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Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-21 · 143 added, 175 removed, 454 unchanged (41% of the section changed)

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Executive Overview and Recent Developments

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

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

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

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

The facility includes certain "borrow-up" provisions,

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

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

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

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

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

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

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

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

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

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

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

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

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

COVID-19 Pandemic Update

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

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

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

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

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

The table below sets forth our recent consolidated occupancy trend.

Years Ended December 31,

2019 2020 2021 2022 2023

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

Transaction Activity

Community Transactions

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

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

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

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

Welltower Lease Amendments

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

For information regarding our business, including our strategy and recent developments regarding macroeconomic conditions, community acquisitions and community lease amendments, refer to "Item 1.

During 2023, we entered into amendments to our existing lease arrangements with Welltower Inc.

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

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

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

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

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

the communities.

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

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

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

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

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

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

Resident Fee Revenue and Facility Operating Expense Impacts of Transaction Activity

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

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

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

Years Ended December 31,

(in thousands) 2023 2022 2021

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

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

For 2024 compared to 2023, the classification of such lease costs as operating lease expense resulted in a $9.9 million increase in cash lease payments for operating leases and an offsetting decrease in cash lease payments for financing leases.

Refer to Note 3 in “Item 8.

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

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

Results of Operations

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The results of operations for any particular period are not necessarily indicative of results for any future period.

Transactions completed during the period of January 1, 2022 to December 31, 2023 affect the comparability of our results of operations, and summaries of such transactions and their impact on our results of operations are discussed above in "Transaction Activity."

We use the operating measures described below in connection with operating and managing our business and reporting our results of operations.

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

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

• 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.

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

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

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

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

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

We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory

Care, and CCRCs segments.

Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates.

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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(in thousands) 2024 2023 Amount Percent

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

Resident fees $ 2,972,050 $ 2,857,270 $ 114,780 4.0 %

Other operating income — 9,073 (9,073) (100.0)%

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Adjusted EBITDA 386,194 335,538 50,656 15.1 %

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

community weighted average occupancy.

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

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

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

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

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

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

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

The increase in resident fees was primarily attributable to a 5.8% increase in same community RevPAR, comprised of a 4.1% increase in same community RevPOR and a 120 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 which resulted in $55.2 million less in resident fees compared to the prior year.

During the year ended December 31, 2023, we recognized $9.1 million of government grants related to the COVID-19 pandemic as other operating income based on our estimates of our satisfaction of the conditions of the grants during the year.

The increase in facility operating expense was primarily attributable to a 4.4% 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, an increase in property repair expense primarily as a result of severe weather events, an increase in information technology costs, and an increase in marketing expense compared to the prior year, 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, which resulted in $48.0 million less in facility operating expense during the year ended December 31, 2024 compared to the prior year.

The increase in net loss was primarily attributable to the increase in facility operating expense compared to the prior year, a $36.3 million gain on sale of communities, net recognized during the year ended December 31, 2023 for the sale of our one remaining entrance fee community, an $18.1 million increase in loss on debt modification and extinguishment compared to the prior year, and an increase in depreciation and amortization expense recognized compared to the prior year.

These changes were partially offset by the increase in resident fees and a decrease in asset impairment expense compared to the prior year.

The increase in Adjusted EBITDA was primarily attributable to the increase in resident fees, partially offset by the increase in facility operating expense, the decrease in other operating income, and a $1.2 million increase in cash facility operating lease payments.

The increase in cash facility operating lease payments for the current year compared to the prior year includes 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, partially offset by a $7.8 million decrease in cash paid for operating leases for the community acquisition transactions and the reclassification of lease costs due to financing lease classification.

Operating Results - Senior Housing Segments

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RevPAR $ 4,858 $ 4,577 $ 281 6.1 %

Occupancy rate (weighted average) 77.2 % 75.4 % 180 bps n/a

Weighted average occupancy 78.6 % 77.2 % 140 bps n/a

RevPOR $ 6,182 $ 5,927 $ 255 4.3 %

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RevPAR $ 4,854 $ 4,590 $ 264 5.8 %

Occupancy rate (weighted average) 77.4 % 75.5 % 190 bps n/a

Weighted average occupancy 78.7 % 77.5 % 120 bps n/a

RevPOR $ 6,170 $ 5,925 $ 245 4.1 %

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RevPAR $ 3,969 $ 3,739 $ 230 6.2 %

Occupancy rate (weighted average) 79.4 % 77.0 % 240 bps n/a

Weighted average occupancy 80.4 % 79.4 % 100 bps n/a

RevPOR $ 4,934 $ 4,711 $ 223 4.7 %

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

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

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

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

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 COVID-19 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 estimated insurance expense, an increase in property repair expense primarily as a result of severe weather events, increased wireless internet access provided for residents, and an increase in marketing expense compared to the prior year.

The segment's same community facility operating expense for the year ended December 31, 2024 excludes $1.3 million of natural disaster expense.

Assisted Living and Memory Care Segment

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RevPAR $ 5,045 $ 4,741 $ 304 6.4 %

Occupancy rate (weighted average) 77.0 % 75.1 % 190 bps n/a

Weighted average occupancy 78.2 % 77.0 % 120 bps n/a

RevPOR $ 6,454 $ 6,158 $ 296 4.8 %

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RevPAR $ 5,051 $ 4,767 $ 284 6.0 %

Occupancy rate (weighted average) 77.1 % 75.1 % 200 bps n/a

Weighted average occupancy 78.2 % 77.1 % 110 bps n/a

RevPOR $ 6,457 $ 6,183 $ 274 4.4 %

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

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

The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the COVID-19 pandemic.

The increase in the segment's resident fees was partially offset by the disposition of communities since the beginning of the prior year, which resulted in $41.0 million less in resident fees during the year ended December 31, 2024 compared to the prior year.

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

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

The increase in the segment's facility operating expense was 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, an increase in property repair expense primarily as a result of severe weather events, an increase in information technology costs, and an increase in marketing expense compared to the prior year, partially offset by a decrease in 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, which resulted in $33.1 million less in facility operating expense during the year ended December 31, 2024 compared to the prior year.

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

The segment's same community facility operating expense for the year ended December 31, 2024 excludes $5.3 million of natural disaster expense.

CCRCs Segment

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RevPAR $ 5,889 $ 5,560 $ 329 5.9 %

Occupancy rate (weighted average) 73.4 % 73.4 % 0 bps n/a

Weighted average occupancy 76.6 % 73.4 % 320 bps n/a

RevPOR $ 7,691 $ 7,576 $ 115 1.5 %

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RevPAR $ 5,924 $ 5,714 $ 210 3.7 %

Occupancy rate (weighted average) 74.8 % 74.2 % 60 bps n/a

Weighted average occupancy 76.9 % 74.8 % 210 bps n/a

RevPOR $ 7,705 $ 7,639 $ 66 0.9 %

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

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

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

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

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

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

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 210 basis point increase in same community weighted average occupancy and a 0.9% 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 COVID-19 pandemic.

The increase in the segment's same community RevPOR was primarily the result of the current year rate increase, partially offset by an occupancy mix shift to more independent living residents.

Additionally, an increase in resident fees at a community whose operations in the prior year were significantly impacted by winter storm damage and for which a repositioning project was completed in the prior year contributed to the increase in the segment’s resident fees.

The increase in the segment's resident fees was partially offset by the disposition of communities since the beginning of the prior year, which resulted in $14.2 million less in resident fees during the year ended December 31, 2024 compared to the prior year.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year, which resulted in $14.9 million less in facility operating expense during the year ended December 31, 2024 compared to the prior year.

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

The segment's same community facility operating expense for the year ended December 31, 2024 excludes $0.5 million of natural disaster expense.

Operating Results - Other Income and Expense Items

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

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

Interest income 19,162 23,146 (3,984) (17.2) %

Interest expense 252,575 238,274 14,301 6.0 %

Gain (loss) on debt modification and extinguishment, net

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

(20,762) (2,702) 18,060 NM

Equity in earnings (loss) of unconsolidated ventures — (3,996) (3,996) (100.0)%

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Other non-operating income (loss) 9,376 21,687 (12,311) (56.8) %

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

Benefit (provision) for income taxes (4,646) (8,784) (4,138) (47.1) %

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

The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year, partially offset by an increase in community costs incurred as a result of broad inflationary pressure for communities managed in both years.

