Item 1. Financial Statements
Item 1. Financial Statements
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except stock amounts)
March 31,
2025 December 31,
2024
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 239,731 $ 308,925
Marketable securities — 19,879
Restricted cash 38,181 39,871
Accounts receivable, net 57,894 51,891
Prepaid expenses and other current assets, net 118,227 92,371
Total current assets 454,033 512,937
Property, plant and equipment and leasehold intangibles, net 4,545,827 4,594,401
Operating lease right-of-use assets 1,108,329 1,133,837
Restricted cash 38,244 31,044
Goodwill 27,321 27,321
Other assets, net 31,937 36,022
Total assets $ 6,205,691 $ 6,335,562
Liabilities and Equity
Current liabilities
Current portion of long-term debt $ 64,116 $ 40,779
Current portion of financing lease obligations 1,226 37,007
Current portion of operating lease obligations 101,834 111,104
Trade accounts payable 73,168 65,515
Accrued expenses 249,674 264,384
Refundable fees and deferred revenue 65,694 60,974
Total current liabilities 555,712 579,763
Long-term debt, less current portion 4,248,486 4,022,008
Financing lease obligations, less current portion 25,192 266,895
Operating lease obligations, less current portion 1,155,945 1,174,204
Deferred tax liability 8,447 9,604
Other liabilities 63,774 69,183
Total liabilities 6,057,556 6,121,657
Preferred stock, $ 0.01 par value, 50,000,000 shares authorized at March 31, 2025 and December 31, 2024; no shares issued and outstanding
— —
Common stock, $ 0.01 par value, 400,000,000 shares authorized at March 31, 2025 and December 31, 2024; 244,530,409 and 210,547,351 shares issued and 234,002,884 and 200,019,826 shares outstanding (including 27,972 unvested restricted shares as of March 31, 2025 and December 31, 2024)
2,445 2,105
Additional paid-in-capital 4,351,874 4,352,991
Treasury stock, at cost; 10,527,525 shares at March 31, 2025 and December 31, 2024
( 102,774 ) ( 102,774 )
Accumulated deficit ( 4,104,826 ) ( 4,039,847 )
Total Brookdale Senior Living Inc. stockholders' equity 146,719 212,475
Noncontrolling interest 1,416 1,430
Total equity 148,135 213,905
Total liabilities and equity $ 6,205,691 $ 6,335,562
See accompanying notes to condensed consolidated financial statements.
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BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31,
2025 2024
Resident fees $ 777,454 $ 744,241
Management fees 2,620 2,618
Reimbursed costs incurred on behalf of managed communities 33,790 35,972
Total revenue 813,864 782,831
Facility operating expense (excluding facility depreciation and amortization of $ 86,209 and $ 79,904 , respectively)
556,987 542,550
General and administrative expense (including non-cash stock-based compensation expense of $ 3,979 and $ 3,273 , respectively)
47,874 45,732
Facility operating lease expense 52,874 51,496
Depreciation and amortization 90,976 86,127
Asset impairment 1,787 1,708
Costs incurred on behalf of managed communities 33,790 35,972
Income (loss) from operations 29,576 19,246
Interest income 3,648 4,778
Interest expense:
Debt ( 54,659 ) ( 53,456 )
Financing lease obligations ( 5,600 ) ( 5,061 )
Amortization of deferred financing costs ( 3,630 ) ( 2,257 )
Change in fair value of derivatives ( 1,142 ) 3,087
Gain (loss) on debt modification and extinguishment, net ( 35,220 ) —
Non-operating gain (loss) on sale of assets, net — 704
Other non-operating income (loss) 1,358 3,338
Income (loss) before income taxes ( 65,669 ) ( 29,621 )
Benefit (provision) for income taxes 676 40
Net income (loss) ( 64,993 ) ( 29,581 )
Net (income) loss attributable to noncontrolling interest 14 15
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $ ( 64,979 ) $ ( 29,566 )
Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders $ ( 0.28 ) $ ( 0.13 )
Weighted average shares used in computing basic and diluted net income (loss) per share 230,678 225,890
See accompanying notes to condensed consolidated financial statements.
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BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited, in thousands)
Three Months Ended
March 31,
2025 2024
Total equity, balance at beginning of period $ 213,905 $ 405,153
Common stock:
Balance at beginning of period $ 2,105 $ 1,988
Shares issued for settlement of prepaid stock purchase contracts 296 35
Shares issued for warrant exercise 26 —
Restricted stock and restricted stock units, net 25 18
Shares withheld for employee taxes ( 7 ) ( 6 )
Balance at end of period $ 2,445 $ 2,035
Additional paid-in-capital:
Balance at beginning of period $ 4,352,991 $ 4,342,362
Compensation expense related to restricted stock grants 3,979 3,273
Shares issued for settlement of prepaid stock purchase contracts ( 296 ) ( 35 )
Shares issued for warrant exercise ( 26 ) —
Restricted stock and restricted stock units, net ( 25 ) ( 18 )
Shares withheld for employee taxes ( 4,749 ) ( 3,391 )
Balance at end of period $ 4,351,874 $ 4,342,191
Treasury stock:
Balance at beginning and end of period $ ( 102,774 ) $ ( 102,774 )
Accumulated deficit:
Balance at beginning of period $ ( 4,039,847 ) $ ( 3,837,912 )
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders ( 64,979 ) ( 29,566 )
Balance at end of period $ ( 4,104,826 ) $ ( 3,867,478 )
Noncontrolling interest:
Balance at beginning of period $ 1,430 $ 1,489
Net income (loss) attributable to noncontrolling interest ( 14 ) ( 15 )
Balance at end of period $ 1,416 $ 1,474
Total equity, balance at end of period $ 148,135 $ 375,448
Common stock share activity
Outstanding shares of common stock:
Balance at beginning of period 200,020 188,253
Shares issued for settlement of prepaid stock purchase contracts 29,636 3,557
Shares issued for warrant exercise 2,644 —
Restricted stock and restricted stock units, net 2,515 1,778
Shares withheld for employee taxes ( 812 ) ( 575 )
Balance at end of period 234,003 193,013
See accompanying notes to condensed consolidated financial statements.
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BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended March 31,
2025 2024
Cash Flows from Operating Activities
Net income (loss) $ ( 64,993 ) $ ( 29,581 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (gain) on debt modification and extinguishment, net 35,220 —
Depreciation and amortization, net 94,606 88,384
Asset impairment 1,787 1,708
Deferred income tax (benefit) provision ( 1,157 ) ( 425 )
Operating lease expense adjustment ( 3,853 ) ( 13,089 )
Change in fair value of derivatives 1,142 ( 3,087 )
Loss (gain) on sale of assets, net — ( 704 )
Non-cash stock-based compensation expense 3,979 3,273
Property and casualty insurance income ( 1,415 ) ( 2,626 )
Changes in operating assets and liabilities:
Accounts receivable, net ( 6,002 ) ( 1,253 )
Prepaid expenses and other assets, net ( 5,104 ) 1,708
Prepaid insurance premiums financed with notes payable ( 22,392 ) ( 23,319 )
Trade accounts payable and accrued expenses ( 15,148 ) ( 25,109 )
Refundable fees and deferred revenue 4,719 2,725
Operating lease assets and liabilities for lessor capital expenditure reimbursements 2,013 249
Net cash provided by (used in) operating activities 23,402 ( 1,146 )
Cash Flows from Investing Activities
Sale and maturities of marketable securities 20,000 30,000
Capital expenditures, net of related payables ( 41,817 ) ( 44,399 )
Acquisition of assets ( 311,028 ) —
Proceeds from sale of assets, net — 849
Property and casualty insurance proceeds 1,415 2,642
Change in lease acquisition deposits, net 5,000 —
Purchase of interest rate cap instruments ( 2,170 ) ( 629 )
Proceeds from interest rate cap instruments 1,900 4,659
Other ( 55 ) ( 68 )
Net cash provided by (used in) investing activities ( 326,755 ) ( 6,946 )
Cash Flows from Financing Activities
Proceeds from debt 320,673 80,923
Repayment of debt and financing lease obligations ( 70,338 ) ( 20,502 )
Payment of financing costs, net of related payables ( 5,909 ) ( 2,934 )
Payments of employee taxes for withheld shares ( 4,757 ) ( 3,397 )
Net cash provided by (used in) financing activities 239,669 54,090
Net increase (decrease) in cash, cash equivalents, and restricted cash ( 63,684 ) 45,998
Cash, cash equivalents, and restricted cash at beginning of period 379,840 349,668
Cash, cash equivalents, and restricted cash at end of period $ 316,156 $ 395,666
See accompanying notes to condensed consolidated financial statements.
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BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business
Brookdale Senior Living Inc. together with its consolidated subsidiaries ("Brookdale" or the "Company") is an operator of 647 senior living communities throughout the United States. The Company is committed to its mission of enriching the lives of the people it serves with compassion, respect, excellence, and integrity. The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). The Company's senior living communities and its comprehensive network help to provide seniors with care, connection, and services in an environment that feels like home. As of March 31, 2025, the Company owned 383 communities, representing a majority of the Company's community portfolio, leased 236 communities, and managed 28 communities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, results of operations, and cash flows of the Company for all periods presented. Certain information and footnote disclosures included in annual financial statements have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 19, 2025.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying unaudited condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests.
Use of Estimates
The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, asset impairments, self-insurance reserves, performance-based compensation, allowance for credit losses, depreciation and amortization, leasing transactions, income taxes, and other contingencies. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the original estimates.
3. Fair Value Measurements
Interest Rate Derivatives
The Company's derivative assets include interest rate cap and swap instruments that effectively manage the risk above certain interest rates for a portion of the Company's long-term variable rate debt. The Company has not designated the interest rate cap and swap instruments as hedging instruments and as such, changes in the fair value of the instruments are recognized in earnings in the period of the change. The interest rate derivative positions are valued using models developed by the respective counterparty that use as their basis readily available observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy. The Company considers the credit risk of its counterparties when evaluating the fair value of its derivatives.
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The following table summarizes the Company's Secured Overnight Financing Rate ("SOFR") interest rate cap instruments as of March 31, 2025.
($ in millions)
Notional balance $ 893.9
Weighted average fixed cap rate 4.27 %
Weighted average remaining term 1.0 year
Estimated asset fair value (included in other assets, net) $ 4.0
As of December 31, 2024, the estimated fair value of the interest rate cap instruments was $ 4.1 million included in other assets, net.
The following table summarizes the Company's SOFR interest rate swap instrument as of March 31, 2025.
($ in millions)
Notional balance $ 230.0
Fixed interest rate 4.06 %
Remaining term 1.5 years
Estimated fair value (included in other liabilities) $ ( 1.0 )
As of December 31, 2024, the estimated fair value of the interest rate swap instrument was $( 0.1 ) million included in other liabilities, net.
Long-term debt
The Company estimates the fair value of its debt primarily using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company estimates the fair value of its convertible senior notes based on valuations provided by third-party pricing services. The Company had outstanding long-term debt with a carrying amount of approximately $ 4.3 billion and $ 4.1 billion as of March 31, 2025 and December 31, 2024, respectively. Fair value of the long-term debt is approximately $ 4.2 billion and $ 3.8 billion as of March 31, 2025 and December 31, 2024, respectively. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.
4. Revenue
Resident fee revenue by payor source is as follows.
Three Months Ended March 31,
2025 2024
Private pay 93.9 % 93.9 %
Government reimbursement 4.8 % 4.6 %
Other third-party payor programs 1.3 % 1.5 %
Refer to Note 13 for disaggregation of revenue by reportable segment.
The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source, although terms generally include payment to be made within 30 days. Resident fee revenue for recurring and routine monthly services is generally billed monthly in advance under the Company's independent living, assisted living, and memory care residency agreements. Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears. Additionally, certain of the Company's revenue-generating contracts include non-refundable fees that are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements. Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.
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The Company had total deferred revenue (included within refundable fees and deferred revenue within the condensed consolidated balance sheets) of $ 58.9 million and $ 53.8 million, including $ 33.8 million and $ 29.4 million of monthly resident fees billed and received in advance, as of March 31, 2025 and December 31, 2024, respectively. For the three months ended March 31, 2025 and 2024, the Company recognized $ 40.7 million and $ 35.2 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, 2025 and 2024, respectively.
5. Property, Plant and Equipment and Leasehold Intangibles, Net
As of March 31, 2025 and December 31, 2024, net property, plant and equipment and leasehold intangibles consisted of the following.
(in thousands) March 31, 2025 December 31, 2024
Land $ 559,133 $ 532,719
Buildings and improvements 5,979,733 5,667,855
Furniture and equipment 1,236,867 1,182,026
Resident in-place lease intangibles 281,041 281,041
Construction in progress 26,339 32,965
Assets under financing leases and leasehold improvements 901,643 1,245,791
Property, plant and equipment and leasehold intangibles 8,984,756 8,942,397
Accumulated depreciation and amortization ( 4,438,929 ) ( 4,347,996 )
Property, plant and equipment and leasehold intangibles, net $ 4,545,827 $ 4,594,401
Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise. The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $ 91.0 million and $ 86.1 million for the three months ended March 31, 2025 and 2024, respectively. The Company recognized $ 1.8 million and $ 1.7 million for the three months ended March 31, 2025 and 2024, respectively, of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold intangibles assets.
6. Debt
Long-term debt consists of the following.
(in thousands) March 31, 2025 December 31, 2024
Fixed rate mortgage notes payable due 2026 through 2047; weighted average interest rate of 4.74 % and 4.65 % as of March 31, 2025 and December 31, 2024, respectively
$ 2,721,406 $ 2,599,028
Variable rate mortgage notes payable due 2026 through 2030; weighted average interest rate of 6.78 % and 6.89 % as of March 31, 2025 and December 31, 2024, respectively
1,219,462 1,110,642
Convertible notes payable due October 2026; interest rate of 2.00 % as of both March 31, 2025 and December 31, 2024
23,297 23,297
Convertible notes payable due October 2029; interest rate of 3.50 % as of both March 31, 2025 and December 31, 2024
369,445 369,445
Tangible equity units senior amortizing notes due 2025; interest rate of 10.25 % as of both March 31, 2025 and December 31, 2024
7,176 9,449
Notes payable for insurance premium financing due 2025; interest rate of 6.16 % as of March 31, 2025
21,698 —
Deferred financing costs, net ( 49,882 ) ( 49,074 )
Total long-term debt 4,312,602 4,062,787
Current portion 64,116 40,779
Total long-term debt, less current portion $ 4,248,486 $ 4,022,008
10
As of March 31, 2025, the long-term debt, less current portion within the Company's condensed consolidated balance sheet includes $ 99.8 million of mortgage debt scheduled to mature in January 2026 for which the Company has the unilateral option to extend the maturity for one additional year subject to the satisfaction of certain conditions.
As of March 31, 2025, 87.7 %, or $ 3.8 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.
As of March 31, 2025, $ 33.7 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 separate letter of credit facilities providing up to $ 37.0 million of letters of credit as of March 31, 2025 under which $ 35.7 million had been issued as of that date.
2025 Mortgage Financings
In February 2025, the Company obtained an aggregate of $ 130.1 million of debt secured by non-recourse first priority mortgages on five communities. The debt bears interest at a fixed rate of 6.47 %, is interest only for the first five years , and matures in March 2035.
In February 2025, the Company obtained $ 161.0 million of debt secured by first priority mortgages on 36 communities. The loan bears interest at a variable rate based on SOFR plus a margin of 300 basis points, and is interest only for the first year. The debt has an initial three-year term and two one-year extension options, exercisable subject to certain performance criteria, with a final maturity date, including extension options, of February 2030. At the time of closing, the Company repaid $ 50.0 million of outstanding mortgage debt on 11 communities, which held a final maturity date of February 2029.
Financial Covenants
Certain of the Company's debt documents contain restrictions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity and net worth levels and debt service ratios, and requiring the Company not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. In addition, the Company's debt documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.
The Company's failure to comply with applicable covenants, subject to cure provisions in certain instances, could constitute an event of default under the applicable debt documents. Many of the Company's debt documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, the Company's mortgage debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.
As of March 31, 2025, the Company is in compliance with the financial covenants of its debt agreements.
7. Leases
As of March 31, 2025, the Company operated 236 communities under long-term leases ( 227 operating leases and 9 financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. In certain cases, the Company guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases. 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 substantially all of the Company's 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. The leases generally provide for renewal or extension options, or in certain cases, purchase options.
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 and net worth levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.
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The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's 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. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.
As of March 31, 2025, the Company is in compliance with the financial covenants of its long-term lease agreements.
Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company did not recognize any such impairment charges for the three months ended March 31, 2025 and 2024.
A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows.
Three Months Ended
March 31,
Operating Leases (in thousands)
2025 2024
Facility operating expense $ 2,059 $ 1,920
Facility lease expense 52,874 51,496
Operating lease expense 54,933 53,416
Operating lease expense adjustment (1)
3,853 13,089
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements ( 2,013 ) ( 249 )
Operating net cash outflows from operating leases $ 56,773 $ 66,256
(1) Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.
Three Months Ended
March 31,
Financing Leases (in thousands)
2025 2024
Depreciation and amortization $ 2,525 $ 2,872
Interest expense: financing lease obligations 5,600 5,061
Financing lease expense $ 8,125 $ 7,933
Operating cash outflows from financing leases $ 5,600 $ 5,061
Financing cash outflows from financing leases 289 262
Total net cash outflows from financing leases $ 5,889 $ 5,323
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The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the condensed consolidated balance sheet as of March 31, 2025 are as follows (in millions).
Year Ending December 31, Operating Leases Financing Leases
2025 (nine months) $ 174.9 $ 5.3
2026 182.1 7.1
2027 185.1 6.3
2028 182.6 6.1
2029 185.1 6.1
Thereafter 1,089.2 15.2
Total lease payments 1,999.0 46.1
Imputed interest and variable lease payments ( 741.2 ) ( 40.4 )
Non-cash gain on future sale of property — 20.7
Total lease obligations $ 1,257.8 $ 26.4
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 from Diversified Healthcare Trust for a purchase price of $ 135.0 million. Effective February 27, 2025, the Company successfully closed the acquisition. The Company funded the acquisition of the 25 communities through proceeds from mortgage financings and cash on hand. Refer to Note 6 for information on the mortgage financing. Previously, these communities were held in a triple-net lease with annualized cash rent payments of $ 10.2 million and an initial maturity of December 31, 2032.
The leases for the 25 communities were previously classified as operating leases and were prospectively classified as financing leases subsequent to the amendment of the leasing arrangement through the date of acquisition.
Welltower Portfolio Acquisition
In September 2024, the Company entered into a definitive agreement to acquire five senior living communities that were leased by the Company from Welltower Inc. for a purchase price of $ 175.0 million. Effective February 27, 2025, the Company successfully closed the acquisition. The Company funded the acquisition of the five communities through proceeds from mortgage financings and cash on hand. Refer to Note 6 for information on the mortgage financing. Previously, these communities were held in a triple-net lease with annualized cash rent payments of $ 13.7 million and an initial maturity of December 31, 2024, which had been extended through the acquisition date.
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 leasing arrangements for three of these communities were accounted for as failed sale-leaseback transactions as the Company did not transfer control of the underlying assets under a sale and leaseback arrangement with a purchase option. For the three months ended March 31, 2025, the Company recognized a $ 32.8 million loss on extinguishment of the financing obligation for the amount by which the repurchase price exceeded the previously recognized financing obligation for such three communities.
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8. Litigation
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. 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 recorded $ 7.0 million in litigation expense for the three months 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. The Company uses its wholly-owned captive insurance company for the purpose of insuring certain portions of its risk retention under its general and professional liability insurance programs. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of the Company's wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits.
The senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement actions, or litigation related to regulatory compliance matters. In addition, the Company is subject to various government reviews, audits, and investigations to verify compliance with Medicare and Medicaid programs and other applicable laws and regulations. The Centers for Medicare & Medicaid Services ("CMS") has engaged third-party firms to review claims data to evaluate appropriateness of billings. In addition to identifying overpayments, audit contractors can refer suspected violations to government authorities. 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. The Company's costs to respond to and defend any such audits, reviews, and investigations may be significant.
In June 2020, the Company and several current and former executive officers were named as defendants in a putative class action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee. The lawsuit asserted that the defendants made material misstatements and omissions concerning the Company’s business, operational and compliance policies, compliance with applicable regulations and statutes, and staffing practices that caused the Company’s stock price to be artificially inflated between August 2016 and April 2020. The district court dismissed the lawsuit and entered judgment in favor of the defendants in September 2021, and the plaintiffs did not file an appeal. Between October 2020 and June 2021, alleged stockholders of the Company filed several stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, which were subsequently transferred to the Middle District of Tennessee and consolidated into two lawsuits. In January 2024, the court dismissed one of the two derivative lawsuits—styled Davis v. Baier et al ., No. 3:20-cv-00929 (M.D. Tenn.) (the “ Davis Action”). Plaintiffs have appealed the dismissal of the Davis Action to the United States Court of Appeals for the Sixth Circuit; that appeal is pending. The other derivative lawsuit—styled Templin v. Baier et al ., No. 3:21-cv-00373 (M.D. Tenn.) (the “ Templin Action”)—remains pending in the Middle District of Tennessee (the “Court”) and asserts claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company. The derivative complaints incorporate substantively similar allegations to the securities lawsuit previously described.
On May 2, 2025, plaintiff in the Templin Action filed a motion for preliminary approval of a proposed settlement, together with an executed settlement agreement. On May 6, 2025, the Court entered an order preliminarily approving the proposed settlement. The proposed settlement is subject to Court approval. A settlement hearing is scheduled for July 9, 2025 at 1:00 p.m. As required by the Court’s order preliminarily approving the settlement, the Company is furnishing the Summary Notice of Proposed Derivative Settlement as Exhibit 10.5 to this Quarterly Report on Form 10-Q.
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9. Stock-Based Compensation
Grants of restricted stock units and stock awards under the Company's 2024 Omnibus Incentive Plan were as follows.
(in thousands, except for weighted average amounts) Restricted Stock Unit and Stock Award Grants Weighted Average Grant Date Fair Value Total Grant Date Fair Value
Three months ended March 31, 2025 2,806 $ 5.12 $ 14,366
10. Earnings Per Share
Potentially dilutive common stock equivalents for the Company include convertible senior notes, warrants, unvested restricted stock, restricted stock units, and, until March 31, 2025, prepaid stock purchase contracts.
As of March 31, 2025, $ 23.3 million in aggregate principal amount of the Company's 2.00 % convertible senior notes due 2026 (the "2026 Notes") remain outstanding and 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 March 31, 2025, $ 369.4 million in aggregate principal amount of the Company’s 3.50 % convertible senior notes due 2029 (the “2029 Notes”) remain outstanding and 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).
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 . 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. During the three months ended March 31, 2025, the Company issued 2.6 million shares of common stock, upon the partial exercise of the Warrant by Ventas for 5.6 million shares, net of shares withheld to satisfy the aggregate exercise price. As of March 31, 2025, the Warrant remains outstanding for the right to purchase 5.6 million shares of the Company's common stock.
During the three months ended December 31, 2022, the Company issued 2,875,000 of its 7.00 % tangible equity units (the "Units") at a public offering price of $ 50.00 per Unit for an aggregate offering of $ 143.8 million. Each Unit was comprised of a prepaid stock purchase contract and a senior amortizing note with an initial principal amount of $ 8.8996 . In March 2025, the Company elected to exercise its right to settle the remaining outstanding 2,291,338 prepaid stock purchase contracts, pursuant to the early settlement right in the purchase contract agreement, and the Company delivered 29,636,386 shares of the Company's common stock upon settlement. As of March 31, 2025, the Company had no outstanding prepaid stock purchase contracts and $ 7.2 million payable in 2025 for the senior amortizing notes component of 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 weighted average minimum number of shares issuable upon settlement of the prepaid stock purchase contract component of the Units. The following table summarizes the computation of basic weighted average shares presented in the condensed consolidated statements of operations.
Three Months Ended March 31,
(in thousands) 2025 2024
Weighted average common shares outstanding 201,042 190,062
Weighted average minimum shares issuable under purchase contracts 29,636 35,828
Weighted average shares outstanding - basic 230,678 225,890
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Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. Diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. For the purposes of computing diluted EPS, weighted average shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are included based on the attainment of the applicable performance metrics as of the end of the reporting period. The Company has the following potentially outstanding shares of common stock, which were excluded from the computation of diluted net income (loss) per share attributable to common stockholders in both periods as a result of the net loss.
As of March 31,
(in millions) 2025 2024
2026 Notes at initial conversion rate 2.9 28.4
Incremental shares issuable upon certain events for 2026 Notes 1.0 9.9
2029 Notes at initial conversion rate 41.1 —
Incremental shares issuable upon certain events for 2029 Notes 13.9 —
Warrants 5.6 16.3
Restricted stock and restricted stock units 6.2 6.5
Incremental shares issuable under purchase contracts — 5.9
Total 70.7 67.0
11. Income Taxes
The difference between the Company's effective tax rate for the three months ended March 31, 2025 and 2024 was primarily due to an increase in the benefit recorded on operational losses during the three months ended March 31, 2025.
The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 15.9 million for the three months ended March 31, 2025, which was partially offset by an increase to the valuation allowance of $ 14.7 million. The Company recorded an aggregate deferred federal, state, and local tax benefit of $ 7.6 million for the three months ended March 31, 2024, which was partially offset by an increase to the valuation allowance of $ 7.2 million.
The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company's valuation allowance as of March 31, 2025 and December 31, 2024 was $ 536.2 million and $ 521.5 million, respectively.
The increase in the valuation allowance for the three months ended March 31, 2025 and 2024 is the result of current operating losses during the three months ended March 31, 2025 and 2024 and by the anticipated reversal of future tax liabilities offset by future tax deductions.
The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three months ended March 31, 2025 and 2024 which are included in income tax expense or benefit for the period. As of March 31, 2025, tax returns for years 2020 through 2023 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.
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12. Supplemental Disclosure of Cash Flow Information
Three Months Ended
March 31,
(in thousands) 2025 2024
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 53,173 $ 56,271
Income taxes paid, net of (refunds) $ 7 $ 3
Capital expenditures, net of related payables:
Capital expenditures - non-development, net $ 41,127 $ 50,591
Capital expenditures - development, net 9 218
Capital expenditures - non-development - reimbursable from lessor 2,013 249
Trade accounts payable ( 1,332 ) ( 6,659 )
Net cash paid $ 41,817 $ 44,399
Acquisition of assets:
Property, plant and equipment and leasehold intangibles, net $ 1,028 $ —
Financing lease obligations 277,208 —
Loss on debt modification and extinguishment, net 32,792 —
Net cash paid $ 311,028 $ —
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 following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.
(in thousands) March 31, 2025 December 31, 2024
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents $ 239,731 $ 308,925
Restricted cash - current 38,181 39,871
Restricted cash - non-current 38,244 31,044
Total cash, cash equivalents, and restricted cash $ 316,156 $ 379,840
13. Segment Information
The Company has three reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; 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.
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.
Assisted Living and Memory Care. The Company's Assisted Living and Memory Care segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily living for the Company's residents. The Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as
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smaller, freestanding, single story communities. The Company also provides memory care services at freestanding memory care communities that are specially designed for residents with Alzheimer's disease and other dementias.
CCRCs. The Company's CCRCs segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate a broad spectrum of physical ability and healthcare needs. Most of the Company's CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus.
All Other. All Other includes communities operated by the Company pursuant to management agreements. 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.
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The following tables set forth selected segment financial data.
Three Months Ended
March 31,
(in thousands) 2025 2024
Revenue: (1)
Independent Living $ 157,117 $ 148,948
Assisted Living and Memory Care 533,379 510,872
CCRCs 86,958 84,421
All Other 36,410 38,590
Total revenue $ 813,864 $ 782,831
Community labor expenses:
Independent Living 58,284 57,140
Assisted Living and Memory Care 252,710 246,574
CCRCs 46,293 46,054
Other facility operating expenses: (2)
Independent Living 44,601 43,165
Assisted Living and Memory Care 131,116 126,840
CCRCs 23,983 22,777
Total facility operating expenses 556,987 542,550
Segment operating income: (3)
Independent Living $ 54,232 $ 48,643
Assisted Living and Memory Care 149,553 137,458
CCRCs 16,682 15,590
All Other 2,620 2,618
Total segment operating income 223,087 204,309
General and administrative expense (including non-cash stock-based compensation expense) 47,874 45,732
Facility operating lease expense:
Independent Living 9,820 9,431
Assisted Living and Memory Care 39,906 37,908
CCRCs 3,381 3,125
Corporate and All Other ( 233 ) 1,032
Depreciation and amortization:
Independent Living 25,837 22,043
Assisted Living and Memory Care 51,640 49,023
CCRCs 8,732 8,837
Corporate and All Other 4,767 6,224
Asset impairment:
Assisted Living and Memory Care 1,387 1,708
CCRCs 400 —
Income (loss) from operations $ 29,576 $ 19,246
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Three Months Ended
March 31,
(in thousands) 2025 2024
Interest expense:
Independent Living $ 15,588 $ 16,186
Assisted Living and Memory Care 37,671 36,002
CCRCs 5,357 5,804
Corporate and All Other 6,415 ( 305 )
Total interest expense $ 65,031 $ 57,687
Capital expenditures:
Independent Living $ 10,270 $ 12,720
Assisted Living and Memory Care 26,526 31,048
CCRCs 3,462 4,533
Corporate and All Other 2,891 2,757
Total capital expenditures $ 43,149 $ 51,058
As of
(in thousands) March 31, 2025 December 31, 2024
Assets:
Independent Living (4)
$ 1,230,952 $ 1,252,736
Assisted Living and Memory Care 3,944,748 3,983,311
CCRCs 635,147 640,720
Corporate and All Other 394,844 458,795
Total assets $ 6,205,691 $ 6,335,562
(1) All revenue is earned from external third parties in the United States.
(2) 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.
(3) Segment operating income is defined as segment revenues less segment facility operating expenses (excluding facility depreciation and amortization) and costs incurred on behalf of managed communities.
(4) The Company's total carrying amount of goodwill is included within the Independent Living segment and was $ 27.3 million as of both March 31, 2025 and December 31, 2024.
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