102.3 million, or 11.8%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments, more hours worked with higher occupancy during the period, and an increase in the use of premium labor, primarily overtime.

The increase in the segment's resident fees was partially offset by the disposition of 23 communities since the beginning of the prior year, which resulted in $5.3 million less in resident fees during the year ended December 31, 2023 compared to the prior year.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense primarily resulting from broad inflationary pressure and increased costs with higher occupancy, partially offset by a decrease in the use of premium labor, primarily contract labor.

The labor component of the segment's same community facility operating expense increased 0.4% compared to the prior year.

The increase in the segment's facility operating expense was partially offset by the disposition of 23 communities since the beginning of the prior year, which resulted in $7.9 million less in facility operating expense during the year ended December 31, 2023 compared to the prior year.

The segment's facility operating expense for the years ended December 31, 2022 and 2021 includes $12.3 million and $32.3 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The segment's same community facility operating expense for the years ended December 31, 2023 and 2022 excludes $0.1 million and $5.9 million, respectively, of natural disaster expense, consisting primarily of remediation of storm damage as a result of Hurricane Ian and Winter Storm Elliott in 2022.

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Resident fees $ 332,826 $ 322,644 $ 10,182 3.2 %

Other operating income $ 8,933 $ 1,788 $ 7,145 NM

Other operating income $ 578 $ 8,933 $ (8,355) (93.5) %

Facility operating expense $ 283,823 $ 288,092 $ (4,269) (1.5) %

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Resident fees $ 295,835 $ 272,988 $ 22,847 8.4 %

Other operating income $ 6,771 $ 1,180 $ 5,591 NM

Other operating income $ 380 $ 7,436 $ (7,056) (94.9) %

Facility operating expense $ 248,274 $ 242,196 $ 6,078 2.5 %

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RevPOR $ 7,639 $ 7,100 $ 539 7.6 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 340 basis point increase in same community weighted average occupancy and a 4.2% increase in same community RevPOR.

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

The increase in the segment's same community RevPOR was primarily the result of in-place 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 $6.5 million less in resident fees during the year ended December 31, 2022 compared to the prior year.

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 $14.3 million, or 10.1%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments as well as an increase in the use of premium labor, primarily contract labor and overtime.

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

The increase in the segment's facility operating expense was partially offset by the disposition of one community since the beginning of the prior year, which resulted in $7.4 million less in facility operating expense during the year ended December 31, 2022 compared to the prior year.

The segment's facility operating expense for the years ended December 31, 2022 and 2021 includes $2.9 million and $7.4 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 7.6% increase in same community RevPOR and a 60 basis point increase in same community weighted average occupancy.

The increase in the segment's same community RevPOR was primarily the result of the current year rate increase.

The increase in the segment's resident fees was partially offset by the disposition of two communities since the beginning of the prior year, which resulted in $12.8 million less in resident fees during the year ended December 31, 2023 compared to the prior year.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of two communities since the beginning of the prior year, which resulted in $10.6 million less in facility operating expenses expense during the year ended December 31, 2023 compared to the prior year.

The decrease in the segment's facility operating expense was partially offset by an increase in the segment's same community facility operating expense primarily resulting from broad inflationary pressure.

The labor component of the segment's same community facility operating expense increased 2.4% compared to the prior year.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the years ended December 31, 2023 and 2022.

(in thousands) Years Ended

December 31, Increase (Decrease)

2022 2021 Amount Percent

(in thousands) 2023 2022 Amount Percent

Management fees $ 10,161 $ 12,020 $ (1,859) (15.5) %

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Asset impairment 40,572 29,618 10,954 37.0 %

Loss (gain) on sale of communities, net (73,850) — 73,850 NM

Loss (gain) on facility operating lease termination, net — (2,003) (2,003) NM

Loss (gain) on sale of communities, net (36,296) (73,850) (37,554) (50.9) %

Interest income 23,146 6,935 16,211 NM

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(2,702) (1,357) 1,345 99.1 %

Equity in earnings (loss) of unconsolidated ventures (10,782) 10,394 (21,176) NM

Equity in earnings (loss) of unconsolidated ventures (3,996) (10,782) (6,786) (62.9) %

Non-operating gain (loss) on sale of assets, net 1,441 595 846 142.2 %

Other non-operating income (loss) 21,687 12,114 9,573 79.0 %

Benefit (provision) for income taxes 1,559 8,163 (6,604) (80.9) %

Management Fees.

The decrease in management fees was primarily attributable to the transition of management arrangements on 43 net communities since the beginning of the prior year, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities.

Benefit (provision) for income taxes (8,784) 1,559 (10,343) NM

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

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, partially offset by an increase in community costs incurred as a result of broad inflationary pressure for communities managed in both years.

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 in the prior year related to the HCS Sale, estimated incentive compensation costs, and transaction and organizational restructuring costs.

The increase in general and administrative expense was primarily attributable to an increase in estimated incentive compensation costs and an increase in organizational restructuring costs compared to the prior year, primarily for severance costs for our senior leadership changes.

General and administrative expense includes transaction and organizational restructuring costs of $3.9 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively.

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Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.

For the three months ending March 31, 2023, we expect our general and administrative expense will include approximately $3.0 million of organizational restructuring costs, primarily for severance costs for our recently announced senior leadership changes.

Facility Operating Lease Expense.

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

The increase in facility operating lease expense was primarily due to the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the beginning of the prior year.

Depreciation and Amortization.

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

The decrease in depreciation and amortization expense was primarily due to the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the beginning of the prior year, partially offset by the completion of community renovations, apartment upgrades, and other major building infrastructure projects for leased communities since the beginning of the prior year.

Asset Impairment .

During the current year, we recorded $29.6 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased occupancy and future cash flow estimates as a result of the continuing impacts of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the year, including property damage sustained from Hurricane Ian in September 2022 and Winter Storm Elliott in December 2022.

During the prior year, we recorded $23.0 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the year.

During the current year, we recorded $40.6 million of non-cash impairment charges, primarily due to a non-cash impairment charge of $26.0 million on our investment in the Health Care Services venture (the "HCS Venture") as a result of our decision to sell our equity interest prior to the recovery of its market value.

The impairment charges also include amounts for certain leased communities with lower than expected occupancy and decreased future cash flow estimates.

During the prior year, we recorded $29.6 million of non-cash impairment charges, primarily for certain leased communities with decreased occupancy and future cash flow estimates as a result of the continued impacts of the COVID-19 pandemic and for natural

disaster related property damage sustained at certain communities during the year, including property damage sustained from Hurricane Ian in September 2022 and Winter Storm Elliott in December 2022.

Loss (Gain) on Sale of Communities, net .

During the current year, we recognized a $73.9 million non-cash gain on sale of communities for the amendment of leases for 16 communities that were previously accounted for as failed sale-leaseback transactions, as the amendment resulted in the transfer of control of the assets of the communities for accounting purposes and qualification as a sale.

The decrease in gain on sale of communities, net was due to a $73.9 million non-cash gain on sale of communities in the prior year for the amendment of leases for 16 communities that were previously accounted for as failed sale-leaseback transactions, as the amendment resulted in the transfer of control of the assets of the communities for accounting purposes and qualification as a sale.

Refer to Note 3 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for more information about the amendment.

The decrease was partially offset by the sale of our one remaining entrance fee community during the current year.

Interest Income.

The increase in interest income was primarily due to higher interest rates on our cash, cash equivalents, and marketable securities.

Interest Expense.

The increase in interest expense was primarily due to a $16.5 million increase in interest expense on long-term debt primarily as a result of increases in variable interest rates, partially offset by increases in the fair value of interest rate derivatives.

The increase in interest expense was primarily due to an increase in interest expense on long-term debt primarily as a result of increases in variable interest rates, partially offset by a decrease in interest expense on financing lease obligations primarily due to the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the beginning of the prior year.

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.

The equity in loss of unconsolidated ventures for the current year was primarily for our share of the operating results of the HCS Venture.

Non-operating Gain (Loss) on Sale of Assets, net.

The decrease in gain on sale of assets is due to the $286.5 million gain recognized for the HCS Sale in the prior year.

The decrease in equity in loss of unconsolidated ventures was primarily due to improved operating results for the HCS Venture prior to the sale of our equity interest in December 2023.

Other Non-operating Income (Loss) .

The increase in other non-operating income is due to increased income recognized for insurance recoveries from our property and casualty insurance policies.

The increase in other non-operating income was primarily due to increased income recognized for insurance recoveries from our property and casualty insurance policies.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the years ended December 31, 2022 and 2021 was primarily due to the tax impact of the HCS Sale in the prior year.

We recorded an aggregate deferred federal, state, and local tax benefit of $58.4 million for the year ended December 31, 2022.

The tax benefit was offset by an increase in the valuation allowance of $57.1 million resulting from current operating losses and the anticipated reversal of future tax liabilities offset by future tax deductions.

We recorded an aggregate deferred federal, state, and local tax expense of $3.2 million in the year ended December 31, 2021, of which $104.3 million was recorded as a result of the HCS Sale, offset by a benefit of $101.1 million as a result of the operating loss for the year ended December 31, 2021.

The tax expense was offset by a decrease in the valuation allowance of $13.0 million, resulting from the HCS Sale, current operating losses, and the anticipated reversal of future tax liabilities offset by future tax deductions.

The difference between our effective tax rate for the years ended December 31, 2023 and 2022 was primarily due to an increase in the tax expense resulting from the valuation allowance recorded against state income tax operating losses.

We recorded an aggregate deferred federal, state, and local tax benefit of $41.5 million for the year ended December 31, 2023, which was offset by an increase in the valuation allowance of $49.1 million.

We recorded an aggregate deferred federal, state, and local tax benefit of $58.4 million for the year ended December 31, 2022, which was partially offset by an increase in the valuation allowance of $57.1 million.

Liquidity and Capital Resources

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Net cash provided by (used in) operating activities $ 162,923 $ 3,281 $ 159,642 NM

Net cash provided by (used in) investing activities (67,429) 181,457 (248,886) NM

Net cash provided by (used in) investing activities (113,364) (67,429) 45,935 68.1 %

Net cash provided by (used in) financing activities (174,439) 100,382 (274,821) NM

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Adjusted Free Cash Flow $ (47,631) $ (201,385) $ 153,754 76.3 %

The change in net cash provided by (used in) operating activities was attributable primarily to a $65.6 million increase in government grants and credits received and an increase in same community revenue compared to the prior year.

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.

Net cash provided by operating activities of $3.3 million in the current year includes $34.6 million of repayments and recoupments in the current year as a result of the temporary liquidity relief under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") received in 2020.

Net cash used in operating activities of $94.6 million in the prior year reflects the significant disruption on our business as a result of the COVID-19 pandemic and $52.4 million of repayments and recoupments in the prior year as a result of the temporary liquidity relief under the CARES Act received in 2020.

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, a $36.1 million decrease in distributions received from unconsolidated ventures compared to the prior year, a $20.3 million increase in cash paid for capital expenditures compared to the prior year, and a $16.8 million decrease in net proceeds from the sale of other assets compared to the prior year.

These changes were partially offset by a $98.6 million decrease in purchases of marketable securities and a $45.8 million increase in proceeds from sales and maturities of marketable securities compared to the prior year period.

The change in net cash provided by (used in) financing activities was primarily attributable to a $160.4 million decrease in repayment of debt and financing lease obligations, a $139.4 million increase in proceeds from issuance of the Units, and a $15.9 million decrease related to payments in connection with the capped call transactions in the prior year, partially offset by a $98.7 million decrease in debt proceeds compared to the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable to a $65.6 million increase in government grants and credits received and an increase in same community revenue compared to the prior year period.

These changes were partially offset by an increase in same community facility operating expense and a $30.8 million increase in non-development capital expenditures, net compared to the prior year period.

The increase in net cash provided by operating activities was primarily attributable to an increase in resident fee revenue compared to the prior year and $31.6 million paid during the prior year for previously deferred payroll taxes for 2020 pursuant to the Coronavirus Aid, Relief, and Economic Security Act of 2020, partially offset by a $41.2 million decrease in cash received

associated with government grants and credits, an increase in facility operating expense, and an increase in debt interest expense compared to the prior year.

The increase in net cash used in investing activities was primarily attributable to a $201.7 million decrease in proceeds from sales and maturities of marketable securities compared to the prior year, partially offset by an $89.2 million decrease in purchases of marketable securities and a $78.9 million increase in net proceeds from the sale of assets compared to the prior year.

The change in net cash provided by (used in) financing activities was primarily attributable to $139.4 million of proceeds from the 2022 issuance of the tangible equity units, an $86.1 million increase in repayment of debt and financing lease obligations, and a $48.7 million decrease in debt proceeds compared to the prior year.

The change in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities and an increase in property and casualty insurance proceeds compared to the prior year, partially offset by a $48.3 million increase in non-development capital expenditures, net compared to the prior year.

Our principal sources of liquidity have historically been from:

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

We also have received pandemic-related government relief, including cash grants.

Our liquidity requirements have historically arisen from:

• working capital;

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

• debt, interest, and lease payments;

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

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

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

• purchases of common stock under our share repurchase authorizations;

• other corporate initiatives (including integration, information systems, branding, and other strategic projects);

• prior to 2009, dividend payments.

In the past, we also have received pandemic-related government relief, including cash grants.

Over the near-term, we expect that our liquidity requirements will primarily arise from:

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

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

• capital expenditures and improvements;

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

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As of December 31, 2023, we had $3.7 billion of debt outstanding at a weighted average interest rate of 5.58%.

As of December 31, 2022, our 2023 mortgage debt maturities are $29.7 million, excluding recurring monthly principal payments.

As of December 31, 2022, we had $1.0 billion of operating and financing lease obligations.

For the twelve months ending December 31, 2023, we will be required to make approximately $233.4 million and $48.6 million of cash lease payments in connection with our existing operating and financing leases, respectively.

As of such date, 91.9%, or $3.4 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

As of December 31, 2023, we had $1.0 billion of operating and financing lease obligations, and for the twelve months ending December 31, 2024, we will be required to make approximately $281.0 million of cash lease payments in connection with our existing operating and financing leases.

As of December 31, 2023, we had $63.6 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility.

The credit facility matures on January 15, 2024 and we have the option to extend the facility for two additional terms of one year each subject to the satisfaction of certain conditions.

We also had a separate secured letter of credit facility providing for up to $15.0 million of letters of credit as of December 31, 2023, under which $14.5 million had been issued as of that date.

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Total liquidity as of December 31, 2023 decreased $111.9 million from total liquidity of $452.6 million as of December 31, 2022.

The decrease was primarily attributable to negative $201.4 million of Adjusted Free Cash Flow and $236.6 million of repayment of mortgage debt, partially offset by $220.0 million of proceeds from mortgage debt and $139.4 million of proceeds from the issuance of the Units.

The decrease was primarily attributable to repayment of debt of $358.8 million, negative $47.6 million of Adjusted Free Cash Flow, partially offset by $205.1 million of proceeds from debt and $83.5 million of net proceeds from the sale of assets, including two CCRCs and our equity interest in the HCS Venture.

As of December 31, 2023, our current liabilities exceeded current assets by $121.7 million.

Included in our current liabilities is $193.7 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 consolidated balance sheet.

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

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

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, and proceeds from financings and refinancings of various assets will be sufficient to fund our liquidity needs for at least the next 12 months.

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

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

Risk Factors." The amount of mortgage financing available for our communities is generally dependent on their appraised

values and performance.

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

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

Due to lower operating performance for certain of our communities 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 all of our debt maturities due in 2023, except for $29.7 million of mortgage debt secured by an asset planned for sale.

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.

In December 2023, we obtained a $179.5 million loan pursuant to Fannie Mae's DUS program to partially refinance maturing indebtedness.

At the closing, we repaid $260.1 million of debt scheduled to mature in 2024, using proceeds from the $179.5 million loan and cash on hand.

As of December 31, 2023, 14% of our owned communities were unencumbered by mortgage debt.

We have completed the refinancing of all of our debt maturities due in 2024.

Our inability to obtain refinancing proceeds sufficient to cover 2025 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.

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, to pursue any 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.

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

The closing of the planned sale transaction is subject to the satisfaction of various closing conditions, including the receipt of regulatory approvals.

There can be no assurance that the transaction will close or, if it does, when the actual closing will occur.

Funding our planned capital expenditures or investments to support our strategy may require additional capital.

We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically.

If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities.

Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all.

Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock.

If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.

Capital Expenditures

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

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

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

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

With our development capital expenditures program, we intend to expand, redevelop, and reposition certain of our communities where economically advantageous.

Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers.

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 year ended December 31, 2023 for our consolidated business.

(in millions)

(in thousands)

Community-level capital expenditures, net (1)

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(1) Reflects the amount invested, net of lessor reimbursements of $10.3 million.

(2) Includes $9.7 million of remediation costs at our communities resulting from natural disasters, including $8.9 million of capital expenditures for property remediation resulting from the impact of Hurricane Ian.

(2) Includes $28.8 million of remediation costs at our communities resulting from natural disasters.

A portion of such costs are reimbursable under our property and casualty insurance policies.

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

In the aggregate, we expect our full-year 2023 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $220.0 million, including remediation costs at our communities resulting from recent natural disasters.

We anticipate that our 2023 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, reimbursements from lessors, and approximately $20.0 million of reimbursement from our property and casualty insurance policies.

In the aggregate, we expect our full-year 2024 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $180.0 million.

We anticipate that our 2024 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors.

As of December 31, 2023, the average age of the buildings in our consolidated senior housing portfolio was approximately 26 years.

Our community-level non-development capital expenditures, net of lessor reimbursements, were $3,112 per unit in 2023, and our 2024 plans equate to approximately $3,100 per unit.

The planned increase in our non-development capital expenditures, net of lessor reimbursements, for 2023 is primarily attributable to reduced lessor reimbursements under the terms of our community leases, broad inflationary pressures, increased remediation costs at our communities resulting from recent natural disasters, and increased replacements of major building systems.

To support our strategy and to protect the value of our community portfolio and ensure that our communities are in appropriate

physical condition, over the intermediate term, we expect that our community-level non-development capital expenditures, net of lessor reimbursements, will be at annual levels in a similar range of recent and 2023 projected per unit spend.

To support our strategy and to protect the value of our community portfolio and ensure that our communities are in appropriate physical condition, over the intermediate term, we expect that our community-level non-development capital expenditures, net of lessor reimbursements, will be at annual levels in a similar range of recent and 2024 projected per unit spend.

We have no planned development capital expenditures for 2024, as we plan to prioritize our capital expenditures on community-level non-development expenditures for the near-term in order to support our communities and execution on our strategy.

Over the longer term, we will continue to invest in our development capital expenditures program through which we expand, reposition, and redevelop selected existing senior living communities where economically advantageous.

Funding our planned capital expenditures, any potential lease restructuring opportunities that we identify, or investments to support our strategy may require additional capital.

We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically.

If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities.

Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock.

If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.

Over the longer term, we expect that we will also continue to invest in our development capital expenditures program through which we expand, reposition, and redevelop selected existing senior living communities where economically advantageous.

As of December 31, 2023, we had $3.7 billion of debt outstanding, at a weighted average interest rate of 5.58%.

As of such date, 91.9%, or $3.4 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

As of December 31, 2022, we had approximately $ 2.3 billion of long-term fixed rate debt (including our $230.0 million principal amount of 2.00% convertible senior notes due 2026 and our $25.6 million principal amount of the senior amortizing notes component of the Units previously described), at a weighted average interest rate of 4.00% .

As of December 31, 2022, we had approximately $1.6 billion of long-term variable rate debt, at a weighted average interest rate of 6.68%.

As of December 31, 2023, we had $2.2 billion of long-term fixed rate debt (including our $230.0 million principal amount of 2.00% convertible senior notes due 2026 and our $18.0 million principal amount of the senior amortizing notes component of our tangible equity units), at a weighted average interest rate of 4.07%.

As of December 31, 2023, we had $1.5 billion of long-term variable rate debt, at a weighted average interest rate of 7.74%.

Increases in prevailing interest rates as a result of inflation or other factors will increase our payment obligations on our variable-rate obligations to the extent they are unhedged and may increase our future borrowing and hedging costs.

In the normal course of business, we enter into interest rate agreements with major financial institutions to manage our risk above certain interest rates on variable rate debt.

Although we have interest rate cap or swap agreements in place for a majority of our long-term variable-rate debt, these agreements only limit our exposure to increases in interest rates above certain levels and generally must be renewed every two to three years.

As of December 31, 2022, 78% of our $1.6 billion of outstanding long-term variable rate debt is indexed to LIBOR plus a weighted average margin of 229 basis points and 22% of our outstanding long-term variable rate debt is indexed to SOFR plus a weighted average margin of 237 basis points.

As of such date, $1.4 billion, or 92%, of our long-term variable rate debt is subject to interest rate cap or swap agreements, and $128.7 million of our long-term variable rate debt is not subject to any interest rate cap or swap agreements.

For our LIBOR and SOFR interest rate cap and swap agreements as of December 31, 2022, the weighted average fixed interest rate is 4.14%, and the weighted average remaining term is 1.2 years.

As of December 31, 2023, our $1.5 billion of outstanding long-term variable rate debt is indexed to SOFR plus a weighted average margin of 239 basis points.

As of such date, $1.4 billion, or 93%, of our long-term variable rate debt is subject to interest rate cap or swap agreements, and $0.1 billion of our long-term variable rate debt is not subject to any interest rate cap or swap agreements.

For our SOFR interest rate cap and swap agreements as of December 31, 2023, the weighted average fixed interest rate is 3.91%, and the weighted average remaining term is 0.8 years.

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Total $ 3,697,313

(1) Includes the initial maturity of $320.0 million of mortgage debt for which we have the option to extend the maturity for two additional terms of one year each subject to the satisfaction of certain conditions.

Convertible Senior Notes

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

Additionally, we used the remaining net proceeds together with cash on hand to repay $284.4 million of long-term mortgage debt and a $45.0 million note payable.

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

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

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

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

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

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If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes and the shares of common stock issuable upon conversion of the Notes, if any, were issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act of 1933, as amended.

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

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

respective affiliates (the "Capped Call Counterparties").

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

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Credit Facilities

On December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto.

The agreement provides a commitment amount of up to $80.0 million which can be drawn in cash or as letters of credit.

The credit facility matures on January 15, 2024 and we have the option to extend the facility for two additional terms of one year each subject to the satisfaction of certain conditions.

In December 2023, we amended our revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto.

The amended agreement provides an expanded commitment amount of up to $100.0 million which can be drawn in cash or as letters of credit.

The credit facility matures in January 2027, and we have the option to extend the facility for two additional terms of approximately one year each subject to the satisfaction of certain conditions.

Amounts drawn under the facility will bear interest at SOFR plus an applicable margin which was 3.00% as of December 31, 2023.

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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.

Available capacity under the facility will vary from time to time based upon certain 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 December 31, 2023, $63.6 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility, and the facility had $32.9 million of availability.

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Under a master lease, numerous communities are leased through an indivisible lease.

We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases.

In certain cases, we guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases.

Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord.

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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.

Approximately 89% of our community lease payments for the twelve months ended December 31, 2023 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.

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2028 12 1,344

2027 24 2,555

Thereafter 111 4,604

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

Our capital expenditure plans for 2023 include required minimum spend of approximately $15.0 million for capital expenditures under certain of our community leases.

We are required to spend an average of approximately $27.0 million per year for each of the following two years and approximately $19.0 million in aggregate thereafter under the initial lease terms of such leases.

We are required to spend approximately $50.0 million in aggregate for the 24-month period ending December, 31, 2025 for capital expenditures under certain of our community leases and approximately $20.0 million in aggregate thereafter under the initial lease terms of such leases.

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

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For the year ended December 31, 2023, our cash lease payments for our operating leases were $255.3 million and for our financing leases were $30.4 million.

The prospective reclassification of lease costs for 16 communities from financing leases to operating leases resulted in a $22.2 million increase in minimum lease payments due for operating leases in 2023 and an offsetting decrease in minimum lease payments due for financing leases in 2023.

Refer to Note 9 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for more information about the lease

reclassification.

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

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Certain of our long-term 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.

Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities and/or increased by accumulated depreciation and amortization, and/or further adjusted for certain other specified adjustments.

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.

These covenants include a requirement contained in certain of our long-term debt documents for us to maintain liquidity of at least $130.0 million at each quarter-end determination date and a requirement contained in certain of our lease documents for us to maintain stockholders' equity of at least $400.0 million at each quarter-end determination date.

As of December 31, 2022, our liquidity and our stockholders' equity were $452.6 million and $582.6 million, respectively.

These covenants include a requirement contained in certain of our long-term debt documents for us to maintain liquidity of at least $130.0 million at each quarter-end determination date.

As of December 31, 2023, our liquidity was $340.7 million.

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

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

Furthermore, our long-term debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries.

Furthermore, our mortgage debt is secured by our communities and, in certain cases, our long-term debt and leases are secured by a guaranty by us and/or one or more of our subsidiaries.

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

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Payments Due during the Years Ending December 31,

(in millions) 2023 2024 2025 2026 2027 Thereafter Total

(in millions) 2024 2025 (1)

2026 2027 2028 Thereafter Total

Principal on long-term debt (2)

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Total long-term debt and lease obligations $ 539.1 $ 1,032.7 $ 620.9 $ 1,248.7 $ 744.0 $ 1,730.7 $ 5,916.1

(1) Principal on long-term debt includes the initial maturity of $320.0 million of mortgage debt for which we have the option to extend the maturity for two additional terms of one year each subject to the satisfaction of certain conditions.

(2) Excludes deferred financing costs of $29.0 million as of December 31, 2023.

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As of December 31, 2023, our long-term variable rate debt had a weighted average interest rate of 7.74%.

We are subject to market risks from changes in interest rates and increases in prevailing interest rates would increase our payment obligations on our variable-rate obligations.

We are subject to market risks from changes in interest rates and increases or decreases in prevailing interest rates would change our payment obligations on our variable-rate obligations.

(4) Reflects future minimum lea se payments prior to giving effect to variable payments.

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These estimates and assumptions include revenue and expense growth rates, operating margins, and asset holding periods used to calculate projected future cash flows.

Future events may indicate differences from

management's current judgments and estimates which could, in turn, result in future impairments.

Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, and our decision to dispose of assets, including execution on our ongoing capital recycling program through exiting non-strategic or underperforming owned assets or leases.

Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, and our decision to dispose of assets, including through exiting non-strategic or underperforming owned assets or leases.

Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing, or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition and changing economic or market conditions, could result in changes in estimated future cash flows and the determination that additional assets are impaired.

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Total $ 14.6 $ 29.6 $ 23.0

These impairment charges are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

In arriving at our cash flow projections, we considered our estimates of the impacts of the pandemic.

Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as further described in Note 3 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data." Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

These impairment charges are primarily due to decreased occupancy and future cash flow estimates at certain communities, including as a result of the impacts of the COVID-19 pandemic, and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there have been changes in circumstances that indicate the carrying amount may not be recoverable, the recoverability of asset groups, and, if necessary, the fair value of our assets.

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Although we make every reasonable effort to ensure the accuracy of our estimate of the future cash flows of assets, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.

Additionally, future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

Self-Insurance Liability Accruals

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During the years ended December 31, 2022 and 2021, we reduced our estimate of the amount of

aggregate accrued liabilities for these programs based on recent claims experience, resulting in decreases to operating expenses by $12.0 million, $14.2 million, and $4.2 million, respectively.

New Accounting Pronouncements

See Note 2 to the consolidated financial statements contained in "Item 8.

Financial Statement and Supplementary Data" for a discussion of new accounting pronouncements.

aggregate accrued liabilities for these programs based on recent claims experience, resulting in decreases to operating expenses of $12.0 million and $14.2 million, respectively.

During the year ended December 31, 2023, there was no significant adjustment to our operating expenses for any change in our estimate of the amount of these liabilities.

Non-GAAP Financial Measures

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

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

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

Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs.

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(ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods;

and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry.

(iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry;

and (iv) we use the measure for components of executive compensation.

Adjusted EBITDA has material limitations as a performance measure, including:

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Loss (gain) on sale of communities, net (36,296) (73,850)

Loss (gain) on facility operating lease termination, net — (2,003)

Operating lease expense adjustment (45,739) (34,896)

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$ 335,538 $ 241,305

(1) Adjusted EBITDA includes $80.5 million and $12.4 million benefit for the years ended December 31, 2022 and 2021, respectively, of government grants and credits recognized in other operating income.

(1) Adjusted EBITDA includes a $9.1 million and $80.5 million benefit for the years ended December 31, 2023 and 2022, respectively, of government grants and credits recognized in other operating income.

Adjusted Free Cash Flow

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

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

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

non-development capital expenditures and payment of financing lease obligations.

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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.

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Distributions from unconsolidated ventures from cumulative share of net earnings (430) (561)

Changes in operating lease assets and liabilities for lease termination — 2,380

Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases (9,844) (13,718)

Non-development capital expenditures, net (216,511) (168,166)

Property and casualty insurance proceeds 24,704 —

Payment of financing lease obligations (8,473) (22,221)

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• $28.3 million and $69.5 million benefit for the years ended December 31, 2023 and 2022, respectively, from government grants and credits received.

• $3.1 million and $20.8 million recoupment for the years ended December 31, 2022 and 2021, respectively, of accelerated/advanced Medicare payments.

• $31.6 million paid during both the years ended December 31, 2022 and 2021, for deferred payroll taxes for the year ended December 31, 2020.

• $3.1 million recoupment for the year ended December 31, 2022 of accelerated/advanced Medicare payments.

• $31.6 million paid during the year ended December 31, 2022 for deferred payroll taxes for the year ended December 31, 2020.

• $3.9 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively, for transaction and organizational restructuring 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-K

Item 7. Management’s Discussion and Analysis