What changed in this filing

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Item 4. Controls and Procedures

2021-11-03 compared with 2021-08-04 · 22 added, 23 removed, 107 unchanged (30% of the section changed)

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Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

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• Our belief that the healthcare sector and many of our tenants, managers and operators provide essential services across the United States and the implication that our and our tenants', managers' and operators' businesses will remain open to provide such essential services,

• Our expectations regarding the quality and future performance of the new third party managers of the 41 senior living communities we have recently transitioned from Five Star and the 35 senior living communities we expect to transition from Five Star in the near term,

• Our expectation that we will execute agreements to transition 32 of our senior living communities that are currently being managed by Five Star to new managers by the end of 2021,

• Our expectations regarding the quality and future performance of the new third party managers of the senior living communities we have recently transitioned from Five Star and the senior living communities we expect to transition from Five Star, and our expectation that we will complete the transition of all 107 communities from Five Star to new third party managers by December 31, 2021,

• Whether the aging U.S.

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• Our potential receipt of any additional funding under the CARES Act,

• Our expectation that our redevelopment projects will be completed on budget by the estimated completion dates,

• Our expectation that our redevelopment projects will be completed on budget and by the estimated completion dates,

• Our acquisitions and sales of properties,

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• Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control.

• Under the current economic conditions, our tenants, managers and operators may not be able to profitably operate their businesses at our properties, our tenants may become unable or unwilling to pay rent owed to us, or the managers or operators of our senior living communities may be unable to generate our minimum returns for sustained periods as a result of the COVID-19 pandemic or otherwise.

• Under the current economic conditions for the industries in which our properties and businesses operate, our tenants, managers and operators may not be able to profitably operate their businesses at our properties, our tenants may become unable or unwilling to pay rent owed to us, or the managers or operators of our senior living communities may be unable to generate our minimum returns for sustained periods as a result of the COVID-19 pandemic or otherwise.

Additionally, our ability to borrow under our credit facility is subject to us satisfying financial and other covenants, and if we default under our credit facility or other debt obligations due to the impacts of the COVID-19 pandemic or otherwise, we may be required to repay our outstanding borrowings and other debt.

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however, even though vaccinations have been administered, the senior living industry may not recover to pre-pandemic levels for an extended period of time or at all if market preferences and practices result in older adults utilizing less services of the type offered at our communities,

• Five Star has experienced, and our other senior living community managers may experience, operating and financial challenges resulting from a number of factors, some of which are beyond Five Star's or any such other manager's control, and which challenges impact our operating results from our managed senior living communities, including, but not limited to:

• The impact of conditions in the economy and the capital markets on Five Star and our other senior living community managers and their residents, clients and other customers,

• Some of our senior living community managers have experienced, and others may experience, operating and financial challenges resulting from a number of factors, some of which are beyond their control, and which challenges impact our operating results from our managed senior living communities, including, but not limited to:

• The impact of conditions in the economy and the capital markets on our senior living community managers and their residents, clients and other customers,

• Competition within the senior living and other health and wellness related services businesses,

• Older adults delaying or forgoing moving into senior living communities or purchasing health and wellness services from Five Star and our other senior living community managers,

• Increases in Five Star's and our other senior living community managers' labor costs or in costs Five Star or any such other manager pays for goods and services,

• Older adults delaying or forgoing moving into senior living communities or purchasing health and wellness services from our senior living community managers,

• Increases in our senior living community managers' labor costs or in costs they pay for goods and services, due in part to supply chain constraints and commodity price inflation,

• Increases in tort and insurance liability costs,

• Five Star's and our other senior living community managers' operating and debt leverage,

• Our senior living community managers' operating and debt leverage,

• Changes in Medicare or Medicaid policies and regulations or the possible future repeal, replacement or modification of these or other existing or proposed legislation or regulations,

• Delays or nonpayment of government payments to Five Star or any of our other senior living community managers,

• Compliance with, and changes to, federal, state and local laws and regulations that could affect Five Star's and our other senior living community managers' services or impose requirements, costs and administrative burdens that may reduce Five Star's and such other managers' ability to profitably operate their businesses,

• Five Star's and our other senior living community managers' exposure to litigation and regulatory and government proceedings due to the nature of their businesses, including adverse determinations resulting from government reviews, audits and investigations and unanticipated costs to comply with legislative or regulatory developments, and

• Delays or nonpayment of government payments to our senior living community managers,

• Compliance with, and changes to, federal, state and local laws and regulations that could affect our senior living community managers' services or impose requirements, costs and administrative burdens that may reduce our managers' ability to profitably operate their businesses,

• Our senior living community managers' exposure to litigation and regulatory and government proceedings due to the nature of their businesses, including adverse determinations resulting from government reviews, audits and investigations and unanticipated costs to comply with legislative or regulatory developments, and

• Ongoing healthcare reform efforts, including continued efforts by third-party payers to reduce costs,

• We have not executed any new management agreement for the 32 remaining senior living communities to be transitioned from Five Star to other third party managers, and we may be unable to identify new managers for those communities that we believe are sufficiently qualified or we may be unable to reach agreement with any such managers on management terms before year end 2021 or at all, and any agreement we may reach with any such managers may not be on the terms we currently expect or desire, and may not be equal to or more favorable to us than the terms of our current management arrangements with Five Star, and further, transitions may not be successful and such managers may not be able to manage our senior living communities profitably or increase our returns,

• We may not be successful in transitioning the 107 senior living communities from Five Star to other third party managers by December 31, 2021 or at all, or in finding a redevelopment opportunity for the remaining senior living community, and the managers for those that we have transitioned or will transition may not be able to manage our senior living communities profitably or increase our returns,

• We own a significant number of Five Star common shares and we expect to own these shares for the foreseeable future.

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• Rents that we can charge at our properties may decline upon renewals or expirations because of changing market conditions or otherwise,

• Although we have obtained a waiver from compliance with certain financial covenants under our credit agreement through June 2022, if our operating results and financial condition are further significantly and adversely impacted by current economic conditions or otherwise, we may fail to comply with the terms of the waiver and other requirements under our credit agreement, and we may also fail to satisfy certain financial requirements under the agreements governing our public debt.

For example, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit agreement and our public debt covenants as of June 30, 2021, and we cannot be certain how long this ratio will remain below 1.5x.

We are prohibited from incurring additional debt while this ratio is below 1.5x, but are not required to repay outstanding debt as a result of failure to comply with this financial requirement.

We are currently fully drawn under our revolving credit facility and could also be required to

repay our outstanding debt in the event of non-compliance with certain other requirements of our credit agreement or the agreements governing our public debt.

• Although we have obtained a waiver from compliance with certain financial covenants under our credit agreement through June 2022, if our operating results and financial condition are further adversely impacted by current economic conditions or otherwise, we may fail to comply with the terms of the waiver and other requirements under our credit agreement, and we may also fail to satisfy certain financial requirements under the agreements governing our public debt.

For example, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit agreement and our public debt covenants as of September 30, 2021, and we cannot be certain how long this ratio will remain below 1.5x.

We are prohibited from incurring additional debt while this ratio is below 1.5x on a pro forma basis, but are not required to repay outstanding debt as a result of failure to comply with this financial requirement.

We are currently fully drawn under our revolving credit facility and could also be required to repay our outstanding debt in the event of non-compliance with certain other requirements of our credit agreement or the agreements governing our public debt.

We may therefore experience future liquidity constraints, as we are prohibited from incurring additional debt under our credit agreement or otherwise for failure to comply with the requirements of our credit agreement and the agreements governing our public debt, and we will be limited to our cash on hand or be forced to raise additional sources of capital or take other measures to maintain adequate liquidity,

• Actual costs under our revolving credit facility or other floating rate debt will be higher than the stated rates because of fees and expenses associated with such debt,

• We have options to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions;

• We have an option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions;

however, the applicable conditions may not be met,

• The premiums used to determine the interest rate payable on our revolving credit facility and the facility fee payable on our revolving credit facility are based on our credit ratings, which are subject to change,

• For the three months ended June 30, 2021, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources.

• For the three months ended September 30, 2021, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources.

This may imply that we will maintain or increase the percentage of our NOI generated from private resources at our senior living communities.

However, our residents and patients may become unable to fund our charges with private resources and we may be required or may elect for business reasons to accept or pursue revenues from government sources, which could result in an increased part of our NOI and revenue being generated from government payments and our becoming more dependent on government payments.

If the government fails to pay us or our tenants or managers amounts due to us or them because of government defaults, shutdowns, budgetary constraints or otherwise, we and they may be significantly negatively impacted,

• Circumstances that adversely affect the ability of seniors or their families to pay for our managers' or operators' services, such as economic downturns, weak housing market conditions, higher levels of unemployment among our residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics generally could affect the profitability of our senior living communities,

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• Our senior living communities are subject to extensive government regulation, licensure and oversight.

We sometimes experience deficiencies in the operation of our senior living communities and some of our communities may be prohibited from admitting new residents or our license to continue operations at a community may be revoked.

Our operators sometimes experience deficiencies in the operation of our senior living communities and some of our communities may be prohibited from admitting new residents or our license to continue operations at a community may be revoked.

Also, operating deficiencies or a license revocation at one or more of our senior living communities may have an adverse impact on our ability to obtain licenses for or attract residents to our other communities,

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Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, new legislation or regulations affecting our business or the businesses of our tenants, managers or operators, changes in our tenants', managers' or operators' revenues or costs, worsening or lack of improvement of Five Star's financial condition or changes in our other tenants', managers' or operators' financial conditions, deficiencies in operations by a tenant, manager or operator of one or more of our senior living communities, changed Medicare or Medicaid rates, acts of terrorism, pandemics, natural disasters or changes in capital markets or the economy generally.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, new legislation or regulations affecting our business or the businesses of our tenants, managers or operators, changes in our tenants', managers' or operators' revenues or costs, worsening or lack of improvement of the financial condition or changes in our tenants', managers' or operators' financial conditions, deficiencies in operations by a tenant, manager or operator of one or more of our senior living communities, changed Medicare or Medicaid rates, acts of terrorism, pandemics, natural disasters, climate change or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on Form 10-Q or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements.

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

What changed 10-Q

Item 4. Controls and Procedures