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, partially offset by terminations of management agreements subsequent to the beginning of the prior year.

General and Administrative Expense.

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

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

The increase in general and administrative expense was primarily due to $7.0 million of legal expenses for certain pending putative class action litigation previously described in our SEC filings, representing the current estimate of our ultimate cost to resolve such litigation, net of estimated probable insurance recoveries.

General and administrative expense includes transaction, legal, and organizational restructuring costs of $7.9 million and $3.9 million for the years ended December 31, 2024 and 2023, respectively.

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.

Legal costs include charges associated with putative class action litigation.

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.

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

Depreciation and Amortization.

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

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.

Asset Impairment .

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

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

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

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

During the current year, we recognized $8.6 million of non-cash impairment charges, primarily for certain leased communities with lower than expected occupancy and decreased future cash flow estimates over the remaining lease term and for property damage sustained at certain communities during the year.

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

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

Loss (Gain) on Sale of Communities, net.

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

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

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

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

Interest Income.

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

The decrease in gain on sale of communities, net was due to the sale of our one remaining entrance fee community during the prior year.

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 rates, partially offset by a decrease in interest expense on financing lease obligations primarily due to the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the beginning of the prior year.

The increase in interest expense was primarily due to an increase in interest expense on finance lease obligations as a result of a change in classification of lease costs from operating leases to financing leases as a result of lease classification changes during the current year and an increase in interest expense on long-term debt primarily as a result of higher fixed interest rates on long-term debt obtained subsequent to the beginning of the prior year.

Gain (Loss) on Debt Modification and Extinguishment, Net.

The increase in loss on debt modification and extinguishment, net was primarily due to a loss on debt extinguishment in the current year for the convertible notes issuance and exchange transactions.

Refer to the "Convertible Senior Notes" section for additional information on the convertible notes issuance and exchange transactions.

Equity in Earnings (Loss) of Unconsolidated Ventures.

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

The decrease in equity in loss of unconsolidated ventures was due to the sale of our equity interest in the Health Care Services venture in 2023.

Other Non-operating Income (Loss).

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

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

Benefit (Provision) for Income Taxes.

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

The difference between our effective tax rate for the years ended December 31, 2024 and 2023 was primarily due to an increase in the tax expense resulting from the valuation allowance recorded against operating losses.

We recorded an aggregate deferred federal, state, and local tax benefit of $43.7 million for the year ended December 31, 2024, which was offset by an increase in the valuation allowance of $47.3 million.

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

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

Liquidity and Capital Resources

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(in thousands) 2024 2023 Amount Percent

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

Net cash provided by (used in) operating activities $ 166,177 $ 162,923 $ 3,254 2.0 %

Net cash provided by (used in) investing activities (278,066) (113,364) 164,702 145.3 %

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Adjusted Free Cash Flow $ (29,476) $ (47,631) $ 18,155 38.1 %

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

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

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

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

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

The increase in net cash provided by operating activities was primarily attributable to an increase in resident fee revenue compared to the prior year, partially offset by an increase in facility operating expense compared to the prior year, $28.3 million in cash received in the prior year associated with government grants and credits, and an increase in incentive compensation payments compared to the prior year.

The increase in net cash used in investing activities was primarily attributable to a $137.1 million decrease in proceeds from sales and maturities of marketable securities, a $107.8 million increase in cash used for the acquisition of assets, and a $76.5 million decrease in net proceeds from the sale of assets compared to the prior year, partially offset by a $125.4 million

decrease in purchases of marketable securities and a $32.0 million decrease in cash paid for capital expenditures compared to the prior year.

The change in net cash provided by (used in) financing activities was primarily attributable to a $560.1 million increase in debt proceeds compared to the prior year, including $147.1 million of proceeds from the issuance of convertible notes, partially offset by a $227.8 million increase in repayment of debt and financing lease obligations compared to the prior year.

The change in Adjusted Free Cash Flow was primarily attributable to a $29.8 million decrease in non-development capital expenditures, net and the increase in net cash provided by operating activities compared to the prior year, partially offset by a $16.2 million decrease in property and casualty insurance proceeds compared to the prior year.

Our principal sources of liquidity have historically been from:

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

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

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

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• debt, interest, and lease payments;

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

• investment in our healthcare and wellness initiatives;

• transaction consideration and related expenses, including consideration for the acquisition of 30 communities pursuant to agreements with certain of our lessors;

• capital expenditures and improvements;

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As of such date, 88.4%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

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

As of December 31, 2024, we had $1.6 billion of operating and financing lease obligations, and for the twelve months ending December 31, 2025, we will be required to make approximately $240.0 million of cash lease payments in connection with our existing operating and financing leases (after giving effect to our planned acquisition transactions for 30 communities subsequent to December 31, 2024).

In September 2024, we entered into definitive agreements to acquire 30 senior living communities (1,561 units) that are currently leased by us for a combined purchase price of $310.0 million.

We expect to complete the acquisition transactions in the first quarter of 2025, subject to the satisfaction of customary closing conditions for real estate transactions.

We expect to fund the acquisition of the 30 communities through proceeds from mortgage financing and cash on hand.

As of December 31, 2024, we had $39.5 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility.

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

Total liquidity of $340.7 million as of December 31, 2023 included $278.0 million of unrestricted cash and cash equivalents (excluding restricted cash of $71.7 million), $29.8 million of marketable securities, and $32.9 million of availability on our secured credit facility.

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

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

We also had separate letter of credit facilities providing for up to $37.0 million of letters of credit as of December 31, 2024, under which $35.7 million had been issued as of that date.

Total liquidity of $389.3 million as of December 31, 2024 included $308.9 million of unrestricted cash and cash equivalents (excluding restricted cash of $70.9 million), $60.5 million of availability on our secured credit facility, and $19.9 million of marketable securities.

Total liquidity as of December 31, 2024 increased $48.6 million from total liquidity of $340.7 million as of December 31, 2023.

As of December 31, 2024, our current liabilities exceeded current assets by $66.8 million.

Included in our current liabilities is $193.7 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our consolidated balance sheet.

Included in our current liabilities is $111.1 million of the current portion of operating lease obligations, for which the associated right-of-use assets are excluded from current assets on our consolidated balance sheet.

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

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

We continue to focus on increasing our RevPAR, maintaining appropriate expense discipline, continuing to refinance or exercise available extension options for maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets.

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

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

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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.

Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 and 2022 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness.

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

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

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

We have completed the refinancing of all of our debt maturities due in 2025.

Our inability to obtain refinancing proceeds sufficient to cover 2025 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable.

O ur inability to obtain refinancing proceeds sufficient to cover 2026 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable.

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

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(1) Reflects the amount invested, net of lessor reimbursements of $17.0 million.

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

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

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

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

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

In the aggregate, we expect our full-year 2025 non-development capital expenditures, net of anticipated lessor reimbursements and property and casualty insurance proceeds, to be $175.0 million to 180.0 million.

We anticipate that our 2025 capital expenditures will be funded from cash on hand, cash equivalents, cash flows from operations, and reimbursements from lessors.

As of December 31, 2024, the average age of the buildings in our consolidated senior housing portfolio was approximately 27 years.

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To support our strategy and to protect the value of our community portfolio and ensure that our communities are in appropriate physical condition, over the intermediate term, we expect that our community-level non-development capital expenditures, net of lessor reimbursements, will be at annual levels in a similar range of recent and 2025 projected per unit spend.

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

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

We expect our full-year 2025 development capital expenditures to be funded from reimbursements from lessors.

As of December 31, 2024, we had $4.1 billion of debt outstanding, at a weighted average interest rate of 5.15%.

As of such date, 88.4%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

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

As of December 31, 2024, we had $3.0 billion of long-term fixed rate debt (including our $23.3 million principal amount of 2.00% convertible senior notes due 2026, our $369.4 million principal amount of 3.50% convertible senior notes due 2029, and our $9.4 million principal amount of the senior amortizing notes component of our tangible equity units), at a weighted average interest rate of 4.50%.

As of December 31, 2024, we had $1.1 billion of long-term variable rate debt, at a weighted average interest rate of 6.89%.

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Total $ 4,062,787

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

(1) Includes the maturities of $326.1 million of mortgage debt for which we have the option to extend the maturities for one additional year subject to the satisfaction of certain conditions.

Convertible Senior Notes

2026 Convertible Senior Notes

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

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

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

The 2026 Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between us and Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company, LLC) ("EQ"), as trustee.

The 2026 Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2026 Notes, and equal in right of payment to any of our indebtedness that is not so subordinated.

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(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock 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 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such 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 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day;

(3) if we call any or all of the 2026 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption;

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Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election.

The conversion rate for the Notes is initially 123.4568 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $8.10 per share of common stock).

The conversion rate for the 2026 Notes is initially 123.4568 shares of our common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of approximately $8.10 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 or following the issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert our Notes in connection with such a corporate event or who elects to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.

We may not redeem the Notes prior to October 21, 2024.

In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, we will

increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event or who elects to convert any 2026 Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.

We may redeem for cash all or (subject to certain limitations) any portion of the 2026 Notes, at our option, on or after October 21, 2024 and prior to the 51st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

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If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their 2026 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

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

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

In connection with the offering of the 2026 Notes, we entered into privately negotiated capped call transactions ("Capped Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties").

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We account for Capped Call Transactions separately from the 2026 Notes and recognized the cost as a reduction of additional paid-in capital in the year ended December 31, 2021 as the Capped Call Transactions are indexed to our common stock.

Refer to Note 7 to the consolidated financial statements contained in "Item 8.

Financial Statements and Supplementary Data" for additional information on the convertible senior notes transactions.

2029 Convertible Senior Notes

On September 30, 2024, we entered into privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with certain holders (the "Investors") of the 2026 Notes.

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

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

As part of such transactions, $29.7 million principal amount of the 2029 Notes were issued in exchange for $28.0 million principal amount of the 2026 Notes in transactions with one holder and its affiliates whom beneficially owned more than 10% of the shares of the our common stock as of such date and at closing.

The 2029 Notes were issued pursuant to, and are governed by, an Indenture (the “2029 Notes Indenture”), dated as of October 3, 2024 between EQ, as trustee and us.

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

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

The 2029 Notes are effectively junior in right of payment to any of our 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 our current or future subsidiaries.

Under the terms of the 2029 Notes Indenture, subject to certain exceptions, we may not incur pari passu indebtedness in an aggregate principal amount exceeding $500.0 million.

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

Holders of the 2029 Notes may convert all or any portion of their 2029 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 our the common stock 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 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2029 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 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, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

Under the 2029 Notes Indenture, we will not be obligated to deliver any shares of common stock to any holder upon any conversion of the 2029 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 Notes will initially be 111.1111 shares of common stock per $1,000 principal amount of the 2029 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, we will increase the conversion rate for a holder who elects to convert its 2029 Notes in connection with such a corporate event.

We do not have the right to redeem the 2029 Notes at our election before the maturity date.

No sinking fund is provided for the 2029 Notes.

Our net cash proceeds from the exchange and issuance transactions, after subtracting fees, discounts and expenses, were $135.0 million.

We intend to use the proceeds to fund acquisitions and for general corporate purposes.

We recognized a $15.5 million loss on debt extinguishment in the year ended December 31, 2024 for the completed exchange and issuance transactions.

Credit Facilities

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

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

Amounts drawn under the facility will bear interest at 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 December 31, 2024.

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As of December 31, 2024, $39.5 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility, and the facility had $60.5 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 December 31, 2023 under which $14.5 million had been issued as of that date.

We also had separate letter of credit facilities providing up to $37.0 million of letters of credit as of December 31, 2024 under which $35.7 million had been issued as of that date.

Long-Term Leases

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In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

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

Approximately 89% of our community lease payments for the twelve months ended December 31, 2023 are subject to a weighted average maximum annual increase of 2.7% for community leases subject to fixed annual escalators or variable annual escalators based on the consumer price index subject to a cap.

The remaining community lease payments are subject to variable annual escalators primarily based upon the change in the consumer price index.

An additional 1% increase in the consumer price index would have resulted in additional cash lease payments of approximately $0.3 million for the twelve months ended December 31, 2023.

After giving effect to our planned acquisition transactions for 30 leased communities subsequent to December 31, 2024, the leases relating to substantially all of our remaining leased communities are fixed rate leases with annual escalators that are fixed.

We are responsible for all operating costs, including repairs, property taxes, and insurance.

As of December 31, 2024, the weighted average remaining lease term of our operating and financing leases was 10.3 and 0.8 years , respectively.

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

The lease maturities of our senior housing community leases are as follows without giving effect to future renewals or extension options.

The lease terms generally provide for renewal or extension options, or in certain cases, purchase options.

The existing lease maturities of our senior housing community leases as of December 31, 2024 are as follows (without giving effect to future renewals or extension options).

Years Ending December 31,

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2025 58 6,464

2027 24 2,555

2028 12 1,344

Thereafter 158 9,604

Subtotal 236 17,072

Communities subject to acquisition agreements 30 1,561

Total 266 18,633

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Total long-term debt and lease obligations $ 508.7 $ 814.8 $ 1,257.3 $ 888.2 $ 1,110.4 $ 2,514.8 $ 7,094.3

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

(1) Principal on long-term debt includes the maturities of $326.1 million of mortgage debt for which we have the option to extend the maturities for one additional year subject to the satisfaction of certain conditions.

(2) Excludes deferred financing costs of $49.1 million as of December 31, 2024.

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

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

(4) Reflects future minimum lease payments prior to giving effect to variable payments after giving effect to our planned acquisition transactions for 30 communities subsequent to December 31, 2024.

In September 2024, the Company entered into two definitive agreements to acquire 30 communities (1,561 units) that are currently leased by the Company for a combined purchase price of $310.0 million.

The Company expects to complete the acquisition transactions in the first quarter of 2025, subject to the satisfaction of customary closing conditions for real estate transactions.

Critical Accounting Estimates

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In estimating the future cash flows of asset groups for purposes of our long-lived asset impairment test, we make certain key assumptions.

Those assumptions include future revenues, facility operating expenses, and cash flows, including sales proceeds that we would receive upon a sale of the assets using estimated capitalization rates in the case of communities.

Those assumptions include asset holding periods, future revenues, facility operating expenses, and cash flows, including sales proceeds that we would receive upon a sale of the assets using estimated capitalization rates in the case of communities.

We corroborate the estimated capitalization rates we use in these calculations with capitalization rates observable from recent market transactions.

Determining the future cash flows of an asset group involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain.

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

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

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Total $ 8.6 $ 14.6 $ 29.6

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

These impairment charges are primarily due to lower than expected occupancy and decreased future cash flow estimates at certain communities, and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

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

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As of December 31, 2024, we accrued reserves of $117.1 million for general liability, professional liability, and workers' compensation programs.

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

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

During the year ended December 31, 2024, we increased our estimate of the amount of aggregate accrued liabilities for these programs based on recent claims experience, resulting in an increase to operating expenses of $13.5 million.

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

During the year ended December 31, 2022, we reduced our estimate of the amount of aggregate accrued liabilities for these programs based on recent claims experience, resulting in a decrease to operating expenses of $12.0 million.

Non-GAAP Financial Measures

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benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization;

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

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

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

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.

Legal costs include charges associated with putative class action litigation.

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

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(ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures;

and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction, legal, and other costs, and such income/expense may significantly affect our operating results.

The table below reconciles Adjusted EBITDA from net income (loss).

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Non-cash stock-based compensation expense 14,184 11,985

Transaction and organizational restructuring costs 3,892 1,210

Transaction, legal, and organizational restructuring costs 7,930 3,892

Adjusted EBITDA $ 386,194 $ 335,538

$ 335,538 $ 241,305

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

Adjusted Free Cash Flow

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Adjusted Free Cash Flow $ (29,476) $ (47,631)

$ (47,631) $ (201,385)

(1) Adjusted Free Cash Flow includes:

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis