What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-09 · 175 added, 77 removed, 455 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except stock amounts)

September 30,

2024 December 31,

28 unchanged sentences

Total liabilities 5,644,801 5,168,282

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at June 30, 2024 and December 31, 2023;

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at September 30, 2024 and December 31, 2023;

no shares issued and outstanding

Common stock, $ 0.01 par value, 400,000,000 shares authorized at June 30, 2024 and December 31, 2023;

207,728,540 and 198,780,826 shares issued and 197,201,015 and 188,253,301 shares outstanding, respectively

Common stock, $ 0.01 par value, 400,000,000 shares authorized at September 30, 2024 and December 31, 2023;

209,768,026 and 198,780,826 shares issued and 199,240,501 and 188,253,301 shares outstanding (including 27,972 unvested restricted shares as of September 30, 2024), respectively

Additional paid-in-capital 4,349,478 4,342,362

Treasury stock, at cost;

10,527,525 shares at June 30, 2024 and December 31, 2023

10,527,525 shares at September 30, 2024 and December 31, 2023

( 102,774 ) ( 102,774 )

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

20 unchanged sentences

Change in fair value of derivatives ( 4,746 ) 861 ( 2,004 ) 5,130

Gain (loss) on debt modification and extinguishment, net ( 2,267 ) — ( 2,267 ) —

Equity in earnings (loss) of unconsolidated ventures — ( 1,426 ) — ( 3,156 )

15 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

39 unchanged sentences

(Unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

1 unchanged sentence

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Loss (gain) on debt modification and extinguishment, net 2,267 —

Depreciation and amortization, net 271,147 261,063

24 unchanged sentences

Acquisition of assets, net of cash acquired — ( 574 )

Investment in unconsolidated ventures — ( 7,589 )

Proceeds from sale of assets, net 7,017 43,181

Property and casualty insurance proceeds 6,297 19,536

Change in lease acquisition deposits, net ( 2,000 ) —

Purchase of interest rate cap instruments ( 9,282 ) ( 7,223 )

20 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 June 30, 2024, the Company owned 342 communities, representing a majority of the Company's community portfolio, leased 277 communities, and managed 30 communities.

As of September 30, 2024, the Company owned 342 communities, representing a majority of the Company's community portfolio, leased 277 communities, and managed 29 communities.

Summary of Significant Accounting Policies

16 unchanged sentences

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's condensed consolidated financial position or results of operations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires expanded annual and interim disclosures for significant segment expenses.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company is currently evaluating the effect of this pronouncement on its segment disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which standardizes categories for the effective tax rate reconciliation, requires disaggregation of income taxes and additional income tax-related disclosures.

This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is evaluating the effect this pronouncement will have on its income tax disclosures.

Fair Value Measurements

Marketable Securities

As of June 30, 2024 and December 31, 2023, marketable securities of $ 19.7 million and $ 29.8 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.

As of September 30, 2024 and December 31, 2023, marketable securities of $ 29.7 million and $ 29.8 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

3 unchanged sentences

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 June 30, 2024.

The following table summarizes the Company's Secured Overnight Financing Rate ("SOFR") interest rate cap instruments as of September 30, 2024.

($ in millions)

4 unchanged sentences

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 June 30, 2024.

The following table summarizes the Company's SOFR interest rate swap instrument as of September 30, 2024.

($ in millions)

1 unchanged sentence

Fixed interest rate 4.25 %

Remaining term 1.3 years

Estimated asset fair value (included in other assets, net) $ 1.6

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

Remaining term 1.0 year

Estimated fair value (included in other liabilities) $ ( 0.9 )

As of December 31, 2023, the estimated fair value of the interest rate swap instrument was $ 1.6 million included in other assets, net.

Long-term debt

1 unchanged sentence

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 $ 3.7 billion as of both June 30, 2024 and December 31, 2023.

Fair value of the long-term debt is approximately $ 3.5 billion and $ 3.4 billion as of June 30, 2024 and December 31, 2023, respectively.

The Company had outstanding long-term debt with a carrying amount of approximately $ 3.7 billion as of both September 30, 2024 and December 31, 2023.

Fair value of the long-term debt is approximately $ 3.6 billion and $ 3.4 billion as of September 30, 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.

1 unchanged sentence

Resident fee revenue by payor source is as follows.

Three Months Ended June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

8 unchanged sentences

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

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 48.8 million and $ 48.3 million, including $ 23.0 million and $ 24.1 million of monthly resident fees billed and received in advance, as of June 30, 2024 and December 31, 2023, respectively.

For the six months ended June 30, 2024 and 2023, the Company recognized $ 42.8 million and $ 44.9 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2024 and 2023, respectively.

The Company had total deferred revenue (included within refundable fees and deferred revenue and other liabilities within the condensed consolidated balance sheets) of $ 53.6 million and $ 48.3 million, including $ 28.0 million and $ 24.1 million of monthly resident fees billed and received in advance, as of September 30, 2024 and December 31, 2023, respectively.

For the nine months ended September 30, 2024 and 2023, the Company recognized $ 47.0 million and $ 49.1 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 June 30, 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) June 30, 2024 December 31, 2023

As of September 30, 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) September 30, 2024 December 31, 2023

Land $ 497,829 $ 500,649

8 unchanged sentences

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 $ 88.0 million and $ 84.4 million for the three months ended June 30, 2024 and 2023, respectively, and $ 174.2 million and $ 169.4 million for the six months ended June 30, 2024 and 2023, respectively.

The Company did not recognize any impairment charges for the three months ended June 30, 2024.

The Company recognized $ 1.7 million for the six months ended June 30, 2024 and $ 0.5 million for both the three and six months ended June 30, 2023 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.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 90.1 million and $ 85.9 million for the three months ended September 30, 2024 and 2023, respectively, and $ 264.2 million and $ 255.3 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company recognized $ 0.9 million and $ 2.6 million for the three and nine months ended September 30, 2024, respectively, of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold

intangibles assets due to property damage sustained at certain communities.

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 planned disposition of certain underperforming communities that have since been sold.

Long-term debt consists of the following.

(in thousands) June 30, 2024 December 31, 2023

(in thousands) September 30, 2024 December 31, 2023

Fixed rate mortgage notes payable due 2026 through 2047;

weighted average interest rate of 4.26 % as of both June 30, 2024 and December 31, 2023

weighted average interest rate of 4.37 % and 4.26 % as of September 30, 2024 and December 31, 2023, respectively.

$ 2,067,155 $ 1,953,414

Variable rate mortgage notes payable due 2025 through 2030;

weighted average interest rate of 7.76 % and 7.74 % as of June 30, 2024 and December 31, 2023, respectively

weighted average interest rate of 7.53 % and 7.74 % as of September 30, 2024 and December 31, 2023, respectively

1,416,783 1,524,907

Convertible notes payable due October 2026;

interest rate of 2.00 % as of both June 30, 2024 and December 31, 2023

interest rate of 2.00 % as of both September 30, 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 June 30, 2024 and December 31, 2023

interest rate of 10.25 % as of both September 30, 2024 and December 31, 2023

11,666 17,990

Notes payable for insurance premium financing due 2024;

interest rate of 7.40 % as of June 30, 2024

interest rate of 7.40 % as of September 30, 2024

Deferred financing costs, net ( 25,454 ) ( 28,998 )

2 unchanged sentences

Total long-term debt, less current portion $ 3,654,497 $ 3,655,850

As of June 30, 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 June 30, 2024, 91.3 %, or $ 3.4 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of June 30, 2024, $ 58.8 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 $ 17.0 million of letters of credit as of June 30, 2024 under which $ 15.7 million had been issued as of that date.

2024 Mortgage Financing

As of September 30, 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 September 30, 2024, 91.5 %, or $ 3.4 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of September 30, 2024, $ 58.5 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 $ 17.0 million of letters of credit as of September 30, 2024 under which $ 15.7 million had been issued as of that date.

2024 Mortgage Financings

In February 2024, the Company obtained $ 50.0 million of debt secured by first priority mortgages on 11 communities.

1 unchanged sentence

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

In September 2024, the Company obtained $ 182.5 million of debt secured by first priority mortgages on 16 communities.

The loan bears interest at a fixed rate of 5.67 % and is interest only for the first two years .

The debt matures in October 2029.

At the closing, the Company repaid $ 197.1 million of outstanding mortgage debt, which was scheduled to mature in September 2025, using proceeds from the $ 182.5 million debt and cash on hand.

Convertible Senior Notes

On September 30, 2024, the Company entered into privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with certain holders (the "Investors") of the Company’s outstanding 2.00 % convertible senior notes due 2026 (the “2026 Notes”), each of whom may have also beneficially owned shares of the Company's common stock as of such date and at closing.

On October 3, 2024, pursuant to the Exchange and Subscription Agreements, the Company issued $ 369.4 million aggregate principal amount of its 3.50 % convertible senior notes due 2029 (the “2029 New Notes”).

At closing, $ 219.4 million principal amount of the 2029 New Notes were issued in exchange for $ 206.7 million principal amount of the 2026 Notes and $ 150.0 million principal amount of the 2029 New Notes were issued for cash.

The 2029 New Notes were

issued pursuant to, and are governed by, an Indenture (the “2029 New Notes Indenture”), dated as of October 3, 2024 between the Company and Equiniti Trust Co., as trustee (the “Trustee”).

Following the closing, $ 23.3 million in aggregate principal amount of the 2026 Notes remain outstanding with the terms unchanged.

The 2029 New Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of its indebtedness that is expressly subordinated in right of payment to the 2029 New Notes, and equal in right of payment to any indebtedness that is not so subordinated.

The 2029 New Notes are effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of current or future subsidiaries of the Company.

Under the terms of the 2029 New Notes Indenture, subject to certain exceptions, the Company may not incur pari passu indebtedness in an aggregate principal amount exceeding $ 500 million.

The 2029 New Notes bear interest at a rate of 3.50 % per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning on April 15, 2025.

The 2029 New Notes will mature on October 15, 2029, unless earlier converted or repurchased in accordance with their terms.

Holders of the 2029 New Notes may convert all or any portion of their 2029 New Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2029, only under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2024 (and only during such calendar quarter), if the last reported sale price of the common stock of the Company for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2029 New Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the common stock of the Company and the conversion rate for the 2029 New Notes on each such trading day; or (3) upon the occurrence of specified corporate events.

On or after July 15, 2029, holders may convert all or any portion of their 2029 New Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election.

Under the 2029 New Notes Indenture, the Company will not be obligated to deliver any shares of common stock to any holder upon any conversion of the 2029 New Notes whereby such holder would beneficially own a number of shares of Company common stock in excess of 19.9 % of the total number of shares of Company common stock issued and outstanding immediately following such conversion.

The conversion rate for the 2029 New Notes will initially be 111.1111 shares of common stock per $1,000 principal amount of the 2029 New Notes (equivalent to an initial conversion price of approximately $ 9.00 per share of common stock).

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2029 New Notes in connection with such a corporate event.

The Company does not have the right to redeem the 2029 New Notes at its election before the maturity date.

No sinking fund is provided for the 2029 New Notes.

The Company’s net cash proceeds from the exchange and issuance transactions, after subtracting fees, discounts and estimated expenses payable by the Company, were approximately $ 135.0 million.

The Company intends to use the proceeds to fund acquisitions and for general corporate purposes.

The Company expects to recognize an approximately $ 15.0 million loss on debt extinguishment in the three months ended December 31, 2024 for the completed exchange and issuance transactions.

Financial Covenants

4 unchanged sentences

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 June 30, 2024, the Company is in compliance with the financial covenants of its debt agreements.

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

As of September 30, 2024, the Company is in compliance with the financial covenants of its debt agreements.

As of September 30, 2024, the Company operated 277 communities under long-term leases ( 227 operating leases and 50 financing leases).

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

11 unchanged sentences

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 June 30, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.

As of September 30, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.

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 did not recognize any such impairment charges for the three and six months ended June 30, 2024 and 2023.

The Company did not recognize any such impairment charges for the three and nine months ended September 30, 2024.

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.

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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Operating Leases (in thousands)

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

Financing Leases (in thousands)

7 unchanged sentences

Total net cash outflows from financing leases $ 5,335 $ 5,194 $ 16,033 $ 25,177

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of June 30, 2024 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 September 30, 2024 are as follows (in millions).

Year Ending December 31, Operating Leases Financing Leases

2024 (six months) $ 129,816 $ 10,209

2024 (three months) $ 56.9 $ 12.8

2025 232.4 7.0

4 unchanged sentences

Total lease payments 1,375.0 60.4

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

Purchase price for communities subject to acquisition agreements — 610.0

Reacquisition price in excess of sale-leaseback proceeds — ( 32.8 )

Imputed interest and variable lease payments ( 493.8 ) ( 54.4 )

Other financing obligations — 20.7

Total lease obligations $ 881.2 $ 603.9

Subsequent to the three months ended June 30, 2024, the Company and Omega Healthcare Investors, Inc.

Omega Lease Amendment

In August 2024, the Company and Omega Healthcare Investors, Inc.

("Omega") amended the existing master lease pursuant to which the Company continues to lease 24 communities from Omega.

5 unchanged sentences

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.

The Company preliminarily estimates that the lease modification will increase the right-of-use assets and lease obligations recognized on its condensed consolidated balance sheet each by approximately $ 220.0 million.

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.

Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve.

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 amendment to the lease arrangements increased the operating lease right-of-use assets and lease obligations recognized on the Company's condensed consolidated balance sheet each by $ 253.4 million.

International JV / Welltower Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire 11 senior living communities that are currently leased by the Company from a joint venture between Welltower Inc.

(“Welltower”) and its joint venture partners for a purchase price of $ 300.0 million.

As part of this transaction, the Company will assume approximately $ 194.5 million of existing 4.92 % fixed rate agency debt which is scheduled to mature in March 2027.

Currently, these communities are held in a triple-net lease with annualized current cash rent payments of $ 22.3 million and a current maturity of August 31, 2028.

The Company expects to complete the acquisition transaction in 2024, subject to the satisfaction of customary closing conditions for real estate

transactions.

The Company expects to fund its acquisition of the 11 communities through the assumption of the existing mortgage debt, a portion of the net cash proceeds from the sale of the 2029 New Notes, and cash on hand.

The leases for the 11 communities were previously classified as operating leases and have been prospectively classified as financing leases subsequent to the amendment of the leasing arrangement.

The amendment of the leasing arrangement resulted in the following increases to the assets and liabilities recognized on the Company's condensed consolidated balance sheet.

(in millions)

Property, plant and equipment and leasehold intangibles, net $ 281.0

Operating lease right-of-use assets ( 52.0 )

Total assets $ 229.0

Financing lease obligations $ 300.0

Operating lease obligations ( 71.0 )

Total liabilities $ 229.0

Welltower Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire five senior living communities that are currently leased by the Company from Welltower for a purchase price of $ 175.0 million.

Currently, these communities are held in a triple-net lease with annualized current cash rent payments of $ 13.4 million and a current maturity of December 31, 2024.

The Company expects to complete the acquisition transaction in 2024, subject to the satisfaction of customary closing conditions for real estate transactions.

The Company expects to fund its acquisition of the five communities through a portion of the net cash proceeds from the sale of the 2029 New Notes, proceeds from non-recourse mortgage financing on the assets, and cash on hand.

The definitive agreement included the finalization of the purchase price under the provisions of a purchase option arrangement with a variable price component based upon the fair value of the assets.

The amendment of the leasing arrangement increased the financing lease right-of-use assets and lease obligations recognized for two of these communities on the Company's consolidated balance sheet each by $ 17.7 million.

The leasing arrangements for three of these communities are accounted for as failed sale-leaseback transactions as the Company has not previously transferred control of the underlying assets for accounting purposes under a sale and leaseback arrangement with a purchase option.

Diversified Healthcare Trust Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire 25 senior living communities that are currently leased by the Company from Diversified Healthcare Trust for a purchase price of $ 135.0 million.

Currently, these communities are held in a triple-net lease with annualized current cash rent payments of $ 10.2 million and a current maturity of December 31, 2032.

The Company expects to complete the acquisition transaction in 2024, subject to the satisfaction of customary closing conditions for real estate transactions.

The Company expects to fund its acquisition of the 25 communities through a portion of the net cash proceeds from the sale of the 2029 New Notes, proceeds from non-recourse mortgage financing on certain of the assets, and cash on hand.

The leases for the 25 communities were previously classified as operating leases and have been prospectively classified as financing leases subsequent to the amendment of the leasing arrangement.

The amendment of the leasing arrangement resulted in the following increases to the assets and liabilities recognized on the Company's condensed consolidated balance sheet.

(in millions)

Property, plant and equipment and leasehold intangibles, net $ 128.6

Operating lease right-of-use assets ( 40.4 )

Total assets $ 88.2

Financing lease obligations $ 135.0

Operating lease obligations ( 46.8 )

Total liabilities $ 88.2

In addition, the Company has been and currently is involved in putative class action litigation regarding staffing at the Company's communities and compliance with consumer protection laws and the Americans with Disabilities Act (and similar state laws).

Certain claims and lawsuits allege large damage amounts, seek injunctive relief, and may require (and have required) significant costs to defend and resolve.

The Company continues to vigorously defend against the putative class action cases, and an estimate of the possible loss or range of possible loss in connection with any such putative class action cannot be made.

As a result, the Company maintains general liability, professional liability, excess 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 uses its wholly-owned captive insurance company for the purpose of insuring certain portions of its risk retention under its general and professional liability insurance programs.

Accordingly, the Company is, in effect, self-insured for claims that are less than the

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

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

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

14 unchanged sentences

Stock-Based Compensation

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

Grants of restricted stock units and stock awards under the Company's 2014 and 2024 Omnibus Incentive Plan were as follows.

(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

1 unchanged sentence

Three months ended June 30, 2024 17 $ 6.86 $ 115

Three months ended September 30, 2024 36 $ 7.15 $ 258

Earnings Per Share

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

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

As of June 30, 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 October 1, 2021, the Company issued $ 230.0 million principal amount of 2.00 % convertible senior notes due 2026.

As of September 30, 2024, the maximum number of shares issuable upon settlement of the 2026 Notes is 38.3 million (after giving effect to 9.9 million additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

After giving effect to the Company's convertible notes exchange and issuance transactions on October 3, 2024, the maximum number of shares issuable upon settlement of the Company’s outstanding convertible senior notes is 58.9 million (after giving effect to 14.9 million additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

Refer to Note 6 for information on the Company's convertible notes exchange and issuance transactions on October 3, 2024.

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

2 unchanged sentences

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

During the three months ended June 30, 2024, the Company issued 942,424 shares of common stock upon the partial exercise of the Warrant by Ventas for 1.7 million shares, net of shares withheld to satisfy the aggregate exercise price.

As of June 30, 2024, the Warrant remains outstanding for the right to purchase 14.6 million shares of the Company's common stock.

During the three and nine months ended September 30, 2024, the Company issued 1,162,946 shares of common stock and 2,105,370 shares of common stock, respectively, upon the partial exercise of the Warrant by Ventas for 2.0 million shares and 3.7 million shares, net of shares withheld to satisfy the aggregate exercise price during the three and nine months ended September 30, 2024, respectively.

As of September 30, 2024, the Warrant remains outstanding for the right to purchase 12.6 million shares of the Company's common stock.

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

1 unchanged sentence

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.

During the three and six months ended June 30, 2024, 243,662 and 518,662 , respectively, 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 3,151,548 and 6,708,425 shares of the Company’s common stock upon settlement of such prepaid stock purchase contracts for the three and six months ended June 30, 2024, respectively.

As of June 30, 2024, 2,356,338 prepaid stock purchase contracts remain outstanding, and the maximum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts is 35.8 million.

During the three and nine months ended September 30, 2024, 65,000 and 583,662 , respectively, 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 840,716 and 7,549,141 shares of the Company’s common stock upon settlement of such prepaid stock purchase contracts for the three and nine months ended September 30, 2024, respectively.

As of September 30, 2024, 2,291,338 prepaid stock purchase contracts remain outstanding, and the maximum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts is 34.8 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.

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

Three Months Ended June 30, Six Months Ended June 30,

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

(in thousands) 2024 2023 2024 2023

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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 June 30,

As of September 30,

(in millions) 2024 2023

Convertible senior notes 38.3 38.3

Convertible senior notes at initial conversion rate 28.4 28.4

Incremental shares issuable upon certain events for convertible senior notes 9.9 9.9

Warrants 12.6 16.3

2 unchanged sentences

Total 62.5 67.6

The difference between the Company's 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.

The difference between the Company's 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.

The Company 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 to the valuation allowance of $ 9.2 million.

The Company 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 to the valuation allowance of $ 16.3 million.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 1.4 million for the three months ended June 30, 2023, which was partially offset by an increase to the

valuation allowance of $ 1.3 million.

The Company 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.

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

The difference between the Company's effective tax rate for the nine months ended September 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.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 12.2 million for the three months ended September 30, 2024, which was offset by an increase to the valuation allowance of $ 12.5 million.

The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 28.9 million for the nine months ended September 30, 2024, which was partially offset by an increase to the valuation allowance of $ 28.8 million.

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 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 June 30, 2024 and December 31, 2023 was $ 490.5 million and $ 474.2 million, respectively.

The increase in the valuation allowance for both the six months ended June 30, 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 and six months ended June 30, 2024 and 2023 which are included in income tax expense or benefit for the period.

As of June 30, 2024, tax returns for years 2019 through 2022 are subject to future examination by tax authorities.

The Company's valuation allowance as of September 30, 2024 and December 31, 2023 was $ 503.0 million and $ 474.2 million, respectively.

The increase in the valuation allowance for both the nine months ended September 30, 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 and nine months ended September 30, 2024 and 2023, which are included in income tax expense or benefit for the period.

As of September 30, 2024, tax returns for years 2020 through 2023 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

Six Months Ended

Nine Months Ended

September 30,

(in thousands) 2024 2023

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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) June 30, 2024 December 31, 2023

(in thousands) September 30, 2024 December 31, 2023

Reconciliation of cash, cash equivalents, and restricted cash:

23 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

19 unchanged sentences

Income (loss) from operations $ 10,259 $ ( 6,338 ) $ 48,667 $ 42,649

(in thousands) June 30, 2024 December 31, 2023

(in thousands) September 30, 2024 December 31, 2023

Total assets:

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(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 total carrying amount of goodwill is included within the Independent Living segment and was $ 27.3 million as of both June 30, 2024 and December 31, 2023.

(3) The Company's total carrying amount of goodwill is included within the Independent Living segment and was $ 27.3 million as of both September 30, 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