What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-07 · 92 added, 184 removed, 379 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except stock amounts)

September 30,

2024 December 31,

5 unchanged sentences

Accounts receivable, net 49,645 48,393

Assets held for sale 12,675 —

Prepaid expenses and other current assets, net 101,869 80,908

3 unchanged sentences

Restricted cash 31,444 30,356

Investment in unconsolidated ventures 55,973 55,333

Goodwill 27,321 27,321

Deferred tax asset 3,619 1,604

Other assets, net 34,539 35,854

12 unchanged sentences

Operating lease obligations, less current portion 635,378 683,876

Deferred tax liability 5,562 5,987

Other liabilities 69,058 71,679

Total liabilities 5,166,876 5,168,282

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at September 30, 2023 and December 31, 2022;

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at March 31, 2024 and December 31, 2023;

no shares issued and outstanding

Common stock, $ 0.01 par value, 400,000,000 shares authorized at September 30, 2023 and December 31, 2022;

198,767,716 and 197,776,991 shares issued and 188,240,191 and 187,249,466 shares outstanding (including 2,061 and 422,542 unvested restricted shares), respectively

Common stock, $ 0.01 par value, 400,000,000 shares authorized at March 31, 2024 and December 31, 2023;

203,540,086 and 198,780,826 shares issued and 193,012,561 and 188,253,301 shares outstanding, respectively

Additional paid-in-capital 4,342,191 4,342,362

Treasury stock, at cost;

10,527,525 shares at September 30, 2023 and December 31, 2022

10,527,525 shares at March 31, 2024 and December 31, 2023

( 102,774 ) ( 102,774 )

10 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Resident fees $ 744,241 $ 713,404

10 unchanged sentences

Asset impairment 1,708 —

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

Costs incurred on behalf of managed communities 35,972 34,954

17 unchanged sentences

common stockholders $ ( 0.13 ) $ ( 0.20 )

Weighted average shares used in computing basic and diluted

net income (loss) per share 225,416 186,790 225,136 186,493

Weighted average shares used in computing basic and diluted net income (loss) per share 225,890 224,578

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Total equity, balance at beginning of period $ 405,153 $ 584,153

1 unchanged sentence

Balance at beginning of period $ 1,988 $ 1,978

Shares issued for settlement of prepaid stock purchase contracts 35 —

Restricted stock and restricted stock units, net 18 16

4 unchanged sentences

Compensation expense related to restricted stock grants 3,273 3,104

Shares issued for settlement of prepaid stock purchase contracts ( 35 ) —

Restricted stock and restricted stock units, net ( 18 ) ( 16 )

11 unchanged sentences

Net income (loss) attributable to noncontrolling interest ( 15 ) ( 14 )

Noncontrolling interest distribution — ( 760 ) — ( 760 )

Balance at end of period $ 1,474 $ 1,534

3 unchanged sentences

Balance at beginning of period 188,253 187,249

Shares issued for settlement of prepaid stock purchase contracts 3,557 —

Restricted stock and restricted stock units, net 1,778 1,545

5 unchanged sentences

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities

4 unchanged sentences

Equity in (earnings) loss of unconsolidated ventures — 577

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

Amortization of entrance fees — ( 508 )

6 unchanged sentences

Property and casualty insurance income ( 2,626 ) ( 3,295 )

Other non-operating (income) loss ( 2,542 ) —

Changes in operating assets and liabilities:

4 unchanged sentences

Refundable fees and deferred revenue 2,725 14,092

Operating lease assets and liabilities for lessor capital expenditure

reimbursements 2,244 9,224

Operating lease assets and liabilities for lessor capital expenditure reimbursements 249 2,244

Net cash provided by (used in) operating activities ( 1,146 ) 24,042

3 unchanged sentences

Capital expenditures, net of related payables ( 44,399 ) ( 49,700 )

Acquisition of assets, net of cash acquired ( 574 ) ( 6,004 )

Investment in unconsolidated ventures ( 7,589 ) ( 192 )

Proceeds from sale of assets, net 849 —

Property and casualty insurance proceeds 2,642 6,422

Purchase of interest rate cap instruments ( 629 ) ( 212 )

Proceeds from interest rate cap instruments 4,659 1,212

Other ( 68 ) ( 67 )

5 unchanged sentences

Payments of employee taxes for withheld shares ( 3,397 ) ( 1,680 )

Other — ( 760 )

Net cash provided by (used in) financing activities 54,090 171

11 unchanged sentences

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

As of September 30, 2023, the Company owned 346 communities, representing a majority of the Company's community portfolio, leased 295 communities, and managed 31 communities.

As of March 31, 2024, the Company owned 345 communities, representing a majority of the Company's community portfolio, leased 277 communities, and managed 30 communities.

Summary of Significant Accounting Policies

10 unchanged sentences

Intercompany balances and transactions have been eliminated in consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests.

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

Use of Estimates

The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

Estimates are used for, but not limited to, revenue, other operating income, asset impairments, self-insurance reserves, performance-based compensation, the allowance for credit losses, depreciation and amortization, leasing transactions, income taxes, and other contingencies.

Estimates are used for, but not limited to, revenue, asset impairments, self-insurance reserves, performance-based compensation, allowance for credit losses, depreciation and amortization, leasing transactions, income taxes, and other contingencies.

Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the original estimates.

2 unchanged sentences

Fair Value Measurements

Marketable Securities

As of September 30, 2023 and December 31, 2022, marketable securities of $ 66.2 million and $ 48.7 million, respectively, are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

Interest Rate Derivatives

1 unchanged sentence

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

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

The interest rate derivative positions are valued using models developed by the respective

counterparty that use as their basis readily available observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy.

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

The following table summarizes the Company's Secured Overnight Financing Rate ("SOFR") interest rate cap instruments as of September 30, 2023.

($ in thousands)

The following table summarizes the Company's Secured Overnight Financing Rate ("SOFR") interest rate cap instruments as of March 31, 2024.

($ in millions)

Current notional balance $ 1,281.9

Weighted average fixed cap rate 4.05 %

Weighted average remaining term 1.0 year

Estimated asset fair value (included in other assets, net) at September 30, 2023 $ 14,826

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

The following table summarizes the Company's SOFR interest rate swap instrument as of September 30, 2023.

($ in thousands)

Weighted average remaining term 0.6 years

Estimated asset fair value (included in other assets, net) $ 11.8

As of December 31, 2023, the estimated fair value of the interest rate cap instruments was $ 13.3 million.

The following table summarizes the Company's SOFR interest rate swap instrument as of March 31, 2024.

($ in millions)

Current notional balance $ 220.0

1 unchanged sentence

Remaining term 0.1 years

Estimated asset fair value (included in other assets, net) at September 30, 2023 $ 3,488

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

Estimated asset fair value (included in other assets, net) $ 0.9

As of December 31, 2023, the estimated fair value of the interest rate swap instrument was $ 1.6 million.

Long-term debt

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

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.8 billion and $ 3.9 billion as of September 30, 2023 and December 31, 2022, respectively.

Fair value of the long-term debt is approximately $ 3.4 billion as of both September 30, 2023 and December 31, 2022.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.8 billion and $ 3.7 billion as of March 31, 2024 and December 31, 2023, respectively.

Fair value of the long-term debt is approximately $ 3.5 billion and $ 3.4 billion as of March 31, 2024 and December 31, 2023, respectively.

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

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

Resident fee revenue by payor source is as follows.

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

2023 2022 2023 2022

Private pay 93.7 % 93.6 % 93.7 % 93.5 %

Government reimbursement 4.9 % 5.1 % 4.9 % 5.1 %

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

For the three months ended March 31, 2024 and 2023, the Company generated 93.9 % and 93.6 %, respectively, of its resident fee revenue from private pay customers and the remainder from government reimbursement programs and other payor sources.

Refer to Note 13 for disaggregation of revenue by reportable segment.

2 unchanged sentences

Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears.

Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements.

Additionally, certain of the Company's revenue-generating contracts include non-refundable fees that are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements.

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

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 57.9 million and $ 67.3 million, including $ 31.6 million and $ 25.2 million of monthly resident fees billed and received in advance, as of September 30, 2023 and December 31, 2022, respectively.

For the nine months ended September 30, 2023 and 2022, the Company recognized $ 49.1 million and $ 53.1 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2023 and 2022, respectively.

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 51.3 million and $ 48.3 million, including $ 27.1 million and $ 24.1 million of monthly resident fees billed and received in advance, as of March 31, 2024 and December 31, 2023, respectively.

For the three months ended March 31, 2024 and 2023, the Company recognized $ 35.2 million and $ 36.9 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2024 and 2023, respectively.

The Company applies the

practical expedient in ASC 606-10-50-14 and does not disclose amounts for remaining performance obligations that have original expected durations of one year or less.

Property, Plant and Equipment and Leasehold Intangibles, Net

As of September 30, 2023 and December 31, 2022, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.

(in thousands) September 30, 2023 December 31, 2022

As of March 31, 2024 and December 31, 2023, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.

(in thousands) March 31, 2024 December 31, 2023

Land $ 500,649 $ 500,649

1 unchanged sentence

Furniture and equipment 1,125,892 1,111,408

Resident and leasehold operating intangibles 283,711 286,122

Resident in-place lease intangibles 282,411 282,411

Construction in progress 38,763 33,905

3 unchanged sentences

Property, plant and equipment and leasehold intangibles, net $ 4,293,925 $ 4,330,629

Assets under financing leases and leasehold improvements includes $ 29.9 million and $ 98.4 million of financing lease right-of-use assets, net of accumulated amortization, as of September 30, 2023 and December 31, 2022, respectively.

Refer to Note 7 for further information on the Company's financing leases.

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

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 85.9 million and $ 86.9 million for the three months ended September 30, 2023 and 2022, respectively, and $ 255.3 million and $ 259.2 million for the nine months ended September 30, 2023 and 2022,

respectively.

The Company recognized $ 5.3 million and $ 5.8 million for the three and nine months ended September 30, 2023, respectively of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold intangibles assets, primarily due to the potential disposition of up to five underperforming communities.

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

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 86.1 million and $ 84.9 million for the three months ended March 31, 2024 and 2023, respectively.

The Company recognized $ 1.7 million for the three months ended March 31, 2024 of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold intangibles assets, primarily due to property damage sustained at certain communities.

Long-term debt consists of the following.

(in thousands) September 30, 2023 December 31, 2022

(in thousands) March 31, 2024 December 31, 2023

Fixed rate mortgage notes payable due 2025 through 2047;

weighted average interest rate of 4.14 % as of both September 30, 2023 and December 31, 2022

weighted average interest rate of 4.26 % as of both March 31, 2024 and December 31, 2023

$ 1,947,548 $ 1,953,414

Variable rate mortgage notes payable due 2025 through 2030;

weighted average interest rate of 7.70 % and 6.68 % as of September 30, 2023 and December 31, 2022, respectively

weighted average interest rate of 7.75 % and 7.74 % as of March 31, 2024 and December 31, 2023, respectively

1,570,918 1,524,907

Convertible notes payable due October 2026;

interest rate of 2.00 % as of both September 30, 2023 and December 31, 2022

interest rate of 2.00 % as of both March 31, 2024 and December 31, 2023

230,000 230,000

Tangible equity units senior amortizing notes due November 2025;

interest rate of 10.25 % as of both September 30, 2023 and December 31, 2022

interest rate of 10.25 % as of both March 31, 2024 and December 31, 2023

15,935 17,990

Other notes payable due 2023;

interest rate of 5.90 % as of September 30, 2023

Notes payable for insurance premium financing due 2024;

interest rate of 7.40 % as of March 31, 2024

Deferred financing costs, net ( 29,180 ) ( 28,998 )

2 unchanged sentences

Total long-term debt, less current portion $ 3,692,132 $ 3,655,850

As of September 30, 2023, 92.0 %, or $ 3.5 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

The Company's remaining variable rate mortgage notes payable arrangements indexed to London Interbank Offered Rate ("LIBOR") were modified to reference SOFR rather than LIBOR prospectively after the discontinuance of LIBOR in July 2023.

As of September 30, 2023, the Company's variable rate mortgage notes payable were indexed to SOFR plus a weighted average margin of 239 basis points.

The Company applied the optional expedient provided by Accounting Standards Codification 848, Reference Rate Reform , for debt contract modifications related to the discontinuation of reference rates to ease the potential burden in accounting for reference rate reform.

As of September 30, 2023, $ 72.5 million of letters of credit and no cash borrowings were outstanding under the Company's $ 80.0 million secured credit facility.

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

The Company also had a separate secured letter of credit facility providing up to $ 15.0 million of letters of credit as of September 30, 2023 under which $ 14.5 million had been issued as of that date.

As of March 31, 2024, the long-term debt, less current portion within the Company's condensed consolidated balance sheet includes $ 100.0 million of mortgage notes payable scheduled to mature in January 2025 with two one-year extension options, exercisable by the Company subject to the satisfaction of certain conditions.

As of March 31, 2024, 91.1 %, or $ 3.4 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of March 31, 2024, $ 63.5 million of letters of credit and no cash borrowings were outstanding under the Company's $ 100.0 million secured credit facility.

The Company also had a separate secured letter of credit facility providing up to $ 15.0 million of letters of credit as of March 31, 2024 under which $ 14.5 million had been issued as of that date.

2024 Mortgage Financing

In February 2024, the Company 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 extension options, exercisable subject to certain performance criteria.

Financial Covenants

3 unchanged sentences

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

As of September 30, 2023, the Company is in compliance with the financial covenants of its debt agreements.

As of September 30, 2023, the Company operated 295 communities under long-term leases ( 281 operating leases and 14 financing leases).

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

As of March 31, 2024, the Company is in compliance with the financial covenants of its debt agreements.

As of March 31, 2024, the Company operated 277 communities under long-term leases ( 263 operating leases and 14 financing leases).

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

3 unchanged sentences

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 the leased property revenue.

The Company is responsible for all operating costs, including repairs, property taxes, and insurance.

The Company is responsible for all operating costs, including repairs and maintenance, property taxes, and insurance.

The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options.

4 unchanged sentences

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

As of September 30, 2023, the Company is in compliance with the financial covenants of its long-term leases.

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

As of March 31, 2024, the Company is in compliance with the financial covenants of its long-term leases.

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

The Company recognized $ 3.8 million for both the three and nine months ended September 30, 2023, of non-cash impairment charges for its operating lease right-of-use assets, primarily due to lower than expected occupancy and decreased future cash flow estimates at certain communities.

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

The Company did not recognize any such impairment charges for the three months ended March 31, 2024 and 2023.

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

Three Months Ended

September 30, Nine Months Ended

September 30,

Operating Leases (in thousands)

2023 2022 2023 2022

Facility operating expense $ 1,920 $ 1,626

7 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

Financing Leases (in thousands)

2023 2022 2023 2022

Depreciation and amortization $ 2,872 $ 6,655

4 unchanged sentences

Financing cash outflows from financing leases 262 5,852

Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement — ( 2,727 ) — ( 9,704 )

Total net cash outflows from financing leases $ 5,323 $ 12,404

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of September 30, 2023 are as follows (in thousands).

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of March 31, 2024 are as follows (in thousands).

Year Ending December 31, Operating Leases Financing Leases

2023 (three months) $ 66,197 $ 5,026

2024 (nine months) $ 196,034 $ 15,198

2025 262,030 6,850

3 unchanged sentences

Thereafter 251,474 20,626

Total 1,202,806 71,149

Total lease payments 1,092,521 61,508

Purchase option liability and non-cash gain on future sale of property — 145,136

1 unchanged sentence

Total lease obligations $ 831,938 $ 151,590

Welltower Lease Amendments

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

("Welltower") pursuant to which the Company continues to lease 74 communities.

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

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

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

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

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

The amended leases for 35 of such communities were prospectively classified as operating leases subsequent to the amendment.

The prospective change in classification of such lease costs to operating lease expense will result in a $ 19.3 million increase in cash lease payments for operating leases for 2023 and an offsetting decrease in cash lease payments for financing leases.

For the three and nine months ended September 30, 2023, the classification of such lease costs as operating lease expense resulted in a $ 7.2 million and $ 12.0 million, respectively, increase in cash lease payments for operating leases and an offsetting decrease in cash lease payments for financing leases.

The amendment to the lease arrangements increased the right-of-use assets and lease obligations recognized on the Company's condensed consolidated balance sheet each by $ 122.3 million.

The amendments replaced the net worth covenant provisions requiring the Company to maintain at least $ 400.0 million of stockholders' equity with a consolidated tangible net worth covenant requiring the Company to maintain at least $ 2.0 billion of

tangible net worth, generally calculated as stockholders' equity plus accumulated depreciation and amortization less intangible assets and further adjusted for certain other items.

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

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

Investment in Unconsolidated Ventures

As of September 30, 2023, the Company owns a 20 % equity interest, and affiliates of HCA Healthcare Inc.

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

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

The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture is $ 54.1 million, which is included in investment in unconsolidated ventures on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2023.

As of September 30, 2023, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to the HCS Venture.

During the three months ended September 30, 2023, the Company contributed $ 7.5 million to the HCS Venture.

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

1 unchanged sentence

As a result, the Company maintains general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are appropriate, based on the nature and risks of its business, historical experience, availability, and industry standards.

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

The Company's current

policies provide for deductibles for each claim and contain various exclusions from coverage.

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

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

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

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

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

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

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

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

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

In January 2024, the court dismissed one of the two derivative lawsuits.

Plaintiffs have appealed the dismissal to the United States Court of Appeals for the Sixth Circuit.

The other derivative lawsuit remains pending with the Middle District of Tennessee and asserts claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company.

The complaint incorporates substantively similar allegations to the securities lawsuit previously described.

Stock-Based Compensation

Grants of restricted stock units and stock awards under the Company's 2014 Omnibus Incentive Plan were as follows.

(in thousands, except weighted average amounts) Restricted Stock Unit and Stock Award Grants Weighted Average Grant Date Fair Value Total Grant Date Fair Value

(in thousands, except for weighted average amounts) Restricted Stock Unit and Stock Award Grants Weighted Average Grant Date Fair Value Total Grant Date Fair Value

Three months ended March 31, 2024 2,224 $ 6.36 $ 14,148

Three months ended June 30, 2023 10 $ 2.95 $ 29

Three months ended September 30, 2023 16 $ 4.01 $ 65

Earnings Per Share

1 unchanged sentence

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

As of September 30, 2023, the maximum number of shares issuable upon settlement of the Notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

As of March 31, 2024, the maximum number of shares issuable upon settlement of the Notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

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

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

As of September 30, 2023, the maximum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts is 43.7 million.

During the three months ended March 31, 2024, 275,000 of the Units were separated at the election of the holders into the two components, prepaid stock purchase contracts and senior amortizing notes, and the Company delivered 3,556,877 shares of the Company’s common stock upon settlement of such prepaid stock purchase contracts.

As of March 31, 2024, 2,600,000 prepaid stock purchase contracts remain outstanding, and the maximum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts is 39.5 million.

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

For both the three and nine months ended September 30, 2023, 37.2 million shares are included in weighted average basic shares outstanding for the minimum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts.

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

The following table summarizes the computation of basic weighted average shares presented in the condensed consolidated statements of operations.

Three Months Ended March 31,

(in thousands) 2024 2023

6 unchanged sentences

The Company has the following potentially outstanding shares of common stock, which were excluded from the computation of diluted net income (loss) per share attributable to common stockholders in both periods as a result of the net loss.

As of September 30,

As of March 31,

(in millions) 2024 2023

4 unchanged sentences

Total 67.0 67.7

The difference between the Company's effective tax rate for the three months ended September 30, 2023 and 2022 was primarily due to a decrease in the valuation allowance recorded on operating losses during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

The difference between the Company's effective tax rate for the nine months ended September 30, 2023 and 2022 was primarily due to a decrease in the tax benefit on the vesting of restricted stock units and restricted stock awards due to a lower market price for the Company's stock for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 12.2 million for the three months ended September 30, 2023, which was partially offset by an increase to the valuation allowance of $ 10.0 million.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 23.0 million for the nine months ended September 30, 2023, which was partially offset by an increase to the valuation allowance of $ 21.0 million.

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

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

The difference between the Company's effective tax rate for the three months ended March 31, 2024 and 2023 was primarily due to an increase in the tax benefit on the vesting of restricted stock units and restricted stock awards for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 7.6 million for the three months ended March 31, 2024, which was partially offset by an increase to the valuation allowance of $ 7.2 million.

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

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

The Company's valuation allowance as of September 30, 2023 and December 31, 2022 was $ 446.0 million and $ 425.0 million, respectively.

The increase in the valuation allowance for both the nine months ended September 30, 2023 and 2022 is the result of current operating losses during the periods and by the anticipated reversal of future tax liabilities offset by future tax deductions.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and nine months ended September 30, 2023 and 2022 which are included in income tax expense or benefit for the period.

As of September 30, 2023, tax returns for years 2019 through 2022 are subject to future examination by tax authorities.

The Company's valuation allowance as of March 31, 2024 and December 31, 2023 was $ 481.4 million and $ 474.2 million, respectively.

The increase in the valuation allowance for both the three months ended March 31, 2024 and 2023 is the result of current operating losses during the periods and the anticipated reversal of future tax liabilities offset by future tax deductions.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three months ended March 31, 2024 and 2023 which are included in income tax expense or benefit for the period.

As of March 31, 2024, tax returns for years 2019 through 2022 are subject to future examination by tax authorities.

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

Supplemental Disclosure of Cash Flow Information

During the period from January 1, 2022 through September 30, 2023, the Company disposed of three owned communities, the Company's triple-net lease obligations on four communities were terminated (including through the acquisition of one formerly leased community), and the Company acquired the remaining 50 % equity interest in one community.

On May 1, 2023, the Company completed the sale of its one remaining entrance fee community, which was included within the Company's CCRCs segment.

The Company received cash proceeds of $ 12.7 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.

On November 1, 2023, the Company completed the sale of a CCRC, for which the Company received cash proceeds of $12.7 million, net of transaction costs, at closing.

As of September 30, 2023, the community was classified as held for sale within the CCRCs segment, resulting in $ 12.7 million of property, plant and equipment and leasehold intangibles being presented as assets held for sale within the condensed consolidated balance sheets.

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

During the years ended December 31, 2022 and 2021, the Company recognized $ 9.4 million and $ 9.9 million, respectively, of employee retention credits on wages paid from March 12, 2020 to December 31, 2021 within other operating income, for which the Company has received $ 19.3 million in cash through September 30, 2023.

During the nine months ended September 30, 2023 and 2022, the Company received cash of $ 14.7 million and $ 1.2 million, respectively, for such employee retention credits.

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2024 2023

8 unchanged sentences

Net cash paid $ 44,399 $ 49,700

Acquisition of assets, net of cash acquired:

Prepaid expenses and other assets, net $ 23 $ —

Property, plant and equipment and leasehold intangibles, net 6,872 4

Investment in unconsolidated ventures ( 3,395 ) —

Financing lease obligations — 6,000

Other liabilities ( 384 ) —

Other non-operating loss (income) ( 2,542 ) —

Net cash paid $ 574 $ 6,004

Proceeds from sale of assets, net:

Prepaid expenses and other assets, net $ ( 1,660 ) $ ( 1,301 )

Assets held for sale — ( 3,668 )

Property, plant and equipment and leasehold intangibles, net ( 23,733 ) ( 100 )

Refundable fees and deferred revenue 9,347 —

Other liabilities 10,021 ( 164 )

Non-operating (gain) loss on sale of assets, net ( 860 ) ( 611 )

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

Net cash received $ ( 43,181 ) $ ( 5,844 )

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

Non-cash lease transactions, net:

Property, plant and equipment and leasehold intangibles, net $ ( 51,542 ) $ 11,067

Operating lease right-of-use assets 216,492 11,219

Financing lease obligations 88,844 ( 6,307 )

Operating lease obligations ( 253,794 ) ( 15,979 )

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

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

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

(in thousands) September 30, 2023 December 31, 2022

(in thousands) March 31, 2024 December 31, 2023

Reconciliation of cash, cash equivalents, and restricted cash:

15 unchanged sentences

The Company's Assisted Living and Memory Care segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily living for the Company's residents.

The Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as smaller, freestanding, single story communities.

Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as smaller, freestanding, single story communities.

The Company also provides memory care services at freestanding memory care communities that are specially designed for residents with Alzheimer's disease and other dementias.

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023

7 unchanged sentences

Total revenue and other operating income $ 782,831 $ 753,263

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022 2023 2022

Segment operating income:

8 unchanged sentences

Asset impairment 1,708 —

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

Income (loss) from operations $ 19,246 $ 7,822

(in thousands) September 30, 2023 December 31, 2022

(in thousands) March 31, 2024 December 31, 2023

Total assets:

7 unchanged sentences

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

(3) The Company's Independent Living segment had a carrying amount of goodwill of $ 27.3 million as of both September 30, 2023 and December 31, 2022.

(3) The Company's total carrying amount of goodwill is included on the Independent Living segment and was $ 27.3 million as of both March 31, 2024 and December 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements