What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-19 compared with 2024-02-21 · 263 added, 194 removed, 997 unchanged (31% of the section changed)

32 unchanged sentences

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of Property, Plant and Equipment and Leasehold Intangibles, Net and Operating Lease Right-of-Use Assets for Impairment

Description of the Matter As of December 31, 2023, the Company's consolidated balance sheet included property, plant and equipment and leasehold intangibles, net and operating lease right-of-use assets of $4.3 billion and $0.7 billion, respectively.

As discussed in Notes 2 and 4 to the consolidated financial statements, property, plant and equipment and leasehold intangibles, net and operating lease right-of-use assets are routinely evaluated for indicators of impairment.

For property, plant and equipment and leasehold intangibles, net and operating lease right-of-use assets with indicators of impairment, the Company compares the estimated undiscounted future cash flows of each long-lived asset group to its carrying amount.

Evaluation of operating lease right-of-use assets for impairment

Description of the Matter As of December 31, 2024, the Company’s consolidated balance sheet included operating lease right-of-use assets of $1.1 billion.

As discussed in Note 4 to the consolidated financial statements, operating lease right-of-use assets are routinely evaluated for indicators of impairment.

For operating lease right-of-use assets with indicators of potential impairment, the Company compares the estimated undiscounted future cash flows of each long-lived asset group to its carrying amount.

If the long-lived asset group’s carrying amount exceeds its estimated undiscounted future cash flows, the fair value of the long-lived asset group is then estimated by management and compared to its carrying amount.

An impairment charge is recognized on these long-lived assets when carrying amount exceeds fair value.

Auditing management's evaluation of property, plant and equipment and leasehold intangibles, net and operating lease right-of-use assets for impairment was complex and involved a high degree of subjectivity due to the significant estimation required to determine the estimated undiscounted future cash flows and fair values of long-lived asset groups where indicators of impairment were determined to be present.

In particular, the future cash flows and fair value estimates were sensitive to significant assumptions including the estimation of revenue and expense growth rates and capitalization rates, which are affected by expectations about future market or economic conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to evaluate property, plant and equipment and leasehold intangibles, net and operating lease right-of-use assets for impairment, including controls over management's review of the significant assumptions described above.

To test the Company's evaluation of long-lived asset groups for impairment, we performed audit procedures that included, among others, assessing the methodologies used to estimate future cash flows and estimate fair values, testing the significant assumptions used to develop the estimates of future cash flows and fair values, and testing the completeness and accuracy of the underlying data used by the Company in its analysis.

An impairment charge is recognized on these long-lived assets when the carrying amount exceeds fair value.

Auditing management’s process to evaluate indicators of potential impairment and its evaluation of operating lease right-of-use assets for impairment was complex and involved a high degree of subjectivity due to the significant estimation required to determine the estimated undiscounted future cash flows and fair values of long-lived asset groups where indicators of potential impairment were determined to be present.

In particular, the future cash flows and fair value estimates were sensitive to significant assumptions including the estimation of revenue and expense growth, which are affected by expectations about future market or economic conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to evaluate operating lease right-of-use assets for impairment, including controls over management’s review of the significant assumptions described above.

To test the Company’s evaluation of operating lease right-of-use assets for impairment, we performed audit procedures that included, among others, assessing the methodologies used to estimate future cash flows and estimate fair values, testing the significant assumptions used to develop the estimates of future cash flows and fair values, and testing the completeness and accuracy of the underlying data used by the Company in its analysis.

We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company’s business and other relevant factors would affect the significant assumptions.

The evaluation of the Company’s methodology and key assumptions was performed with the assistance of our valuation specialists.

We assessed the historical accuracy of the Company's estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the undiscounted future cash flows and fair values of the long-lived asset groups that would result from changes in the key assumptions.

We assessed the historical accuracy of the Company’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the undiscounted future cash flows and fair values of the operating lease right-of-use assets that would result from changes in the key assumptions.

/s/ Ernst & Young LLP

41 unchanged sentences

Restricted cash 31,044 30,356

Investment in unconsolidated ventures 1,906 55,333

Goodwill 27,321 27,321

Deferred tax asset — 1,604

Other assets, net 36,022 35,854

18 unchanged sentences

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

198,780,826 and 197,776,991 shares issued and 188,253,301 and 187,249,466 shares outstanding, respectively

210,547,351 and 198,780,826 shares issued and 200,019,826 and 188,253,301 shares outstanding (including 27,972 unvested restricted shares as of December 31, 2024), respectively

Additional paid-in-capital 4,352,991 4,342,362

27 unchanged sentences

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

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

Costs incurred on behalf of managed communities 142,916 139,325 147,361

28 unchanged sentences

Balance at beginning of period $ 1,988 $ 1,978 $ 1,975

Shares issued for settlement of prepaid stock purchase contracts 76 — —

Shares issued for warrant exercise 28 — —

Restricted stock and restricted stock units, net 19 16 9

4 unchanged sentences

Compensation expense related to restricted stock grants 14,184 11,985 14,466

Issuance of common stock under Associate Stock Purchase Plan — — 699

Shares issued for settlement of prepaid stock purchase contracts ( 76 ) — —

Shares issued for warrant exercise ( 28 ) — —

Issuance of tangible equity units, net of issuance costs — — 113,457

Purchase of capped call transactions — — ( 15,916 )

Restricted stock and restricted stock units, net ( 19 ) ( 16 ) ( 9 )

Shares withheld for employee taxes ( 3,432 ) ( 1,909 ) ( 4,287 )

Other, net — — 25

Balance at end of period $ 4,352,991 $ 4,342,362 $ 4,332,302

15 unchanged sentences

Balance at beginning of period 188,253 187,249 186,958

Issuance of common stock under Associate Stock Purchase Plan — — 124

Shares issued for settlement of prepaid stock purchase contracts 7,550 — —

Shares issued for warrant exercise 2,879 — —

Restricted stock and restricted stock units, net 1,920 1,580 911

21 unchanged sentences

Loss (gain) on sale of assets, net ( 923 ) ( 37,737 ) ( 74,445 )

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

Non-cash stock-based compensation expense 14,184 11,985 14,466

6 unchanged sentences

Refundable fees and deferred revenue 5,221 ( 654 ) ( 1,934 )

Operating lease assets and liabilities for lessor capital expenditure

reimbursements 9,844 13,718 30,965

Operating lease assets and liabilities for lease termination — — ( 2,380 )

Operating lease assets and liabilities for lessor capital expenditure reimbursements 16,362 9,844 13,718

Net cash provided by (used in) operating activities 166,177 162,923 3,281

8 unchanged sentences

Property and casualty insurance proceeds 8,548 24,704 —

Change in lease acquisition deposits, net ( 5,000 ) — —

Purchase of interest rate cap instruments ( 10,149 ) ( 12,454 ) ( 1,632 )

8 unchanged sentences

Proceeds from issuance of tangible equity units — — 139,438

Purchase of capped call transactions — — ( 15,916 )

Payment of financing costs, net of related payables ( 25,157 ) ( 10,831 ) ( 7,077 )

91 unchanged sentences

When an asset sale is recognized for such transactions, the Company removes the transferred assets and financing lease liability from the consolidated balance sheet and a gain or loss on the sale is recognized for the difference between the carrying amount of the asset and the financing lease liability.

When the Company repurchases an asset subject to a sale-leaseback transaction in which the Company has not previously transferred control of the underlying asset, the Company recognizes a gain or loss on extinguishment of the financing obligation upon completion of the reacquisition transaction for the difference between the amount of the repurchase price and the previously recognized financing obligation.

Gain (Loss) on Sale of Assets

1 unchanged sentence

The Company recognizes a gain or loss from real estate sales when the transfer of control is complete.

The Company recognizes a gain or loss from the sale of equity method investments when the transfer of control is complete and the Company has no continuing involvement with the transferred financial assets.

Purchase Accounting

2 unchanged sentences

In determining the allocation of the purchase price of companies and communities to net tangible and identified intangible assets acquired and liabilities assumed, the Company makes estimates of fair value using information obtained as a result of pre-acquisition due diligence, marketing, leasing activities, and/or independent appraisals.

In connection with a business combination, the excess of the fair value of liabilities assumed and common stock issued and cash paid over the fair

value of identifiable assets acquired is allocated to goodwill.

In connection with a

business combination, the excess of the fair value of liabilities assumed and common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill.

Transaction costs associated with business combinations are expensed as incurred.

15 unchanged sentences

Certain of the Company's employee stock-based awards vest only upon the achievement of a market condition where the measurement period is three years and vesting of the awards is based on the Company's level of attainment of a specified total stockholder return relative to the percentage appreciation of a specified index of companies for the respective three-year measurement period.

Compensation expense for awards with market conditions is recognized over the service period, which is generally four years , and the actual achievement of the market condition does not impact expense recognition.

Compensation expense for awards with market conditions is recognized over the service period, which is generally three to four years , and the actual achievement of the market condition does not impact expense recognition.

The Company uses a Monte Carlo valuation model to estimate the grant date fair value of such awards.

7 unchanged sentences

The Company accounts for income taxes under the asset and liability approach which requires recognition of deferred tax assets and liabilities for the differences between the financial reporting and tax basis of assets and liabilities using the tax rates in effect for the year in which the differences are expected to affect taxable income.

A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

When it is determined that it is more likely than not that the Company will be able to realize deferred tax assets in the future in excess of

the net recorded amount, an adjustment to the deferred tax asset is made and reflected in income.

A valuation allowance reduces deferred tax

assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

When it is determined that it is more likely than not that the Company will be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset is made and reflected in income.

This determination is made by considering various factors, including the reversal and timing of existing temporary differences, tax planning strategies, and estimates of future taxable income exclusive of the reversal of temporary differences.

28 unchanged sentences

Recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows.

If this comparison indicates that the carrying amount of an asset group is not recoverable, the Company is required to recognize an impairment loss.

The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value, with any amount in excess of fair value

recognized as an expense in the current period.

If this comparison indicates that the carrying amount of an asset

group is not recoverable, the Company is required to recognize an impairment loss.

The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value, with any amount in excess of fair value recognized as an expense in the current period.

Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods, and estimated capitalization rates (Level 3).

26 unchanged sentences

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders' equity.

Recently Adopted Accounting Pronouncements

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.

The Company adopted ASU 2023-07 for the year ended December 31, 2024.

Refer to Note 20 for disclosures of segment information.

Recently Issued Accounting Pronouncements Not Yet Adopted

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.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which requires disaggregated disclosure of income statement expenses.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company is evaluating the effect this pronouncement will have on its disclosures of income statement expenses.

Reclassifications

1 unchanged sentence

Acquisitions, Dispositions, and Other Significant Leasing Transactions

Ventas Lease Amendment

In December 2024, the Company and certain of its subsidiaries, and Ventas, Inc.

(“Ventas”) and certain of its subsidiaries, amended the existing master lease arrangement pursuant to which the Company leases 120 communities.

Beginning January 1, 2026, the Company will continue to lease 65 communities (“Renewal Communities”) and the remaining 55 communities (“Non-renewal Communities”) that are not renewed will either be sold by Ventas or transitioned, with such transitions commencing on or after September 1, 2025.

The amended master lease arrangement provides for an aggregate annual minimum rent for the Renewal Communities of $ 64.0 million beginning on January 1, 2026.

Effective on January 1, 2027, and on January 1 of each lease year thereafter, the annual minimum rent will continue to be subject to an escalator equal to 3 %.

Under the amended master lease arrangement, the term of the leases for the Renewal Communities was extended through December 31, 2035 with one 10-year extension option remaining.

In addition, Ventas has agreed to fund costs associated with capital expenditures at the communities subject to the master lease arrangement in the aggregate amount of up to $ 35.0 million during the calendar years 2025 to 2027, provided that, with respect to any such amounts funded by Ventas, the annual rent under the master lease arrangement will prospectively increase by the amount of each reimbursement multiplied by the greater of (i) 8 % and (ii) the United States 10-Year Treasury Rate plus 3.5 %.

No more than $ 15.0 million may be funded in each calendar year.

The amended master lease arrangement provides that Ventas will use commercially reasonable efforts to sell 11 of the Non-renewal Communities.

Rent for any Non-renewal Communities to be sold will continue through December 31, 2025 regardless of the date of the sale (subject to a potential rent credit associated with the sale of one large community in the group).

For the remaining 44 Non-renewal Communities, Ventas will begin transitions on or after September 1, 2025.

Rent will terminate with respect to any community that is transitioned on the earlier of the date of such transition or December 31, 2025.

In the event any Non-renewal Community is not sold or transitioned by December 31, 2025, the Company may manage such communities at a

management fee of 5 % of managed revenue, generally until the earlier of the transition or sale of such community or December 31, 2026.

The amendment to the lease arrangements increased the operating lease right-of-use assets and lease obligations recognized on the Company's consolidated balance sheet each by $ 434.9 million.

International JV / Welltower Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire 11 senior living communities that were 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.

Effective December 17, 2024, the Company successfully closed on the acquisition.

As part of this transaction, the Company assumed $ 194.5 million of existing 4.92 % fixed rate agency debt which is scheduled to mature in March 2027 and the remainder of the purchase price was paid with cash on hand.

Previously, these communities were held in a triple-net lease with annualized cash rent payments of $ 22.3 million and an initial maturity of August 31, 2028.

The leases for the 11 communities were previously classified as operating leases and were prospectively classified as financing leases from the purchase agreement date through the date of the acquisition.

Diversified Healthcare Trust Portfolio Acquisition

In September 2024, the Company entered into a definitive agreement to acquire 25 senior living communities that were leased by the Company as of December 31, 2024 from Diversified Healthcare Trust for a purchase price of $ 135.0 million.

As of December 31, 2024, these communities were 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 the first quarter of 2025, subject to the satisfaction of customary closing conditions for real estate transactions.

The Company expects to fund the acquisition of the 25 communities through proceeds from mortgage financing 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 through the date of acquisition.

The amendment of the leasing arrangement resulted in the following changes to the amounts recognized on the Company's 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

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.

As of December 31, 2024, these communities were held in a triple-net lease with annualized current cash rent payments of $ 13.7 million.

The term of the lease was previously scheduled to expire in December 2024, but has been extended through the date of the acquisition.

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

The Company expects to fund the acquisition of the five communities through proceeds from mortgage financing 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.

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.

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

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

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

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

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

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

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

Sale of Investment in Health Care Services Venture

Prior to December 2023, the Company held a 20 % equity interest in its former Health Care Services segment with the remaining 80 % equity interest held by affiliates of HCA Healthcare, Inc.

("HCA Healthcare").

During 2023, the Company contributed $ 7.5 million to the Health Care Services Venture (the "HCS Venture").

During the three months ended December 31, 2023, the Company recognized a non-cash impairment charge of $ 26.0 million on its investment in the HCS Venture as a result of the Company's decision to sell its equity interest prior to the recovery of its market value.

In December 2023, the Company completed the sale of its 20 % equity interest in the HCS Venture to HCA Healthcare for cash proceeds of $ 27.4 million.

Welltower Lease Amendments

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

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

During the three months ended June 30, 2023, the Company entered into amendments to its existing lease arrangements with Welltower pursuant to which the Company continues to lease 74 communities.

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

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

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

The remaining five communities are subject to an agreement to be purchased by the Company as described above.

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

2 unchanged sentences

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

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

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

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

Community Transactions

During the year ended December 31, 2023, the Company completed the sale of two owned CCRCs 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 the year ended December 31, 2022, the Company completed the sale of two owned communities for cash proceeds of $ 4.4 million, net of transaction costs.

During the year ended December 31, 2021, the Company completed the sale of three owned communities for cash proceeds of $ 16.5 million, net of transaction costs.

The Company's triple-net lease obligations on 24 communities were terminated from 2021 to 2023 ( 2 in 2021, 4 in 2022, and 18 in 2023), including through the acquisition of one formerly leased community in 2022.

Additionally, the Company acquired the remaining 50 % equity interest in one community during 2023.

Sale of Health Care Services

On July 1, 2021, the Company completed the sale of 80 % of its equity in its Health Care Services segment to affiliates of HCA Healthcare, Inc.

("HCA Healthcare") for a purchase price of $ 400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment (the "HCS Sale").

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

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

At closing of the transaction, the Company retained a 20 % equity interest in the Health Care Services venture (the "HCS Venture").

The accompanying consolidated financial statements include the results of operations and cash flows of the Health Care Services segment through June 30, 2021.

The results and financial position of the Health Care Services segment were deconsolidated from its consolidated financial statements as of July 1, 2021 and its 20 % equity interest in the HCS Venture was accounted for under the equity method of accounting subsequent to that date.

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

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

Refer to Note 20 for selected financial data for the Health Care Services segment through June 30, 2021.

On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare to LHC Group Inc.

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

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

In December 2023, the Company completed the sale of its 20 % equity interest in the HCS Venture to HCA Healthcare for cash proceeds of $ 27.4 million.

Master Lease Amendment

3 unchanged sentences

The leases for 16 of these communities were previously accounted for as failed sale-leaseback transactions as the Company had not previously transferred control of the underlying assets for accounting purposes.

The Company determined that the adjustment of the extension option provisions and the removal of the asset repurchase clauses in December 2022 resulted in the transfer of control of the assets of the 16 communities for accounting purposes and resulted in qualification as a sale.

qualification as a sale.

The Company recognized a $ 73.9 million non-cash gain on sale of communities for the transaction in the three months ended December 31, 2022.

In addition, the amended leases for such communities are prospectively classified as operating leases as of December 31, 2022, the effective date of the amendment.

For 2023, the reclassification of such lease costs as operating lease expense resulted in a $ 22.2 million increase in cash lease payments for operating leases and an offsetting decrease in cash lease payments for financing leases.

See Note 18 for more information regarding the impact to the Company’s consolidated balance sheet as a result of this transaction.

The amendment of the leasing arrangement resulted in the following changes to the amounts recognized on the Company's consolidated balance sheet.

(in millions)

Property, plant and equipment and leasehold intangibles, net $ ( 220.5 )

Operating lease right-of-use assets 91.6

Total assets $ ( 128.9 )

Financing lease obligations $ ( 294.4 )

Operating lease obligations 91.6

(Loss) gain on sale of communities, net 73.9

Total liabilities and equity $ ( 128.9 )

Fair Value Measurements

9 unchanged sentences

The following table summarizes the Company's SOFR interest rate cap instruments as of December 31, 2024.

($ in thousands)

Current notional balance $ 1,231,920

($ in millions)

Notional balance $ 783.8

Weighted average fixed cap rate 4.18 %

Earliest maturity date 2024

Latest maturity date 2025

Weighted average remaining term 0.7 years

Estimated asset fair value (included in other assets, net) at December 31, 2023 $ 13,268

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

Estimated asset fair value (included in other assets, net) $ 4.1

As of December 31, 2023, the estimated asset fair value of the interest rate cap instruments was $ 13.3 million included in other assets, net.

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

($ in thousands)

Current notional balance $ 220,000

($ in millions)

Notional balance $ 230.0

Fixed interest rate 4.06 %

Remaining term 0.8 years

Estimated asset fair value (included in other assets, net) at December 31, 2023 $ 1,611

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

Estimated fair value (included in other liabilities) $ ( 0.1 )

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

Long-Term Debt

2 unchanged sentences

The Company had outstanding long-term debt with a carrying amount of approximately $ 4.1 billion and $ 3.7 billion as of December 31, 2024 and 2023, respectively.

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

Fair value of the long-term debt is approximately $ 3.8 billion and $ 3.4 billion as of December 31, 2024 and 2023, respectively.

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

As part of the acquisition of 11 senior living communities on December 17, 2024, the Company assumed $ 194.5 million of existing 4.92 % fixed rate agency debt which is scheduled to mature in March 2027.

The Company estimated the fair value of the assumed debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness (Level 2).

The Company recognized $ 188.6 million of long-term debt as of the acquisition date based upon on its estimated fair value.

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

The Company estimated the fair value of the issued debt based upon the cash proceeds obtained for the new subscriptions in the issuance transactions (Level 2).

The Company recognized $ 362.2 million of long-term debt as of the date of the exchange and subscription transactions based upon on its estimated fair value.

Refer to Note 7 for additional information on the convertible notes issuance and exchange transactions.

Asset Impairment Expense

14 unchanged sentences

The Company compared the estimated fair value of the assets to their carrying amount for these identified communities and recorded an impairment charge for the excess of carrying amount over fair value.

During the year ended December 31, 2023, the Company recognized the right-of-use assets for the operating leases for 12 communities on the consolidated balance sheet at the estimated fair value of $ 16.4 million.

During the year ended December 31, 2022, the Company recognized the right-of-use assets for the operating leases for eight communities on the consolidated balance sheet at the estimated fair value of $ 30.9 million.

During the year ended December 31, 2021, the Company recognized the right-of-use assets for the operating leases for 11 communities on the consolidated balance sheet at the estimated fair value of $ 31.0 million.

During the year ended December 31, 2024, 2023, and 2022 the Company recognized the right-of-use assets for the operating leases for 22 communities, 12 communities, and eight communities, respectively, on the consolidated balance sheet at the estimated fair value of $ 7.3 million, $ 16.4 million, and $ 30.9 million, respectively.

In the aggregate, the Company recorded a non-cash impairment charge of $ 4.6 million, $ 8.3 million, and $ 13.7 million for the years ended December 31, 2024, 2023, and 2022, respectively, to operating lease right-of-use assets.

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

The fair values of the operating lease right-of-use assets were estimated utilizing a discounted cash flow approach based upon projected community cash flows and market data, including management fees and a market supported lease coverage ratio, all of which are considered Level 3 inputs within the valuation hierarchy.

4 unchanged sentences

The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $ 4.0 million, $ 6.3 million, and $ 15.9 million for the years ended December 31, 2024, 2023, and 2022, respectively.

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

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

Investment in Unconsolidated Ventures

The initial recognized amount of the Company’s 20 % equity interest in the HCS Venture was determined based upon a pro-rata share of the total enterprise value of the HCS Venture considering the $ 400.0 million purchase price paid by HCA Healthcare, as the Company's 20 % interest shared ratably in all of the benefits and losses expected to be generated by the HCS Venture.

The fair value measurement is classified within Level 2 of the valuation hierarchy.

The Company evaluates realization of its investment in unconsolidated ventures accounted for using the equity method if circumstances indicate the Company's investment is other than temporarily impaired.

8 unchanged sentences

Other third-party payor programs 1.4 % 1.5 % 1.4 %

The sale of 80 % of the Company's equity in its Health Care Services segment on July 1, 2021 reduced its revenue from government reimbursement programs.

Government reimbursements represented 15.5 %, 16.9 %, and 18.0 % of resident fee revenue for the CCRCs segment for the years ended December 31, 2024, 2023, and 2022, respectively.

43 unchanged sentences

23,297 230,000

Convertible notes payable due October 2029;

interest rate of 3.50 % as of December 31, 2024

Tangible equity units senior amortizing notes due November 2025;

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

17,990 25,586

Deferred financing costs, net ( 49,074 ) ( 28,998 )

5 unchanged sentences

Year Ending December 31,

Debt Weighted Rate

2025 $ 54,534 5.79 %

7 unchanged sentences

Total $ 4,062,787

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

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

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

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

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

Convertible Debt Offering

2026 Convertible Senior Notes

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

The Company received net proceeds of $ 224.3 million at closing after the deduction of the initial purchasers' discount.

The Company used $ 15.9 million of the net proceeds to pay the Company’s cost of the capped call transactions described below.

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

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

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

5 unchanged sentences

(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 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 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 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 the common stock of the Company and the conversion rate for the 2026 Notes on each such trading day;

(3) if the Company calls 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;

1 unchanged sentence

On or after July 15, 2026, holders may convert all or any portion of their 2026 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 satisfy its conversion obligation by paying or

delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock at the Company’s election.

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

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

The conversion rate for the 2026 Notes is initially 123.4568 shares of the Company’s 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, the Company 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.

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

The Company may redeem for cash all or (subject to certain limitations) any portion of the 2026 Notes, at the Company's option, on or after October 21, 2024 and prior to the 51 st scheduled trading day immediately preceding the maturity date if the last reported sale price of the Company's 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 the Company provides 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.

2 unchanged sentences

The 2026 Notes were initially recognized at $ 223.3 million, which reflects $ 230.0 million principal amount less the $ 5.7 million initial purchasers' discount and $ 1.0 million of debt issuance costs.

Subsequent to the Company’s convertible notes exchange transactions on October 3, 2024, $ 23.3 million in aggregate principal amount of the 2026 Notes remain outstanding with the terms unchanged.

Capped Call Transactions

6 unchanged sentences

The Company accounted for the Capped Call Transactions separately from the 2026 Notes and recognized the $ 15.9 million cost as a reduction of additional paid-in capital in the year ended December 31, 2021 as the Capped Call Transactions are indexed to the Company’s common stock.

2029 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 2026 Notes.

On October 3, 2024, pursuant to the Exchange and Subscription Agreements, the Company issued $ 369.4 million aggregate principal amount of its 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 Company's 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 the Company and EQ as trustee.

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

The 2029 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 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 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 Notes Indenture, subject to certain exceptions, the Company 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 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 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 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, 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 Notes Indenture, the Company 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, the Company will increase the conversion rate for a holder who elects to convert its 2029 Notes in connection with such a corporate event.

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

No sinking fund is provided for the 2029 Notes.

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

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

The 2029 Notes were initially recognized at the $ 362.2 million estimated fair value, which reflects $ 369.4 million principal amount less the $ 7.2 million discount in the exchange and subscription transactions.

The Company 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

2 unchanged sentences

The credit facility matures in January 2027, and the Company has 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.

2 unchanged sentences

As of December 31, 2024, $ 39.5 million of letters of credit and no cash borrowings were outstanding under the Company's $ 100.0 million secured credit facility.

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

The Company 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.

2024 Financing

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

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

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

The debt matures in February 2027 with two one-year renewal 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.

In November 2024, the Company entered into an amendment to extend the maturity date of $ 220.0 million of its mortgage debt secured by first priority mortgages on 24 communities to October 2026 and to obtain the delayed draw term loan advance of $ 10.0 million, bringing the aggregate outstanding principal amount of the loan to $ 230.0 million.

The loan bears interest at a variable rate equal to SOFR plus a margin of 245 basis points.

The Company has the right to extend the term of the loan for one additional year, subject to the satisfaction of certain conditions.

In December 2024, as part of the acquisition of 11 senior living communities the Company assumed $ 194.5 million of existing 4.92 % fixed rate agency debt which is scheduled to mature in March 2027.

In December 2024, the Company obtained $ 344.2 million of debt secured by non-recourse first mortgages on 47 communities, which also continue to secure $ 433.9 million of additional outstanding mortgages with maturities in 2027 and 2031.

The $ 344.2 million loan bears interest at a fixed rate of 6.14 %, is interest only for the first two years , and matures in January 2032.

At the closing, the Company repaid $ 312.5 million of debt under the mortgage facility, which was scheduled to mature in 2027, using proceeds from the $ 344.2 million loan.

2023 Financing

In December 2023, the Company 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.

In December 2023, the Company obtained $ 179.5 million of debt secured by non-recourse first mortgages on 47 communities, which also continued to secure $ 580.4 million of additional outstanding mortgages with maturities in 2027.

The $ 179.5 million loan bears interest at a fixed rate of 5.97 %, and matures in January 2031.

The mortgage facility includes certain provisions allowing for the Company to obtain additional funding based on the performance of the underlying communities.

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

2022 Financing

In October 2022, the Company obtained $ 220.0 million of debt secured by first priority mortgages on 24 communities.

The loan bears interest at a variable rate equal to SOFR plus a margin of 245 basis points and is interest only for the first three years .

The debt matures in October 2025 with two one-year renewal options, exercisable by the Company subject to the satisfaction of certain conditions.

The debt documents contain a requirement for the Company to maintain liquidity of at least $ 130.0 million and 25 % of the loan amount is subject to a guaranty by the Company.

The proceeds from the financing were primarily utilized to repay $ 199.6 million of outstanding mortgage debt previously scheduled to mature in 2023 and to purchase a SOFR interest rate swap instrument for $ 6.1 million.

The interest rate swap instrument has a $ 220.0 million notional amount, a fixed interest rate of 3.0 %, and a term of eighteen months .

Financial Covenants

10 unchanged sentences

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 the leased property revenue.

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

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

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

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

The leases generally provide for renewal or

extension options from 5 to 20 years and in some instances, purchase options.

As of December 31, 2023, none of the Company's renewal or extension option periods are included in the lease term for accounting purposes.

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

As of December 31, 2024, none of the Company's renewal or extension option periods for community leases are included in the lease term for accounting purposes.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis.

2 unchanged sentences

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

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

Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit

if the required covenant is not met.

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 December 31, 2023, the Company is in compliance with the financial covenants of its long-term leases.

As of December 31, 2024, the Company is in compliance with the financial covenants of its long-term lease agreements.

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

22 unchanged sentences

As of December 31, 2024, the weighted average discount rate of the Company's operating and financing leases was 8.8 % and 7.8 %, respectively.

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

Year Ending December 31, Operating Leases Financing Leases

6 unchanged sentences

Total lease payments 2,057.3 51.6

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

Purchase price for communities subject to acquisition agreements — 310.0

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

Imputed interest and variable lease payments ( 772.0 ) ( 45.5 )

Other financing obligations — 20.6

Total lease obligations $ 1,285.3 $ 303.9

6 unchanged sentences

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

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

The Units, purchase contracts, and amortizing notes are subject to the terms and conditions set forth in the Purchase Contract Agreement dated November 21, 2022 between the Company and EQ as purchase contract agent, and the Indenture and First Supplemental Indenture, each dated November 21, 2022, between the Company and EQ as trustee, including certain early settlement, repurchase, and adjustment events as set forth therein.

Subsequent to issuance, each Unit may be legally separated into the two components, both of which are freestanding instruments and separate units of account.

16 unchanged sentences

The threshold appreciation price is initially approximately equal to $ 3.87 and the reference price is initially approximately equal to $ 3.29 .

During the year ended December 31, 2024, 583,662 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 7,549,141 shares of the Company’s common stock upon settlement of such prepaid stock purchase contracts.

As of December 31, 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.

Accrued Expenses

11 unchanged sentences

Commitments and Contingencies

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.

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.

Based on the information that has been received as of the date hereof related to certain pending putative class action litigation discussed above, the Company took a charge for this litigation of $ 7.0 million for the year ended December 31, 2024, representing its current estimate of the Company’s ultimate cost to resolve such litigation, net of estimated probable insurance recoveries.

The final outcome of the litigation is dependent on many factors that are difficult to predict.

Accordingly the Company’s ultimate cost related to this matter may be materially different than the amount of the Company’s current estimate and accruals.

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.

6 unchanged sentences

In addition, states' Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry.

An adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil fines and penalties, the refund of overpayments, payment suspensions,

termination of participation in Medicare and Medicaid programs, and damage to the Company’s business reputation.

An adverse outcome of government scrutiny may result in citations, sanctions, other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and damage to the Company's business reputation.

The Company's costs to respond to and defend any such audits, reviews, and investigations may be significant.

39 unchanged sentences

The Company did not have any unvested restricted shares as of December 31, 2023.

During 2023, grants of restricted stock units and stock awards under the Company's 2014 Omnibus Incentive Plan were as follows.

During 2024, grants of restricted stock units and stock awards under the Company's 2014 and 2024 Omnibus Incentive Plans 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

5 unchanged sentences

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

As of December 31, 2023, the maximum number of shares issuable upon settlement of the Notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

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

("Ventas") a warrant (the "Warrant") to purchase 16.3 million shares of the Company’s common stock, $ 0.01 par value per share, at a price per share of $ 3.00 .

As of December 31, 2024, the maximum number of shares issuable upon settlement of the 2026 Notes is 3.9 million (after giving effect to 1.0 million additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

As of December 31, 2024, the maximum number of shares issuable upon settlement of the 2029 Notes is 55.0 million (after giving effect to 13.9 million additional shares that would be issuable upon conversion in connection with the occurrence of certain corporate or other events).

Refer to Note 7 for more information on the 2026 Notes and the 2029 Notes.

On July 26, 2020, the Company issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of the Company’s common stock, $ 0.01 par value per share, at a price per share of $ 3.00 .

The Warrant is exercisable at Ventas' option at any time and from time to time, in whole or in part, until December 31, 2025.

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.

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 year ended December 31, 2024, the Company issued 2.9 million shares of common stock upon the partial exercise of the Warrant by Ventas for 5.2 million shares, net of shares withheld to satisfy the aggregate exercise price.

As of December 31, 2024, the Warrant remains outstanding for the right to purchase 11.1 million shares of the Company's common stock.

As of December 31, 2024, the maximum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts is 34.8 million.

Refer to Note 9 for more information on the Units.

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

For both the years ended December 31, 2023 and 2022, 37.2 million shares are included in weighted average basic shares outstanding for the minimum number of shares issuable upon settlement of the Units' prepaid stock purchase contracts.

Years Ended December 31,

9 unchanged sentences

(in millions) 2024 2023 2022

Convertible senior notes 38.3 38.3 38.3

2026 Notes at initial conversion rate 2.9 28.4 28.4

Incremental shares issuable upon certain events for 2026 Notes 1.0 9.9 9.9

2029 Notes at initial conversion rate 41.1 — —

Incremental shares issuable upon certain events for 2029 Notes 13.9 — —

Warrants 11.1 16.3 16.3

2 unchanged sentences

Total 81.6 67.5 66.5

Refer to Notes 7 and 9 for more information on the Notes and the Units, respectively.

Share Repurchase Program

31 unchanged sentences

Valuation allowance ( 47,345 ) ( 49,109 ) ( 57,080 )

Goodwill derecognition — — ( 31,829 )

Convertible debt repurchase premium ( 2,745 ) — —

Stock compensation ( 83 ) ( 1,312 ) ( 181 )

9 unchanged sentences

Accrued expenses 47,467 46,814

Intangible assets 26,816 39,360

Financing lease obligations 29,524 —

Intangible Assets 17,103 26,816

Investment in unconsolidated ventures 3,322 3,268

Capital loss carryforward — 2,102

Other 3,268 3,091

Total gross deferred income tax asset 896,946 741,995

4 unchanged sentences

Property, plant and equipment ( 100,459 ) ( 92,580 )

Investment in unconsolidated ventures — ( 12,064 )

Financing lease obligations — ( 10,273 )

7 unchanged sentences

December 31, 2024 $ 474,152 $ 47,345 (1) $ 521,497

(1) Reduction of valuation allowance for federal and state net operating losses and credits.

(1) Increase to valuation allowance for federal and state net operating losses and credits.

As of December 31, 2023 and 2022, the Company had federal net operating loss carryforwards generated in 2017 and prior of approximately $ 790.8 million and $ 802.2 million, respectively, which are available to offset future taxable income from 2024 through 2034.

As of both December 31, 2024 and 2023, the Company had federal net operating loss carryforwards generated in 2017 and prior of approximately $ 790.8 million, which are available to offset future taxable income from 2025 through 2037.

Additionally, as of December 31, 2024 and 2023, the Company had federal net operating loss carryforwards generated after 2017 of $ 934.1 million and $ 799.3 million, respectively, which have an indefinite life, but with usage limited to 80% of taxable income in any given year.

The Company had state capital loss carryforwards of $ 2.1 million as of both December 31, 2023 and 2022, which are available to offset future capital gains through 2024, and are fully offset by a valuation allowance.

The Company had state capital loss carryforwards of $ 2.1 million as of December 31, 2023.

The Company determined that a valuation allowance was required after consideration of the Company's estimated future reversal of existing timing differences as of December 31, 2024 and 2023.

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The Company has recorded valuation allowances of $ 471.1 million and $ 421.6 million against its federal and state net operating losses as of December 31, 2024 and 2023, respectively.

The Company has recorded a valuation allowance against its state capital loss carryforward of $ 2.1 million as of both December 31, 2023 and 2022.

The Company has recorded a valuation allowance against its state capital loss carryforward of $ 2.1 million as of December 31, 2023.

The Company also recorded a valuation allowance against federal and state credits of $ 50.4 million as of both December 31, 2024 and 2023.

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Interest and penalties related to these tax positions are classified as tax expense in the Company's consolidated financial statements.

Total interest and penalties reserved is $ 0.2 million and $ 0.1 million as of December 31, 2023 and 2022, respectively.

Total interest and penalties reserved is $ 0.2 million as of both December 31, 2024 and 2023.

As of December 31, 2024, the Company's tax returns for years 2020 through 2023 are subject to future examination by tax authorities.

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Net cash paid $ 201,250 $ 233,205 $ 196,924

For the Years Ended December 31,

(in thousands) 2023

Acquisition of assets, net of cash acquired:

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Investment in unconsolidated ventures — ( 3,395 ) —

Operating lease right-of-use assets ( 51,968 ) — —

Long-term debt ( 188,634 ) — —

Financing lease obligations — — 6,000

Operating lease obligations 71,016 — —

Other liabilities — ( 384 ) —

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Net cash paid $ 108,411 $ 574 $ 6,004

Proceeds from HCS Sale, net:

Accounts receivable, net $ — $ — $ ( 57,582 )

Property, plant and equipment and leasehold intangibles, net — — ( 1,806 )

Operating lease right-of-use assets — — ( 8,145 )

Investment in unconsolidated ventures — — 100,000

Goodwill — — ( 126,810 )

Prepaid expenses and other assets, net — — ( 32,963 )

Trade accounts payable — — 1,387

Accrued expenses — — 25,226

Refundable fees and deferred revenue — — 57,314

Operating lease obligations — — 8,145

Other liabilities — — 9,165

Non-operating loss (gain) on sale of assets, net — — ( 286,489 )

Net cash received $ — $ — $ ( 312,558 )

Proceeds from sale of other assets, net:

Proceeds from sale of assets, net:

Prepaid expenses and other assets, net $ ( 362 ) $ ( 1,889 ) $ ( 1,308 )

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(in thousands) 2024 2023 2022

Gain on sale for master lease amendment:

Property, plant and equipment and leasehold intangibles, net $ — $ ( 220,477 ) $ —

Operating lease right-of-use assets — 91,641 —

Financing lease obligations — 294,327 —

Operating lease obligations — ( 91,641 ) —

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

Net $ — $ — $ —

Other non-cash lease transactions, net:

Non-cash lease transactions, net:

Property, plant and equipment and leasehold intangibles, net $ 146,571 $ ( 51,518 ) $ ( 209,379 )

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Financing lease obligations ( 152,975 ) 88,820 287,989

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

Net $ — $ — $ —

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

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

The components of restricted cash are as follows.

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Cash and cash equivalents $ 308,925 $ 277,971

Restricted cash 41,341 27,735

Long-term restricted cash 30,356 47,963

Restricted cash - current 39,871 41,341

Restricted cash - non-current 31,044 30,356

Total cash, cash equivalents, and restricted cash $ 379,840 $ 349,668

COVID-19 Pandemic

The COVID-19 pandemic has adversely impacted the Company's occupancy and resident fee revenue beginning in March 2020, resulted in incremental direct costs to respond to the pandemic, and for the year ended December, 31, 2021, resulted in net cash used in operating activities.

The COVID-19 pandemic has adversely impacted the Company's occupancy and resident fee revenue beginning in March 2020 and resulted in incremental direct costs to respond to the pandemic.

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

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Certain impacts of such programs are provided below.

• During the years ended December 31, 2022 and 2021, the Company accepted $ 61.1 million and $ 0.8 million, respectively, of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by U.S.

• During the year ended December 31, 2022, the Company accepted $ 61.1 million of cash from grants from the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by U.S.

Department of Health and Human Services, under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to the COVID-19 pandemic.

• During the year ended December 31, 2020, the Company received $ 87.5 million under the Accelerated and Advance Payment Program administered by CMS, $ 75.2 million of which related to its former Health Care Services segment and $ 12.3 million of which related to its CCRCs segment.

During the years ended December 31, 2022 and 2021, $ 3.1 million and $ 20.8 million, respectively, of the advanced payments were recouped per the terms of the program.

Pursuant to the sale of 80 % of the Company's equity in its Health Care Services segment (as described in Note 3), $ 63.6 million of such obligations related to its former Health Care Services segment were retained by the unconsolidated HCS Venture.

As of December 31, 2023, the Company has no remaining obligations under the program.

• During the year ended December 31, 2020, the Company deferred payment of $ 72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act.

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In both December 2021 and 2022, the Company paid $ 31.6 million of its retained deferred amount.

As of December 31, 2023, the Company has no remaining obligations for the deferred payroll tax program.

As of December 31, 2024 and 2023, the Company has no remaining obligations for the deferred payroll tax program.

• The Company was eligible to claim the employee retention credit on wages paid from March 12, 2020 to December 31, 2021 for certain of its associates under the CARES Act and subsequent legislation.

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During the years ended December 31, 2023 and 2022, the Company received cash of $ 14.7 million and $ 4.6 million, respectively, for such employee retention credits.

As of December 31, 2023, the Company has no remaining receivables under the program.

The Company had a receivable for $ 14.7 million included within prepaid expenses and other current assets, net on the consolidated balance sheet as of December 31, 2022.

In addition to the grants previously described, during the years ended December 31, 2023, 2022, and 2021, the Company recognized $ 9.1 million, $ 10.0 million, and $ 1.7 million, respectively, of other operating income from grants from other government sources.

As of December 31, 2024 and 2023, the Company has no remaining receivables under the program.

In addition to the grants previously described, during the years ended December 31, 2023 and 2022, the Company recognized $ 9.1 million and $ 10.0 million, respectively, of other operating income from grants from other government sources.

Segment Information

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and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

Prior to July 1, 2021, the Company had an additional reportable segment, Health Care Services, as described in Note 3.

The Company's chief operating decision maker is its President and Chief Executive Officer.

Independent Living .

The Company's Independent Living segment includes owned or leased communities that are primarily designed for middle to upper income seniors who desire to live in a residential setting that feels like home, without the efforts of ownership.

The majority of the Company's independent living communities consist of both independent and assisted living

units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior independent and assisted living services to accommodate their changing needs.

The majority of the Company's independent living communities consist of both independent and assisted living units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior independent and assisted living services to accommodate their changing needs.

Assisted Living and Memory Care.

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Under the management agreements for these communities, the Company receives management fees as well as reimbursement of expenses it incurs on behalf of the owners.

Health Care Services .

The Company's former Health Care Services segment included the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities.

The Health Care Services segment did not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

The accounting policies of the Company's reportable segments are the same as those described in the summary of significant accounting policies in Note 2.

The following tables set forth selected segment financial data.

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153,437 149,486 159,381

Health Care Services (1)(2)

Total revenue and other operating income 3,125,487 3,015,829 2,825,379

Community labor expenses:

Independent Living 230,037 221,112 213,965

Assisted Living and Memory Care 994,687 979,926 977,780

CCRCs 183,322 192,860 196,279

Other facility operating expenses:

Independent Living 173,803 158,742 145,784

Assisted Living and Memory Care 510,670 486,197 457,984

CCRCs 90,742 90,963 91,813

Total facility operating expenses 2,183,261 2,129,800 2,083,605

Segment operating income:

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All Other 10,521 10,161 12,020

Health Care Services — — 5,816

Total segment operating income 799,310 746,704 594,413

For the Years Ended December 31,

(in thousands) 2023 2022 2021

General and administrative expense (including non-cash stock-based compensation expense) 185,850 178,894 168,594

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Corporate and All Other 27,125 25,130 22,540

Health Care Services — — 340

Asset impairment:

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

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

Income (loss) from operations $ 46,528 $ 18,412 $ ( 42,687 )

For the Years Ended December 31,

(in thousands) 2024 2023 2022

Total interest expense:

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CCRCs — 578 8,933

Health Care Services — — 3,105

Total other operating income $ — $ 9,073 $ 80,469

(3) All Other revenue and other operating income includes management fees and reimbursements of costs incurred on behalf of managed communities.

For the years ended December 31, 2023, 2022, and 2021, revenue and other operating income includes $ 0.9 million, $ 4.2 million, and $ 17.2 million of revenue earned from unconsolidated ventures in which the Company had or has an ownership interest.

For the years ended December 31, 2023, and 2022, revenue and other operating income includes $ 0.9 million and $ 4.2 million of revenue earned from unconsolidated ventures in which the Company had an ownership interest.

(4) Other facility operating expenses is primarily comprised of costs for food, utilities, maintenance, real estate taxes, insurance, marketing, paid referral fees, and other costs of operating the Company's communities.

(5) 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.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data