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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-08 · 250 added, 85 removed, 339 unchanged (50% of the section changed)

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together with its consolidated subsidiaries.

We are the nation's premier operator of senior living communities, operating and managing 652 communities in 41 states as of March 31, 2024, with the ability to serve approximately 59,000 residents.

We are the nation's premier operator of senior living communities, operating and managing 649 communities in 41 states as of June 30, 2024, with the ability to serve approximately 59,000 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 ("CCRCs").

As of June 30, 2024, we owned 342 communities (30,970 units), leased 277 communities (19,857 units), and managed 30 communities (4,579 units).

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

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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.

Community Transactions

Subsequent to the three months ended June 30, 2024, we amended the existing master lease with Omega Healthcare Investors, Inc.

("Omega") pursuant to which we continue to lease 24 communities (2,555 units) from Omega.

The amended master lease has an initial term to expire on December 31, 2037.

As part of the amendment, Omega agreed to make available up to $80.0 million to fund costs associated with capital expenditures for the communities through December 31, 2037.

The annual rent under the lease will not be adjusted upon reimbursements for capital expenditures in the aggregate amount of up to $30.0 million of the $80.0 million pool, which is available in certain tranches through June 30, 2028.

With respect to the remaining $50.0 million of the $80.0 million pool, the annual rent under the lease will prospectively increase by the amount of each reimbursement multiplied by 9.5%.

The $50.0 million will be available in certain tranches beginning January 1, 2025, subject to certain annual reimbursement caps specified in the lease.

Under the terms of the amendment, rent will escalate annually per the terms of the existing lease escalator, with a potential minor contingent rent adjustment beginning in 2028 depending on lease performance.

We preliminarily estimate that the lease modification will increase the right-of-use assets and lease obligations recognized on our condensed consolidated balance sheet each by approximately $220.0 million.

Results of Operations

As of March 31, 2024, our total operations included 652 communities with a capacity to serve approximately 59,000 residents.

As of that date, we owned 345 communities (31,169 units), leased 277 communities (19,844 units), and managed 30 communities (4,579 units).

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in "Item 1.

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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 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.

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 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.

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

• Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period.

• Weighted average occupancy reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period.

We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis.

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See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable measure in accordance with generally accepted accounting principles in the United States ("GAAP").

Comparison of Three Months Ended March 31, 2024 and 2023

Comparison of Three Months Ended June 30, 2024 and 2023

Summary Operating Results

The following table summarizes our overall operating results for the three months ended March 31, 2024 and 2023.

The following table summarizes our overall operating results for the three months ended June 30, 2024 and 2023.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands) 2024 2023 Amount Percent

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Facility operating expense 537,507 531,118 6,389 1.2 %

Net income (loss) (29,581) (44,563) (14,982) (33.6) %

Net income (loss) (37,742) (4,526) 33,216 NM

Adjusted EBITDA 97,816 81,372 16,444 20.2 %

The increase in resident fees was primarily attributable to a 5.9% increase in same community RevPAR, comprised of a 4.1% increase in same community RevPOR and a 130 basis point increase in same community weighted average occupancy.

The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $16.3 million less in resident fees during the three months ended March 31, 2024 compared to the prior year period.

The increase in facility operating expense was primarily attributable to a 4.3% increase in same community facility operating expense primarily resulting from broad inflationary pressure, an additional day of expense due to the leap year, and an increase in property repair expense primarily as a result of severe weather events, partially offset by a decrease in the use of premium labor, primarily contract labor.

The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $13.7 million less in facility operating expense during the three months ended March 31, 2024 compared to the prior year period.

The decrease in net loss was primarily attributable to the increase in resident fees, partially offset by the increase in facility operating expense.

The increase in Adjusted EBITDA was primarily attributable to the increase in resident fees, partially offset by the increase in facility operating expense and the change in classification of $7.4 million of lease payments for 35 communities as cash facility operating lease payments as a result of lease amendments subsequent to the prior year period.

The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $14.4 million less in resident fees during the three months ended June 30, 2024 compared to the prior year period.

The increase in facility operating expense was primarily attributable to a 3.6% increase in same community facility operating expense primarily resulting from broad inflationary pressure and an increase in estimated insurance expense, partially offset by a decrease in the use of premium labor, primarily contract labor and a decrease in estimated incentive compensation costs.

increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $12.8 million less in facility operating expense during the three months ended June 30, 2024 compared to the prior year period.

The increase in net loss was primarily attributable to a $36.3 million gain on sale of communities, net recognized during the three months ended June 30, 2023 for the sale of our one remaining entrance fee community and the increase in facility operating expense, partially offset by the increase in resident fees.

The increase in Adjusted EBITDA was primarily attributable to the increase in resident fees, partially offset by the increase in facility operating expense, a $4.1 million decrease in other operating income for state government grants recognized in the three months ended June 30, 2023, and the change in classification of $2.5 million of lease payments for 35 communities as cash facility operating lease payments as a result of lease amendments in the prior year period.

Operating Results - Senior Housing Segments

The following table summarizes the consolidated operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) for the three months ended March 31, 2024 and 2023, including operating results and data on a same community basis.

The following table summarizes the consolidated operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) for the three months ended June 30, 2024 and 2023, including operating results and data on a same community basis.

See management's discussion and analysis of the operating results on an individual segment basis on the following pages.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

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RevPAR $ 4,835 $ 4,544 $ 291 6.4 %

Occupancy rate (weighted average) 77.9 % 76.3 % 160 bps n/a

Weighted average occupancy 78.1 % 76.5 % 160 bps n/a

RevPOR $ 6,193 $ 5,939 $ 254 4.3 %

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RevPAR $ 4,826 $ 4,556 $ 270 5.9 %

Occupancy rate (weighted average) 78.0 % 76.5 % 150 bps n/a

Weighted average occupancy 78.1 % 76.8 % 130 bps n/a

RevPOR $ 6,177 $ 5,934 $ 243 4.1 %

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the three months ended March 31, 2024 and 2023.

The following table summarizes the operating results and data for our Independent Living segment for the three months ended June 30, 2024 and 2023.

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

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

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RevPAR $ 3,965 $ 3,729 $ 236 6.3 %

Occupancy rate (weighted average) 79.6 % 78.6 % 100 bps n/a

Weighted average occupancy 79.9 % 78.9 % 100 bps n/a

RevPOR $ 4,959 $ 4,727 $ 232 4.9 %

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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, an additional day of expense due to the leap year, an increase in property repair expense primarily as a result of severe weather events, and increased wireless internet access provided for residents, partially offset by a decrease in the use of premium labor.

The segment's same community facility operating expense for the three months ended March 31, 2024 and 2023 excludes $0.4 million and $0.2 million, respectively, of natural disaster expense.

The increase in the segment's facility operating expense was primarily attributable to broad inflationary pressure and an increase in estimated insurance expense.

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended March 31, 2024 and 2023, including operating results and data on a same community basis.

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended June 30, 2024 and 2023, including operating results and data on a same community basis.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

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RevPAR $ 5,018 $ 4,703 $ 315 6.7 %

Occupancy rate (weighted average) 77.5 % 75.9 % 160 bps n/a

Weighted average occupancy 77.6 % 76.3 % 130 bps n/a

RevPOR $ 6,462 $ 6,164 $ 298 4.8 %

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RevPAR $ 5,017 $ 4,719 $ 298 6.3 %

Occupancy rate (weighted average) 77.5 % 76.0 % 150 bps n/a

Weighted average occupancy 77.7 % 76.3 % 140 bps n/a

RevPOR $ 6,459 $ 6,182 $ 277 4.5 %

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

The increase in the segment's resident fees was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $9.5 million less in resident fees during the three months ended March 31, 2024 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense primarily attributable to broad inflationary pressure, an additional day of expense due to the leap year, and an increase in property repair expense primarily as a result of severe weather events, partially offset by a decrease in the use of premium labor, primarily contract labor and a decrease in credit losses.

The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $7.4 million less in facility operating expense during the three months ended March 31, 2024 compared to the prior year period.

The segment's same community facility operating expense for the three months ended March 31, 2024 and 2023 excludes $2.4 million and $0.3 million, respectively, of natural disaster expense, consisting primarily of remediation of winter storm damage.

The increase in the segment's resident fees was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $10.5 million less in resident fees during the three months ended June 30, 2024 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense primarily attributable to broad inflationary pressure and an increase in estimated insurance expense, partially offset by decreases in estimated incentive compensation costs and the use of premium labor, primarily contract labor.

The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $8.5 million less in facility operating expense during the three months ended June 30, 2024 compared to the prior year period.

CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the three months ended March 31, 2024 and 2023, including operating results and data on a same community basis.

The following table summarizes the operating results and data for our CCRCs segment for the three months ended June 30, 2024 and 2023, including operating results and data on a same community basis.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

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RevPAR $ 5,845 $ 5,500 $ 345 6.3 %

Occupancy rate (weighted average) 76.1 % 73.4 % 270 bps n/a

Weighted average occupancy 76.1 % 72.0 % 410 bps n/a

RevPOR $ 7,685 $ 7,636 $ 49 0.6 %

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RevPAR $ 5,869 $ 5,709 $ 160 2.8 %

Occupancy rate (weighted average) 76.5 % 74.5 % 200 bps n/a

Weighted average occupancy 76.5 % 74.0 % 250 bps n/a

RevPOR $ 7,675 $ 7,712 $ (37) (0.5) %

The decrease in the segment's resident fees was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $6.8 million less in resident fees during the three months ended March 31, 2024 compared to the prior year period.

The decrease was partially offset by an increase in the segment's same community RevPAR, comprised of a 200 basis point increase in same community weighted average occupancy and a 2.7% increase in the segment's 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 250 basis point increase in same community weighted average occupancy and a 0.5% decrease in the segment's 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 annual in-place rate increases effective January 1, 2024, partially offset by an occupancy mix shift to more independent living residents.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $6.3 million less in facility operating expense during the three months ended March 31, 2024 compared to the prior year period.

The decrease in the segment's same community RevPOR was primarily the result of an occupancy mix shift to more independent living residents and lower skilled nursing revenue, partially offset by annual in-place rate increases effective January 1, 2024.

The increase in the segment's resident fees was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $3.9 million less in resident fees during the three months ended June 30, 2024 compared to the prior year period.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $4.3 million less in facility operating expense during the three months ended June 30, 2024 compared to the prior year period.

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 attributable to broad inflationary pressure and an increase in estimated insurance expense, partially offset by a decrease in the use of premium labor, primarily contract labor.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the three months ended March 31, 2024 and 2023.

The following table summarizes other income and expense items in our operating results for the three months ended June 30, 2024 and 2023.

Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

(in thousands) 2024 2023 Amount Percent

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Depreciation and amortization 88,028 84,448 3,580 4.2 %

Asset impairment 1,708 — 1,708 NM

Asset impairment — 520 (520) (100.0)%

Loss (gain) on sale of communities, net — (36,296) (36,296) (100.0)%

Interest income 4,714 6,115 (1,401) (22.9) %

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Equity in earnings (loss) of unconsolidated ventures — (1,153) (1,153) (100.0)%

Non-operating gain (loss) on sale of assets, net 704 — 704 NM

Non-operating gain (loss) on sale of assets, net 199 860 (661) (76.9) %

Other non-operating income (loss) 199 3,197 (2,998) (93.8) %

Benefit (provision) for income taxes 40 (572) 612 NM

Benefit (provision) for income taxes (449) (275) 174 63.3 %

General and Administrative Expense.

The decrease in general and administrative expense was primarily attributable to a decrease in organizational restructuring costs compared to the prior year period, primarily for severance costs for our senior leadership changes during the three months ended March 31, 2023.

General and administrative expense includes transaction and organizational restructuring costs of $0.4 million and $3.6 million for the three months ended March 31, 2024 and 2023, respectively.

The increase in general and administrative expense was primarily attributable to an increase in non-cash stock-based compensation expense compared to the prior year period.

General and administrative expense includes transaction and organizational restructuring costs of $0.1 million for both the three months ended June 30, 2024 and 2023.

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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Facility Operating Lease Expense.

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 prior year period.

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 since the beginning of the prior year period, partially offset by the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the prior year period.

Asset Impairment.

During the three months ended March 31, 2024, we recorded $1.7 million of non-cash impairment charges, primarily due to property damage sustained at certain communities.

Loss (Gain) on Sale of Communities, net.

The decrease in gain on sale of communities, net was due to the sale of our one remaining entrance fee community during the three months ended June 30, 2023.

Interest Expense .

The decrease in interest expense was primarily due to an increase in the fair value of interest rate derivatives in the current period and 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 prior year period.

These changes were partially offset by an increase in interest expense on long-term debt primarily as a result of increases in variable interest rate indices.

The increase in interest expense was primarily due to an increase in the fair value of interest rate derivatives in the prior period and an increase in interest expense on long-term debt primarily as a result of increases in variable interest rate indices.

Benefit (Provision) for Income Taxes.

The difference between our 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.

We 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 in the valuation allowance of $7.2 million.

The difference between our effective tax rate for the three months ended June 30, 2024 and 2023 was primarily due to an increase in the valuation allowance recorded on operating losses during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

We recorded an aggregate deferred federal, state, and local tax benefit of $9.1 million for the three months ended June 30, 2024, which was offset by an increase in the valuation allowance of $9.2 million.

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

Our valuation allowance as of March 31, 2024 and December 31, 2023 was $481.4 million and $474.2 million, respectively.

Our valuation allowance as of June 30, 2024 and December 31, 2023 was $490.5 million and $474.2 million, respectively.

Comparison of Six Months Ended June 30, 2024 and 2023

Summary Operating Results

The following table summarizes our overall operating results for the six months ended June 30, 2024 and 2023.

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2024 2023 Amount Percent

Resident fees $ 1,483,950 $ 1,423,565 $ 60,385 4.2 %

Facility operating expense 1,080,057 1,061,925 18,132 1.7 %

Net income (loss) (67,323) (49,089) 18,234 37.1 %

Adjusted EBITDA 195,432 169,995 25,437 15.0 %

The increase in resident fees was primarily attributable to a 6.1% increase in same community RevPAR, comprised of a 4.2% increase in same community RevPOR and a 140 basis point increase in same community weighted average occupancy.

The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $30.1 million less in resident fees during the six months ended June 30, 2024 compared to the prior year period.

The increase in facility operating expense was primarily attributable to a 4.0% increase in same community facility operating expense, primarily resulting from broad inflationary pressure, an additional day of expense due to the leap year, an increase in estimated insurance expense, and an increase in property repair expense primarily as a result of severe weather events, partially offset by a decrease in the use of premium labor, primarily contract labor.

The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $26.4 million less in facility operating expense during the six months ended June 30, 2024 compared to the prior year period.

The increase in net loss was primarily attributable to a $36.3 million gain on sale of communities, net recognized during the six months ended June 30, 2023 for the sale of our one remaining entrance fee community, the increase in facility operating expense, a decrease in other operating income, an increase in depreciation and amortization expense, and an increase in debt interest expense compared to the prior year period.

These changes were partially offset by the increase in resident fees.

The increase in Adjusted EBITDA was primarily attributable to the increase in resident fees, partially offset by the increase in facility operating expense and the change in classification of $9.9 million of lease payments for 35 communities as cash facility operating lease payments as a result of lease amendments in the prior year period.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the six months ended June 30, 2024 and 2023 including operating results and data on a same community basis.

See management's discussion and analysis of the operating results on an individual segment basis on the following pages.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

Resident fees $ 1,483,950 $ 1,423,565 $ 60,385 4.2 %

Other operating income $ — $ 6,450 $ (6,450) (100.0)%

Facility operating expense $ 1,080,057 $ 1,061,925 $ 18,132 1.7 %

Number of communities (period end) 619 641 (22) (3.4) %

Total average units 50,983 52,104 (1,121) (2.2) %

RevPAR $ 4,844 $ 4,548 $ 296 6.5 %

Weighted average occupancy 78.0 % 76.4 % 160 bps n/a

RevPOR $ 6,211 $ 5,951 $ 260 4.4 %

Same Community Operating Results and Data

Resident fees $ 1,454,992 $ 1,371,039 $ 83,953 6.1 %

Other operating income $ — $ 6,265 $ (6,265) (100.0)%

Facility operating expense $ 1,054,776 $ 1,014,660 $ 40,116 4.0 %

Number of communities 611 611 — — %

Total average units 50,126 50,125 1 — %

RevPAR $ 4,838 $ 4,559 $ 279 6.1 %

Weighted average occupancy 78.1 % 76.7 % 140 bps n/a

RevPOR $ 6,198 $ 5,947 $ 251 4.2 %

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the six months ended June 30, 2024 and 2023, 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.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

Resident fees $ 298,490 $ 281,272 $ 17,218 6.1 %

Other operating income $ — $ 272 $ (272) (100.0)%

Facility operating expense $ 199,513 $ 188,350 $ 11,163 5.9 %

Number of communities (period end) 68 68 — — %

Total average units 12,569 12,572 (3) — %

RevPAR $ 3,958 $ 3,729 $ 229 6.1 %

Weighted average occupancy 79.8 % 78.8 % 100 bps n/a

RevPOR $ 4,961 $ 4,734 $ 227 4.8 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's RevPAR, comprised of a 4.8% increase in RevPOR and a 100 basis point increase in weighted average occupancy.

The increase in the segment's RevPOR was primarily the result of the annual in-place rate increases effective January 1, 2024.

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, an additional day of expense due to the leap year, an increase in property repair expense primarily as a result of severe weather events, and increased wireless internet access provided for residents, and an increase in estimated insurance expense, partially offset by a decrease in estimated incentive compensation costs.

The segment's same community facility operating expense for the six months ended June 30, 2024 excludes $0.4 million of natural disaster expense.

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the six months ended June 30, 2024 and 2023, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

Resident fees $ 1,018,063 $ 973,300 $ 44,763 4.6 %

Other operating income $ — $ 5,790 $ (5,790) (100.0)%

Facility operating expense $ 744,450 $ 729,881 $ 14,569 2.0 %

Number of communities (period end) 534 555 (21) (3.8) %

Total average units 33,682 34,429 (747) (2.2) %

RevPAR $ 5,027 $ 4,706 $ 321 6.8 %

Weighted average occupancy 77.6 % 76.1 % 150 bps n/a

RevPOR $ 6,478 $ 6,184 $ 294 4.8 %

Same Community Operating Results and Data

Resident fees $ 1,002,824 $ 942,197 $ 60,627 6.4 %

Other operating income $ — $ 5,651 $ (5,651) (100.0)%

Facility operating expense $ 729,716 $ 703,341 $ 26,375 3.7 %

Number of communities 527 527 — — %

Total average units 33,241 33,239 2 — %

RevPAR $ 5,028 $ 4,724 $ 304 6.4 %

Weighted average occupancy 77.6 % 76.2 % 140 bps n/a

RevPOR $ 6,479 $ 6,202 $ 277 4.5 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 4.5% increase in same community RevPOR and a 140 basis point increase in same community weighted average occupancy.

The increase in the segment's same community RevPOR was primarily the result of the annual in-place rate increases effective January 1, 2024.

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

The increase in the segment's resident fees was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $19.4 million less in resident fees during the six months ended June 30, 2024 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense primarily attributable to broad inflationary pressure, an additional day of expense due to the leap year, an increase in estimated insurance expense, and an increase in property repair expense primarily as a result of severe weather events, partially offset by a decrease in the use of premium labor, primarily contract labor, a decrease in estimated incentive compensation costs, and a decrease in credit losses.

The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $15.7 million less in facility operating expense during the six months ended June 30, 2024 compared to the prior year period.

The segment's same community facility operating expense for the six months ended June 30, 2024 and 2023 excludes $2.4 million and $0.7 million, respectively, of natural disaster expense.

CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the six months ended June 30, 2024 and 2023, including operating results and data on a same community basis.

Six Months Ended

June 30, Increase (Decrease)

(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2024 2023 Amount Percent

Resident fees $ 167,397 $ 168,993 $ (1,596) (0.9) %

Other operating income $ — $ 388 $ (388) (100.0)%

Facility operating expense $ 136,094 $ 143,694 $ (7,600) (5.3) %

Number of communities (period end) 17 18 (1) (5.6) %

Total average units 4,732 5,103 (371) (7.3) %

RevPAR $ 5,896 $ 5,495 $ 401 7.3 %

Weighted average occupancy 76.1 % 72.7 % 340 bps n/a

RevPOR $ 7,750 $ 7,557 $ 193 2.6 %

Same Community Operating Results and Data

Resident fees $ 153,678 $ 147,570 $ 6,108 4.1 %

Other operating income $ — $ 342 $ (342) (100.0)%

Facility operating expense $ 125,895 $ 122,990 $ 2,905 2.4 %

Number of communities 16 16 — — %

Total average units 4,316 4,314 2 — %

RevPAR $ 5,935 $ 5,701 $ 234 4.1 %

Weighted average occupancy 76.5 % 74.3 % 220 bps n/a

RevPOR $ 7,758 $ 7,675 $ 83 1.1 %

The decrease in the segment's resident fees was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $10.7 million less in resident fees during the six months ended June 30, 2024 compared to the prior year period.

The decrease was partially offset by an increase in the segment's same community RevPAR, comprised of a 220 basis point increase in same community weighted average occupancy and a 1.1% increase in same community RevPOR.

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

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $10.7 million less in facility operating expense during the six months ended June 30, 2024 compared to the prior year period.

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 attributable to broad inflationary pressure, an additional day of expense due to the leap year, and an increase in estimated insurance expense, partially offset by a decrease in the use of premium labor, primarily contract labor.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the six months ended June 30, 2024 and 2023.

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2024 2023 Amount Percent

Management fees $ 5,234 $ 5,087 $ 147 2.9 %

Reimbursed costs incurred on behalf of managed communities 71,188 68,953 2,235 3.2 %

Costs incurred on behalf of managed communities 71,188 68,953 2,235 3.2 %

General and administrative expense 92,396 93,945 (1,549) (1.6) %

Facility operating lease expense 102,460 96,639 5,821 6.0 %

Depreciation and amortization 174,155 169,382 4,773 2.8 %

Asset impairment 1,708 520 1,188 NM

Loss (gain) on sale of communities, net — (36,296) (36,296) (100.0)%

Interest income 9,492 11,441 (1,949) (17.0) %

Interest expense 119,254 114,146 5,108 4.5 %

Equity in earnings (loss) of unconsolidated ventures — (1,730) (1,730) (100.0)%

Non-operating gain (loss) on sale of assets, net 903 860 43 5.0 %

Other non-operating income (loss) 3,537 6,346 (2,809) (44.3) %

Benefit (provision) for income taxes (409) (847) (438) (51.7) %

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

The increase in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to an increase in community costs incurred as a result of broad inflationary pressure for communities managed in both periods.

General and Administrative Expense.

General and administrative expense includes transaction and organizational restructuring costs of $0.5 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively.

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

Facility Operating Lease Expense.

Depreciation and Amortization.

Loss (Gain) on Sale of Communities, net .

The decrease in gain on sale of communities, net was due to the sale of our one remaining entrance fee community during the six months ended June 30, 2023.

Interest Expense.

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 rate indices.

Benefit (Provision) for Income Taxes.

The difference between our effective tax rate for the six months ended June 30, 2024 and 2023 was primarily due to an increase in the tax benefit on the vesting of restricted stock units for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

We recorded an aggregate deferred federal, state, and local tax benefit of $16.7 million for the six months ended June 30, 2024, which was partially offset by an increase in the valuation allowance of $16.3 million.

We recorded an aggregate deferred federal, state, and local tax benefit of $10.8 million for the six months ended June 30, 2023, which was offset by an increase to the valuation allowance of $11.0 million.

Liquidity and Capital Resources

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The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow.

Three Months Ended

March 31, Increase (Decrease)

Six Months Ended

June 30, Increase (Decrease)

(in thousands) 2024 2023 Amount Percent

Net cash provided by (used in) operating activities $ (1,146) $ 24,042 $ (25,188) NM

Net cash provided by (used in) operating activities $ 54,524 $ 87,866 $ (33,342) (37.9) %

Net cash provided by (used in) investing activities (75,403) (103,910) (28,507) (27.4) %

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Adjusted Free Cash Flow $ (31,813) $ (28,720) $ (3,093) (10.8) %

The change in net cash provided by (used in) operating activities was primarily attributable to an increase in incentive compensation payments, a decrease in cash received associated with government grants and credits, and an increase in facility operating expense compared to the prior year period, partially offset by increases in resident fees compared to the prior year period.

Net cash used in operating activities of $1.1 million for the three months ended March 31, 2024 primarily reflects the impact of $45.0 million of net cash used for changes in operating assets and liabilities, including payments under our annual and long-term incentive compensation programs and annual insurance premium payments made during the period.

We expect that net cash provided by (used in) changes in operating assets and liabilities may fluctuate in future periods as a result of a number of factors, including the timing of collection of resident fees and the timing of payments for employee compensation and other expenditures.

Changes in operating assets and liabilities are generally neutral over an entire annual period.

The decrease in net cash provided by operating activities was primarily attributable to $25.3 million in cash received in the prior year period associated with government grants and credits, an increase in incentive compensation payments, and an increase in facility operating expense compared to the prior year period, partially offset by an increase in resident fees compared to the prior year period.

The decrease in net cash used in investing activities was primarily attributable to a $91.2 million decrease in purchases of marketable securities and a $13.9 million decrease in cash paid for capital expenditures compared to the prior year period.

The increase in net cash provided by financing activities was primarily attributable to $50.0 million of debt secured by first priority mortgages on 11 communities during the three months ended March 31, 2024.

The change in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating activities, partially offset by a $12.3 million decrease in non-development capital expenditures, net compared to the prior year period.

These changes were partially offset by a reduction in net proceeds from sale of assets of $36.0 million and a reduction in the sale and maturities of marketable securities of $35.1 million.

The change in net cash provided by (used in) financing activities was primarily attributable to $50.0 million of debt secured by first priority mortgages on 11 communities in the current year period and the repayment of $29.6 million of mortgage debt upon the sale of our one remaining entrance fee community in the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable to the decrease in net cash provided by operating activities, partially offset by a $24.8 million decrease in non-development capital expenditures, net compared to the prior year period.

Our principal sources of liquidity have historically been from:

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• working capital;

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

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

• debt, interest, and lease payments;

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

As of March 31, 2024, we had $3.8 billion of debt outstanding at a weighted average interest rate of 5.62%.

As of June 30, 2024, we had $3.7 billion of debt outstanding at a weighted average interest rate of 5.61%.

As of such date, 91.3%, or $3.4 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

As of March 31, 2024, we had $1.0 billion of operating and financing lease obligations, and for the twelve months ending March 31, 2025, we will be required to make approximately $278.4 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $355.1 million as of March 31, 2024 included $318.5 million of unrestricted cash and cash equivalents (excluding restricted cash of $77.1 million) and $36.5 million of availability on our secured credit facility.

Total liquidity as of March 31, 2024 increased $14.4 million from total liquidity of $340.7 million as of December 31, 2023.

As of June 30, 2024, we had $0.9 billion of operating and financing lease obligations, and for the twelve months ending June 30, 2025, we will be required to make approximately $274.6 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of $345.8 million as of June 30, 2024 included $290.0 million of unrestricted cash and cash equivalents (excluding restricted cash of $72.5 million), $19.7 million of marketable securities, and $36.1 million of availability on our secured credit facility.

Total liquidity as of June 30, 2024 increased $5.2 million from total liquidity of $340.7 million as of December 31, 2023.

The increase was primarily attributable to $50.0 million of mortgage debt proceeds, partially offset by negative $31.8 million of Adjusted Free Cash Flow and repayments of mortgage debt.

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

As of March 31, 2024, 10% of our owned communities were unencumbered by mortgage debt.

As of March 31, 2024, our current liabilities exceeded current assets by $98.5 million.

As of June 30, 2024, 9% of our owned communities were unencumbered by mortgage debt.

As of June 30, 2024, our current liabilities exceeded current assets by $129.3 million.

Included in our current liabilities is $200.3 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets.

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

Our inability to exercise available extension options or 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

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

Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an

adverse impact on our ability to fund our planned capital expenditures or to fund investments to support our strategy.

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

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

The following table summarizes our capital expenditures for the three months ended March 31, 2024 for our consolidated business.

The following table summarizes our capital expenditures for the six months ended June 30, 2024 for our consolidated business.

(in thousands)

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Amounts drawn under the facility will bear interest at the Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 2.5% to 3.0% based upon the percentage of the total commitment drawn.

Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of March 31, 2024.

Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of June 30, 2024.

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 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 March 31, 2024, $63.5 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility and the facility had $36.5 million of availability.

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

As of June 30, 2024, $58.8 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility and the facility had $36.1 million of availability.

We also had a separate secured letter of credit facility providing up to $17.0 million of letters of credit as of June 30, 2024 under which $15.7 million had been issued as of that date.

Long-Term Leases

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

As of June 30, 2024, we operated 277 communities under long-term leases (263 operating leases and 14 financing leases).

The substantial majority of our lease arrangements are structured as master leases.

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The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue.

Approximately 88% of our community lease payments for the three months ended March 31, 2024 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 88% of our community lease payments for the six months ended June 30, 2024 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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These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.

For the three months ended March 31, 2024 and 2023, our cash lease payments for our operating leases were $66.5 million and $58.6 million, respectively, and for our financing leases were $5.3 million and $12.4 million, respectively.

For the twelve months ending March 31, 2025, we will be required to make $278.4 million of cash lease payments in connection with our existing operating and financing leases.

For the six months ended June 30, 2024 and 2023, our cash lease payments for our operating leases were $133.1 million and $122.4 million, respectively, and for our financing leases were $10.7 million and $20.0 million, respectively.

For the twelve months ending June 30, 2025, we will be required to make $274.6 million of cash lease payments in connection with our existing operating and financing leases.

Debt and Lease Covenants

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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 March 31, 2024, our liquidity was $355.1 million.

As of June 30, 2024, our liquidity was $345.8 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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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.

Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors).

We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.

As of March 31, 2024, we are in compliance with the financial covenants of our debt agreements and long-term leases.

As of June 30, 2024, we are in compliance with the financial covenants of our debt agreements and long-term lease agreements.

Non-GAAP Financial Measures

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

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Asset impairment — 520 1,708 520

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

Operating lease expense adjustment (13,483) (11,557) (26,572) (22,362)

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

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Net cash provided by (used in) operating activities $ 55,670 $ 63,824 $ 54,524 $ 87,866

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

Changes in prepaid insurance premiums financed with notes payable (7,617) (6,301) 15,702 13,004

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis