What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-07-25 · 272 added, 231 removed, 1077 unchanged (32% of the section changed)

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Our independent subsidiaries, each of which strive to be the operation of choice in the communities they serve, provide a broad spectrum of services.

As of June 30, 2024, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 312 skilled nursing and senior living facilities.

As of September 30, 2024, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 322 skilled nursing and senior living facilities.

Our real estate portfolio includes 121 owned real estate properties, which includes 91 facilities operated and managed by us, 30 operations leased to and operated by third-party operators and the Service Center location.

Of the 30 third-party operations, one senior living operation is located on the same real estate property as a skilled nursing operation that we own and operate.

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of June 30, 2024:

The following table summarizes our independent subsidiaries and operational skilled nursing beds and senior living units by ownership status as of September 30, 2024:

Owned and Operated Leased (with a Purchase Option) Leased (without a Purchase Option) Total for Facilities Operated

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Refer to Results of Operations for further discussion.

Operational Expansions — During the six months ended June 30, 2024, we expanded our operations and real estate portfolio through a combination of long-term leases and real estate purchases, with the addition of 13 stand-alone skilled nursing operations and two campus operations.

Of these additions, Standard Bearer acquired the real estate of seven of the operations, all of which were leased back to our independent subsidiaries.

Operational Expansions — During the nine months ended September 30, 2024, we expanded our operations and real estate portfolio through a combination of long-term leases and real estate purchases, with the addition of 24 stand-alone skilled nursing operations and two campus operations.

Of these additions, Standard Bearer acquired the real estate of nine of the operations, all of which were leased back to our independent subsidiaries.

These new operations added a total of 2,565 operational skilled nursing beds and 202 operational senior living units to be operated by our independent subsidiaries.

We also invested in new ancillary services that are complementary to our existing businesses.

Subsequent to September 30, 2024, we expanded our operations and real estate portfolio with the addition of one campus operation.

Standard Bearer acquired the real estate of this operation, which was leased back to our independent subsidiary.

The new operation added 83 operational skilled nursing beds and 20 operational senior living units to be operated by our independent subsidiary.

Refer to Note 6, Standard Bearer, for additional information on the purchases of real estate properties.

Common Stock Repurchase Program — On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

We did not repurchase any shares during the three months ended September 30, 2024.

Expansion into a New State — In 2024, we expanded our operations into the state of Tennessee with the addition of three stand-alone skilled nursing operations.

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Facility Information

The following table sets forth the location of our operated and owned facilities by type as well as the number of beds and units located at operated and owned facilities as of June 30, 2024:

TX CA AZ UT CO WA ID SC NE IA KS NV WI TN

The following table sets forth the location of our operated and owned facilities by type as well as the number of beds and units located at operated and owned facilities as of September 30, 2024:

TX CA AZ CO UT WA ID SC NE IA KS NV WI TN

Number of operated facilities

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The following table summarizes our overall skilled mix from our skilled nursing services for the periods indicated as a percentage of our total skilled nursing routine revenue and as a percentage of total skilled nursing patient days:

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

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

2024 2023 2024 2023

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The following table summarizes our overall occupancy statistics for skilled nursing operations for the periods indicated:

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

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

Occupancy for skilled services:

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The following tables set forth our total service revenue by payor source generated by our skilled services segment and our "All Other" category and as a percentage of total revenue for the periods indicated (dollars in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

Skilled Services All Other (4)

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2024 2023 2024 2023 2024 2023

Medicaid (1)(2)

$ 416,190 $ 367,079 $ 9,452 $ 7,759 $ 425,642 $ 374,838

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TOTAL SERVICE REVENUE $ 1,033,113 $ 902,967 $ 42,979 $ 32,357 $ 1,076,092 $ 935,324

Three Months Ended June 30,

Three Months Ended September 30,

Skilled Services All Other (4)

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(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the three months ended June 30, 2023.

(2) Medicaid payor includes revenue related to state relief funding during the three months ended September 30, 2023.

(2) Private and other in our "all other" category includes revenue from senior living operations and all revenue generated in our other ancillary operations.

(3) All Other incorporates intercompany eliminations.

Six Months Ended June 30,

Nine Months Ended September 30,

Skilled Services All Other (4)

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2024 2023 2024 2023 2024 2023

Medicaid (1)(2)

$ 1,201,435 $ 1,052,904 $ 26,130 $ 21,979 $ 1,227,565 $ 1,074,883

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TOTAL SERVICE REVENUE $ 2,994,000 $ 2,638,090 $ 117,151 $ 95,253 $ 3,111,151 $ 2,733,343

Six Months Ended June 30,

Nine Months Ended September 30,

Skilled Services All Other (4)

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(1) Medicaid payor includes revenue for senior living operations.

(2) Medicaid payor includes revenue related to state relief funding during the six months ended June 30, 2023 .

(2) Medicaid payor includes revenue related to state relief funding during the nine months ended September 30, 2023 .

(3) Private and other in our "all other" category includes revenue from senior living operations and all revenue generated in our other ancillary operations.

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Standard Bearer — We generate rental revenue primarily by leasing post-acute care properties that we acquired to healthcare operators under triple-net lease arrangements, whereby the tenants are solely responsible for the costs related to the property, including property taxes, insurance and maintenance and repair costs, subject to certain exceptions.

As of June 30, 2024, our real estate portfolio within Standard Bearer is comprised of 115 real estate properties.

As of September 30, 2024, our real estate portfolio within Standard Bearer is comprised of 116 real estate properties.

Of these properties, 87 are leased to our independent subsidiaries and 30 are leased to facilities wholly-owned and managed by third-party operators.

Of those 30 operations, one senior living operation is located on the same real estate property as a skilled nursing operation that an independent subsidiary operates.

During the three and six months ended June 30, 2024, we generated rental revenues of $23.4 million and $45.6 million, respectively, of which $19.2 million and $37.2 million, respectively, was derived from our independent subsidiaries and therefore eliminated in consolidation.

During the three and nine months ended September 30, 2024, we generated rental revenues of $24.4 million and $70.0 million, respectively, of which $20.2 million and $57.4 million, respectively, was derived from our independent subsidiaries and therefore eliminated in consolidation.

Other — Within our senior living operations, we generate revenue primarily from private pay sources, with a portion earned from Medicaid payors or through other state-specific programs.

In addition, we hold majority membership interests in certain of our other ancillary operations.

Payment for these services varies and is based upon the service provided.

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See Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations , in our Annual Report for further discussion of critical accounting estimates.

There were no material changes to our critical accounting policies with which the estimates are developed since December 31, 2023.

There have been no material changes to our critical accounting policies with which the estimates are developed since December 31, 2023.

Industry Trends

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In addition, as a result of increased mobility in society, reduction of average family size and the increased number of two-wage earner couples, more residents are looking for alternatives outside the family for their care.

Our business is affected by seasonal fluctuations in occupancy and acuity, which are most prominent when comparing the summer and winter months of the calendar year.

GOVERNMENT REGULATION

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Proposed rules based on these directives have already been published in 2023, including those highlighted below and observers expect additional rules to be issued this year and in the future.

The SNF PPS FY 2025 Proposed Rule also includes proposals for CMS to have greater sanctioning authority for ongoing or persistent deficiencies in Medicare-participating SNFs.

If CMS adopts this proposal after notice and comment, these increased sanctioning authorities will take effect as soon as the 2025 federal fiscal year, beginning in late 2024.

Final rules will follow publication of these proposed rules after a notice-and-comment period required by law.

Ownership Transparency Final Rule — On November 15, 2023, CMS published its final rule requiring SNFs to publicly disclose certain additional information regarding their ownership and managerial relationships.

The final rule requires disclosures to include the identity of any person or legal entity that:

For example, the SNF PPS FY 2025 Final Rule grants CMS greater sanctioning authority for ongoing or persistent deficiencies in Medicare-participating SNFs.

These increased sanctioning authorities will take effect in the 2025 federal fiscal year, beginning October 1, 2024.

Ownership Transparency Final Rule — CMS' final rule published in November 2023 requires SNFs to publicly disclose certain additional information regarding their ownership and managerial relationships, including the identity of any person or legal entity that:

(1) exercises financial, operational, or managerial control over any facility or part of a facility, or provides services to a facility that include its policies and procedures or cash management services;

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Certain states have adopted laws reflecting their concerns regarding ownership transparency.

For example, in July 2023, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency.

For example, Iowa adopted laws requiring disclosure of ownership information not previously required for licensure to promote transparency in 2023.

Additionally, in March 2024, the California Department of Health Care Access and Information of the California Health and Human Services Agency issued its notice of approval of regulatory action establishing policies and procedures that implement financial and ownership transparency requirements for California-licensed SNFs that are required by California law passed in 2021.

Federal Legislation — On March 9, 2023, the Home and Community-Based Services (HCBS) Access Act (Access Act) was introduced to expand access to and resources available for HCBS.

Federal Legislation — The Home and Community-Based Services (HCBS) Access Act (Access Act) was introduced in 2023 to expand access to and resources available for HCBS.

The Access Act ensures that Medicaid funding is made available to individuals who provide direct home- and community-based care to adults over the age of 60 or people who have disabilities.

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As of the date of filing, no further action has been taken on the HCBS Access Act since its introduction and referral to the House of Representatives committees.

On October 24, 2023, the HCBS Relief Act was introduced to provide additional funds to states to stabilize their HCBS service delivery networks, recruit and retain HCBS direct care workers, and meet long-term service and support needs of people eligible for Medicaid home and community-based services.

In addition, the HCBS Relief Act introduced in 2023, provides additional funds to states to stabilize their HCBS service delivery networks, recruit and retain HCBS direct care workers, and meet long-term service and support needs of people eligible for Medicaid home and community-based services.

Under the HCBS Relief Act, states would receive a temporary 10% increase in the applicable Federal Medical Assistance Percentage (FMAP) under Medicaid for certain approved home and community-based services that are provided during fiscal year (FY) 2024 through FY 2025.

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In the past, California had discussed issuing proposed regulations on direct care spending requirements that may have affected our business and SNFs operating within that state.

These proposals have included requirements for healthcare facilities certified by CMS, including SNFs, to report all annual revenues to the State of California and certify that a stated percentage of all non-Medicare revenues should be used for direct patient-related services, including staffing and operational costs.

On October 13, 2023, the California Governor signed into law a bill that impacts the minimum wages of healthcare workers.

Effective June 1, 2024, the law raised the minimum wage for California healthcare employees and set a new wage threshold for those who are considered exempt healthcare employees.

The bill only becomes effective for SNFs if a patient care minimum spending requirement bill is also passed.

We anticipate that a minimum spending bill will be proposed in the future.

These proposals have included requirements for healthcare facilities certified by CMS, including SNFs, to report all annual revenues to the State of California and certify that a stated percentage of all revenues should be used for direct patient-related services, including staffing and operational costs.

California has also signed into law a bill that impacts the minimum wages of healthcare workers.

Effective October 16, 2024, the law raised the minimum wage for California healthcare employees and set a new wage threshold for those who are considered exempt healthcare employees.

The bill only becomes effective for SNFs if a direct care minimum spending requirement bill is also passed.

While the existing requirement bill has not seen any traction.

We anticipate a minimum spending bill could be proposed in the future.

On April 24, 2024, the California Department of Health Care Access and Information (HCAI) announced that the Office of Health Care Affordability’s Board approved a statewide healthcare spending target of 3%, which represents a long-term reduction of current levels of statewide healthcare spending.

The spending target will be phased in over time, initially starting at 3.5% for 2025 and 2026, the target will be lowered to 3.2% for 2027 and 2028 before ultimately reaching 3% for 2029 and beyond.

Final Rule Fiscal Year 2024 Skilled Nursing Facility Prospective Payment System (SNF PPS) — On July 31, 2023, CMS published its final rule updating the Medicare payment rates within the SNF PPS for FY 2024 (SNF PPS FY 2024 Final Rule).

The SNF PPS FY 2024 Final Rule modifies the SNF Quality Reporting Program (QRP) and the SNF Value-Based Purchasing (VBP) Program.

The SNF PPS FY 2024 Final Rule finalized the rates to be paid in the 2024 fiscal year, which started on October 1, 2023.

The SNF PPS FY 2024 Final Rule increases the Medicare payment rate aggregate net market basket by 4.0%.

The increase includes a 6.4% net market basket update to the payment rates of 3.0%, plus a 3.6% market basket forecast error adjustment, less a 0.2% productivity adjustment, as well as a negative 2.3% in the FY 2024 SNF PPS rates due to the second phase of the Patient Driven Payment Model (PDPM) parity adjustment recalibration.

Final Rule Fiscal Year 2024 Skilled Nursing Facility Prospective Payment System (SNF PPS) — The SNF PPS FY 2024 Final Rule, which was effective October 1, 2023, updated the Medicare payment rates and modified the SNF Quality Reporting Program (QRP) and the SNF Value-Based Purchasing (VBP) Program.

The SNF PPS FY 2024 Final Rule finalized the rates to be paid in the 2024 fiscal year, which started on October 1, 2023 and ran through September 30, 2024.

The net effect of these changes was an overall 4.0% increase in payments to SNFs in FY 2024.

This final rule also updates the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting in public reporting of four QRP measures.

Additionally, the SNF PPS FY 2024 Final Rule makes changes to the SNF VBP Program.

Specifically, this final rule adopts four new measures:

In addition, this final rule also updates the SNF QRP for FY 2024 and future years, including the adoption of two new quality reporting measures, modification of one measure and removal of three measures resulting in public reporting of four QRP measures.

Additionally, the SNF PPS FY 2024 Final Rule makes changes to the SNF VBP Program, specifically adopting four new measures:

the nursing staff turnover measure, the discharge function score measure, the long stay hospitalization measure per 1,000 resident days and the percent of residents experiencing one or more falls with a major injury (long stay);

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The measure score is then calculated by comparing the total number of eligible employees with 60-day gaps in working during the specified periods.

Proposed Rule Fiscal Year 2025 Skilled Nursing Facility Prospective Payment System (SNF PPS) — On March 28, 2024, CMS released the proposed rule for the SNF PPS for FY 2025, which, if approved, will result in a 4.1% increase based on the proposed SNF market basket of 2.8%, plus a 1.7% market basket forecast error adjustment, and a negative 0.4% productivity adjustment.

Final Rule Fiscal Year 2025 Skilled Nursing Facility Prospective Payment System (SNF PPS) — CMS released the final rule for the SNF PPS for FY 2025 (SNF PPS FY 2025 Final Rule) in July 2024 to update the Medicare payment rates within the SNF PPS and provide significant enhancements to CMS’s enforcement capabilities within nursing homes.

This final rule results in a net 4.2% increase in SNF payments under Medicare Part A in FY 2025, which started on October 1, 2024 and will run through September 30, 2025.

The net increase is based on the SNF market basket of 3.0%, plus a 1.7% market basket forecast error adjustment, and a negative 0.5% productivity adjustment.

This increase does not include the SNF VBP reductions for certain SNFs subject to the net reduction in payments under the SNF VBP.

those adjustments are estimated to total $196.5 million in FY 2025.

CMS also plans to revise the SNF market basket base year from the 2018 base year to the current 2022 base year and to update the payment rates used under the SNF PPS based on the FY 2025 market basket increase factor, which is adjusted by both the productivity adjustment and forecast error correction.

Within this proposed rule, CMS also proposes to update the SNF PPS wage index using core-based statistical areas (CBSAs) to reflect more accurate regional wage costs.

The proposed rule also includes significant enhancements to its enforcement capabilities within nursing homes, aiming to reinforce the safety and quality of care.

The proposed rule seeks to broaden CMS’s ability to levy financial penalties as a means to ensure sustained remediation of health and safety infractions, thereby motivating facilities to quickly comply with CMS regulations.

The proposed rule aims to eliminate the restrictions of per instance (PI) for isolated violations or per day (PD) for ongoing non-compliance restrictions, allowing for more flexible imposition of both PD and PI penalties, which would not exceed statutory daily limits.

CMS also revised the SNF market basket base year from the 2018 base year to the current 2022 base year and updated the payment rates used under the SNF PPS based on the FY 2025 market basket increase factor, which is adjusted by both the productivity adjustment and forecast error correction.

Within this rule, CMS also updated the SNF PPS wage index using core-based statistical areas (CBSAs) to reflect regional wage costs.

The SNF PPS FY 2025 Final Rule also includes significant enhancements to CMS’s enforcement capabilities within nursing homes, aiming to reinforce the safety and quality of care.

The rule broadens CMS’s ability to use financial penalties to ensure sustained remediation of health and safety infractions, thereby motivating facilities to quickly comply with CMS regulations.

The rule eliminates the restrictions of per instance (PI) for isolated violations or per day (PD) for ongoing non-compliance restrictions, allowing for more flexible imposition of both PD and PI penalties, which would not exceed statutory daily limits.

This change is intended to provide CMS with enhanced tools to address violations more effectively and reflect the severity of the impact on residents’ health and safety.

CMS sought public feedback regarding this proposed flexibility to enforce its standards in nursing homes and SNFs through a comment period that closed on May 28, 2024.

More than half of the public comments CMS received addressed the proposed rule’s expansion of financial penalties that could be assessed against SNFs for non-compliance.

CMS Minimum Staffing Standards Final Rule — On April 22, 2024, CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule).

CMS Minimum Staffing Standards Final Rule — CMS issued its final rule establishing minimum staffing standards for skilled nursing facilities (Staffing Rule) in April 2024.

The Staffing Rule contains three primary staffing requirements and provides for a staggered and phase implementation over the next several years following the Staffing Rule’s publication.

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The Staffing Rule finalized the hardship exemption for the HPRD requirements.

A facility can qualify for a temporary hardship exemption from the new minimum staffing ratios and 24/7 RN onsite staffing requirement (the self-assessment standards must still be satisfied) if it is located in an area where the supply of RN, NA, or total nursing staff is insufficient to meet the needs of that area.

A facility can qualify for a temporary hardship exemption from the new minimum staffing ratios and 24/7 RN onsite staffing requirement (the self-assessment standards must still be satisfied) if it is in an area where the supply of RN, NA, or total nursing staff is insufficient to meet the needs of that area.

This exemption is based on the provider-to-population ratio for the nursing workforce, which must be at least 20% below the national average as calculated by CMS.

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The MIPTR provisions within the Staffing Rule require States to report to CMS the percentage of Medicaid payments for nursing facility services spent on direct care workers and support staff, regardless of whether such payments are made under a fee-for-service or managed care model.

Prior to the issuance of the Staffing Rule, there have been two bills under the names Protecting America’s Seniors’ Access to Care Act and Protecting Rural Seniors’ Access to Care Act (one in the House and a companion bill in the Senate), that were intended to block the rule from taking effect.

The Senate bill has garnered broad bipartisan support and is endorsed by over 90 organizations.

Prior to the publication of the Staffing Rule, two bills, named the Protecting America’s Seniors’ Access to Care Act and Protecting Rural Seniors’ Access to Care Act (one in the House and a companion bill in the Senate) were intended to block the Staffing Rule from taking effect.

The Senate version of the Protecting Rural Seniors’ Access to Care Act garnered broad bipartisan support and is endorsed by over 90 organizations.

Since being introduced and referred to the Senate Finance Committee in December of 2023, the Senate has not taken action on this bill.

These bills reason that the minimum staffing standard would endanger rural nursing facilities, subjecting them to potential fines and closures for failure to comply and might require them to discharge residents or limit the number of residents they accept in an effort to meet the requirements of the bill.

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On May 23, 2024, the American Health Care Association (AHCA) filed a lawsuit in the Northern District of Texas against HHS and CMS, alleging that the Staffing Rule exceeds the scope of CMS’s statutory authority and violates the Administrative Procedure Act.

On May 10, 2024, a measure was introduced in the House of Representatives under the Congressional Review Act to overturn the Staffing Rule.

Related to the pending proposed legislation regarding the Staffing Rule, on April 19, 2024, the Long-Term Care Workforce Support Act was introduced in both the Senate and House of Representatives in an effort to increase the direct care workforce and improve pay, by increasing the federal match for Medicaid by up to 10% for each state across 10 years.

The State of Texas brought suit and was granted consolidation of its lawsuit with AHCA's in the same venue arguing the rule is “arbitrary and capricious” and in violation of the Administrative Procedure Act.

Subsequently, over 20 additional states have filed similar suits in opposition to the rule, as well as industry groups including Leading Age and the South Dakota Association of Healthcare Organizations.

On May 10, 2024, a joint resolution was introduced in the House of Representatives under the Congressional Review Act to overturn the Staffing Rule, which was referred to the House Ways and Means committee and its Subcommittee on Health on May 17, 2024, with no further action taken on the joint resolution since then.

Related to the pending proposed legislation regarding the Staffing Rule, the Long-Term Care Workforce Support Act was introduced in both the Senate and House of Representatives in April of 2024 and both versions of the bill were subsequently referred to the Senate Committee on Finance and the House Ways and Means committee and its Subcommittee on Health, respectively, by April 19, 2024, with no action taken on either bill since then.

These companion bills were introduced in order to increase the direct care workforce and improve pay, by increasing the federal match for Medicaid by up to 10% for each state across 10 years.

The recent Supreme Court decision in Loper Bright Enterprises v.

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The SNF PPS FY 2024 Final Rule also removed the Application of Functional Assessment/Care Plan measures from the SNF QRP.

CMS will adopt two measures for the SNF QRP starting in FY 2026.

Under the SNF PPS FY 2024 Final Rule, CMS will adopt two measures for the SNF QRP starting in FY 2026.

First, CMS will raise the Data Completion Thresholds for the MDS.

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This metric highlights the number of patient stays in which SNF patients received the COVID-19 vaccine.

CMS’s SNF PPS FY 2025 Proposed Rule includes several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data.

Starting in fiscal year 2027, CMS plans to introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS.

CMS’s SNF PPS FY 2025 Final Rule adopts several updates to the SNF QRP aimed at enhancing the integration of social determinants of health (SDOH) into patient assessments and ensuring the accuracy of reported data.

Starting in fiscal year 2027, CMS will introduce four new SDOH items related to living situation, food security, and utility access, and modify an existing item on transportation availability in the MDS.

Additionally, CMS proposes that SNFs participating in the SNF QRP undergo a data validation process similar to that already implemented in the SNF VBP Program.

Also beginning in fiscal year 2027, SNFs participating in the SNF QRP program must participate in a validation program similar to that used for SNFs participating in the SNF VBP Program.

Medicare Annual Payment Rule — CMS is required to calculate an annual Medicare market-basket update to the payment rates.

The SNF PPS FY 2025 Proposed Rule, issued on March 28, 2024 would increase the Medicare payment rates to SNFs in fiscal year 2025 by 4.1%, which is based on a market basket of 2.8% plus a 1.7% market basket forecast error adjustment, and a negative 0.4% productivity adjustment.

The SNF PPS FY 2025 Final Rule, issued on July 31, 2024 increased the Medicare payment rates to SNFs in fiscal year 2025 by 4.2%, which is based on a market basket of 3.0% plus a 1.7% market basket forecast error adjustment and a negative 0.5% productivity adjustment.

On July 31, 2023, CMS issued the SNF PPS FY 2024 Final Rule that increased Medicare payment rates by 4.0% to SNFs in fiscal year 2024.

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The CAA 2023 also offset planned Medicare sequestrations that would have been as high as 4.0% and instead maintained fee schedule cuts of approximately 2%.

Absent a further act by Congress, such as a consolidated appropriations act for 2025 or other bill addressing spending in fiscal year 2025 (including retroactively), the sequestration of Medicare FFS claims is expected to take effect in fiscal year 2025.

Skilled Nursing Facility Value-Based Purchasing (SNF-VBP) Program — The SNF-VBP Program rewards SNFs with incentive payments based on the quality of care they provide to Medicare beneficiaries, as measured by a hospital readmissions measure.

CMS annually adjusts its payment rules for SNFs using the SNF-VBP Program.

The program also introduced quality measures to assess how health information is shared and adopted a number of standardized patient assessment data elements that assess factors such as cognitive function and mental status, special services and social determinants of health.

The program also introduced quality measures to assess how health information is shared and adopted several standardized patient assessment data elements that assess factors such as cognitive function and mental status, special services and social determinants of health.

CMS uses regulations to specify how it measures the performance for SNFs as well as the data that SNFs are to report to CMS.

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Additionally, the SNF WS PPR measure's calculations use two years of Medicare claims data to generate a provider-specific risk-standardized readmission rate.

The SNF PPS FY 2025 Proposed Rule proposed several operational and administrative updates to the SNF VBP.

The proposed rule seeks the adoption of a policy to retain and remove measurements to ensure the VBP Program’s evaluation metrics remain relevant and effective for assessing care quality.

Additionally, CMS plans to update the case-mix methodology for the Total Nurse Staffing measure and revise the review and correction policy to allow SNFs to review and correct Payroll-Based Journal (PBJ) data from FY 2026 and MDS data from FY 2027.

CMS has provided guidance related to the proposed changes and the changes already made in SNF PPS FY 2024 Final Rule CMS, with a focus on how CMS will now calculate performance scores and collect data on the new quality measures related to nursing staff turnover, infection prevention and control, and nursing care hours.

The SNF PPS FY 2025 Final Rule adopted several operational and administrative updates to the SNF VBP Program.

The SNF rule adopted a policy to select, retain and remove measurements to ensure the VBP Program’s evaluation metrics remain relevant and effective for assessing care quality, as well as policies for updating technical measures and policies for reviewing and correcting data CMS relies upon to calculate its measures.

The rule allows CMS to update the case-mix methodology for the Total Nurse Staffing measure, and its policies to allow the review and revise measures, as well as review and correct data, allow SNFs to review and correct Payroll-Based Journal (PBJ) data from fiscal year 2026 and MDS data from fiscal year 2027, allowing CMS to fashion more accurate measures based on updated data.

CMS previewed these proposed changes in the SNF PPS FY 2024 Final Rule, with a focus on how CMS will now calculate performance scores and collect data on the new quality measures related to nursing staff turnover, infection prevention and control, and nursing care hours.

Part B Rehabilitation Requirements — Some of our revenue is paid by the Medicare Part B program under a fee schedule.

Part B services are limited with a payment cap by combined speech-language pathology services (SLP), physical therapy (PT) services and a separate annual cap for occupational therapy (OT) services.

On July 31, 2024, CMS published the calendar year (CY) 2025 Physician Fee Schedule (PFS) Proposed Rule (2025 PFS Proposed Rule), which contained several reductions from the current CY 2024 Physician Fee Schedule Final Rule (2024 PFS Final Rule).

The Bipartisan Budget Act of 2018 (BBA) establishes coding modifier requirements to obtain payments beyond certain payment thresholds, discussed below and reaffirms the specific $3,000 claim audit threshold requirements for Medicare Administrative Contractors.

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and (2) providers in private practice, including speech-language pathologists, who perform and bill for multiple services in a single day.

Through the end of coverage year 2024, certain of our Part B services provided through telehealth will still qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF.

Through the end of CY 2024, certain of our Part B services provided through telehealth will still qualify for Medicare reimbursement based on flexibility first provided under the Emergency Waivers, which added physical therapy, occupational therapy and speech-language pathology to the list of approved telehealth Providers for the Medicare Part B programs provided by a SNF.

During the PHE, CMS added certain PT and OT services to the list of Medicare-covered telehealth services on a temporary basis, some of which were made permanent for use and new codes were added for PT, OT, or SLP telehealth services—including some “sometimes therapy” codes that were not subject to MPPR.

The CAA 2023 extended certain, but not all, telehealth flexibilities until December 31, 2024, allowing certain telehealth flexibilities to continue after the PHE's expiration.

On March 9, 2024, President Biden signed the Consolidated Appropriations Act, 2024, which included a 2.93% update to the CY 2024 Physician Fee Schedule (PFS) Conversion Factor (CF) for dates of service March 9, 2024 through December 31, 2024.

Under the 2025 PFS Proposed Rule, the 2.93% increase to the CY 2024 PFS Conversion Factor (CF) will expire and CMS seeks to impose an estimated 0.05% adjustment based on changes in work relative value units (RVUs) for certain services.

As a result, the 2025 PFS Proposed Rule proposes a reimbursement reduction of 2.80%, with a proposed CF of $32.35, which is a reduction from the CY 2024 CF of $33.29.

The 2025 PFS Proposed Rule proposes a 3.6% increase to the threshold for coding modifier requirements for PT and SLP combined, totaling $2,410 for CY 2025 with the same threshold for OT services.

The threshold for targeted medical review for PT and OT (combined) and SLP is proposed to remain at $3,000 through CY 2027.

The billing period starts on January 1, 2025 and will run through December 31, 2025.

The 2025 PFS Proposed Rule also suggests a regulatory change that would allow physical therapy assistants and occupational therapy assistants to be generally supervised by physical therapists and occupational therapists, respectively, in private practice, non-institutional settings, allowing greater flexibility in billing for those assistants’ services.

Additionally, the proposed rule seeks to except a therapist-established initial plan of care (POC) for PT, OT, or SLT services from requiring a physician or non-physician provider’s (NPP’s) signature, provided that (1) the patient’s physician or NPP referred the patient to the therapist and (2) the therapist has evidence that the POC was transmitted to the patient’s physician or NPP within 30 days of the patient’s initial evaluation.

This proposed flexibility applies only to the initial certification.

Finally, the 2025 PFS Proposed Rule proposes the discontinuation of COVID-19 PHE-era telehealth flexibilities beginning on January 1, 2025.

Under the proposed rule, restrictions on telehealth that existed prior to the COVID-19 PHE will go back into effect.

CMS’s proposed inclusion of telehealth services in the 2025 PFS Proposed Rule extended to audio-only, two-way, real-time audio communication technology for services furnished in a patient’s home if the distant site provider is technically capable of using an interactive telecommunications system, but the patient is not capable of, or does not consent to, the use of video technology.

CMS also proposed the addition of caregiving training services to the reduced Medicare-eligible telehealth services list on a provisional basis.

On March 9, 2024, President Biden signed the Consolidated Appropriations Act, 2024, which included a 2.93% update to the CY 2024 PFS CF for dates of service March 9, 2024 through December 31, 2024.

This replaces the 1.25% update provided by the Consolidated Appropriations Act, 2023.

On November 2, 2023, CMS published the CY 2024 Physician Fee Schedule (2024 PFS Final Rule), which changes Medicare payments under the PFS and other Medicare Part B components.

The 2024 PFS Final Rule was finalized in November 2023, which changes Medicare payments under the PFS and other Medicare Part B components.

The CY 2024 PFS Final Rule contains a conversion factor of $32.74, which is a decrease of $1.15 from the CY 2023 PFS conversion factor of $33.89.

This CY 2024 conversion factor is 3.4% lower than the CY 2023 conversion factor.

The CY 2024 PFS Final Rule contains provisions to make payments when physicians and certain non-physician practitioners, such as physician assistants, nurse practitioners, physical therapists, occupational therapists and clinical psychologists, involve caregivers in implementing an individualized plan of treatment or therapy.

These provisions incentivize the training of caregivers and provide additional funds to offset the costs of training these caregivers through participation in licensed healthcare providers’ course of care for patients and residents.

The billing period started on January 1, 2024 and runs through December 31, 2024.

The 2024 PFS Final Rule made payments when physicians and NPPs, involve caregivers in implementing an individualized plan of treatment or therapy.

These provisions incentivize the training of caregivers and provide additional funds to offset the costs of training these caregivers.

For PT and SLP combined, the threshold for coding modifier requirements increases to $2,330 for CY 2024 with the same threshold for OT services.

The KX modifier is added to medical claims to indicate the providing clinician attests that the services corresponding to that claim were medically necessary and that the justification for those services is contained within the patient’s medical records.

This replaces the 1.25% update provided by the Consolidated Appropriations Act, 2023, therefore the CY 2024 CF for dates of service January 1 through March 8, 2024 is $32.74.

CMS has implemented the new legislation by adjusting the CY 2023 CF of $33.07 by 2.93% and the budget neutrality adjustment for a CY 2024 CF of $33.29 for dates of service March 9 through December 31.

The CY 2024 PFS Final Rule will allow for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services.

This change may affect the rate of reimbursement for PT and OT services in the future and may affect the desirability and utilization of physical therapy assistants and occupational therapy assistants for certain patient services.

Additionally, the CY 2024 PFS Final rule adds certain health and well-being coaching services that Medicare will reimburse on a temporary basis for 2024.

The 2024 PFS Final Rule allows for general supervision of therapy assistants by PTs and OTs for remote therapeutic monitoring (RTM) services.

This change may affect the rate of reimbursement for PT and OT services in the future.

Additionally, the 2024 PFS Final rule adds certain health and well-being coaching services that Medicare will reimburse on a temporary basis for 2024.

The final rule also adds risk assessments for social determinants of health to the list of telehealth services Medicare will reimburse on a permanent basis.

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Further, non-physician primary care providers can provide certain services in place of primary care physicians.

On February 1, 2023, CMS issued its final rule, which takes effect on April 3, 2023, requiring the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits.

The final rule, which takes effect on April 3, 2023, requires the collection of data by Medicare Advantage organizations and their service providers and the submission of data to CMS for risk adjustment data validation (RADV) audits.

The purpose of these RADV audits is to maintain the accuracy of risk-adjusted payments made to Medicare Advantage organizations.

On January 26, 2024, CMS issued a memorandum to PACE organizations informing them that they will be subject to new prescription drug event (PDE) reporting requirements to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA).

On March 8, 2024, CMS issued a further memorandum to PACE organizations providing the additional PDE information that they must submit beginning January 1, 2025.

In 2024, CMS issued a new prescription drug event (PDE) reporting requirements for PACE organizations to receive manufacturer discounts for drugs provided through Medicare Part D as provided for in the Inflation Reduction Act of 2022 (IRA).

The additional PDE information must be submitted beginning January 1, 2025.

Decisions Regarding Skilled Nursing Facility Payment

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CMS has issued guidance and direction around arbitration that must be satisfied for any agreement to be enforceable and which may result in adverse consequences for our business if not followed.

Congress has routinely introduced, but not passed, legislation addressing the issue of arbitration agreements used by SNFs.

While legislative action is possible in the future, federal regulations and state/federal laws remain our primary source of authority over the use of pre-dispute binding arbitration agreements.

In 2022, CMS announced updated guidance for Phase 2 and 3 of the Requirements of Participation.

CMS distributed these updates to surveyors and state agencies in order to, among other things, enhance responses to resident complaints and reported incidents.

This guidance focuses on the following topics:

(1) resident abuse and neglect (including reporting of abuse);

CMS distributed these updates to surveyors and state agencies to enhance responses to resident complaints and reported incidents.

This guidance focuses on:

(1) resident abuse and neglect;

(2) admission, transfer and discharge;

(3) mental health and substance abuse disorders;

(4) nurse staffing and reporting of payroll to evaluate staffing sufficiency;

(5) residents’ rights (including visitation);

(4) staffing sufficiency;

(5) residents’ rights;

(6) potential inaccurate diagnoses or assessments;

(7) prescription and use of pharmaceuticals, including psychotropics and drugs that act like psychotropics;

(7) prescription and use of pharmaceuticals;

(8) infection prevention and control;

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(10) psychosocial outcomes and related severity;

and (11) the timeliness and completion of state investigations to improve consistency in the application of standards among various states.

In 2022, CMS updated the Medicare Requirements of Participation for SNFs, which includes the modification of requirements associated with a facility's physical environment to minimize unnecessary renovation expenses in order to avoid closure of SNFs due to the related expense.

and (11) the timeliness and completion of state investigations.

In 2022, CMS updated the Medicare Requirements of Participation for SNFs, to modify the requirements associated with a facility's physical environment to minimize unnecessary renovation expenses and avoid closure of SNFs due to the related expense.

CMS "grandfathered" certain facilities and will allow SNFs that were participating in Medicare before July 5, 2016 and that previously used the Fire Safety Evaluation System (FSES) to continue using the 2001 FSES mandatory values when determining compliance with applicable standards.

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In 2023, CMS revised the survey resources that CMS and state surveyors use in evaluating SNFs’ compliance with federal Requirements for Participation.

This revision incorporated the recent changes to CMS’ focused infection control survey item, which CMS had removed in favor of standard infection control survey measures.

These changes were made to the most recent revision of long-term care facility survey documents that CMS had last revised in October of 2022.

This revision incorporated changes to CMS’ focused infection control survey item, which CMS had removed in favor of standard infection control survey measures.

These updates provided more information for state surveyors to utilize when evaluating SNFs’ compliance with the Medicare Requirements of Participation, as well as included guidance for facilities on operationalizing compliance with these requirements based on how surveyors would measure and evaluate facility performance.

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In April of 2024, the OIG updated its work plan to study and determine whether and how states used Medicaid supplemental payments for use in satisfying the state’s obligations to pay nursing facilities any amounts due under the state’s nursing facility upper payment limit.

Our business model, like those of some other for-profit operators, is based in part on seeking out higher acuity patients whom we believe are generally more profitable.

The OIG further updated its work plan in June 2024 to study and assess the implementation of the Special Focus Facility Program for nursing facilities based on facilities that participated in the program from 2013 through 2022.

Our business model, is based in part on serving higher acuity patients.

Over time our overall patient mix has consistently shifted to higher acuity in most facilities we operate.

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In addition, the Five Star Quality Ratings incorporated staffing data such as staff tenure and SNF weekend staffing beginning with the October 2022 refresh of the Nursing Home Compare website.

In July of 2024, CMS updated the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide to identify and explain a change in staffing case-mix methodology to adopt a model based on PDPM, changing the measures that CMS previously froze in April of 2024.

This update to the Technical Users’ Guide also extended the gap period (during which no work hours are reported) for defining nurse staffing turnover from 60 days to 90 days.

As a result of this update, for the three staffing turnover measures, individuals who no longer work in the nursing home are defined as eligible individuals who have a period of at least 90 consecutive days in which they do not work at all, increased from 60 days.

CMS also updated the risk-adjustment models for the four claims-based measures to reflect measures of functional abilities and goals, rather than residents’ functional status.

Finally, CMS revised the thresholds for the staffing measures and claims-based quality measures to maintain the same distribution by points for affected staffing and quality measures, maintaining the same proportions of available five- and four-star ratings for facilities.

In April of 2024, CMS updated its Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide in several respects.

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All of these measures will be frozen until January 2025, while the short-stay functional improvement measure is replaced in October of 2024 with a new cross-setting function measure used in the SNF QRP.

Also in April of 2024, CMS is updating the staffing level case-mix adjustment methodology and freezing three staffing level measures until July of 2024:

CMS also updated the staffing level case-mix adjustment methodology and froze three staffing level measures until July of 2024:

(1) adjusted RN staffing (HPRD);

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These frozen measures will not affect staff turnover measures.

Additionally, beginning in April of 2024, CMS will revise the staffing rating methodology to give the lowest possible score for staffing turnover measures to providers who fail to submit staffing data or submit erroneous data.

Additionally, beginning in April of 2024, CMS revised the staffing rating methodology to give the lowest possible score for staffing turnover measures to providers who fail to submit staffing data or submit erroneous data.

Based on the Nursing Home Five-Star Quality Rating System’s Technical Users’ Guide update in 2023, CMS revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding the staff turnover measure and an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings.

Under these guidelines, only 10% of nursing facilities can receive a five-star rating in the state where it operates, with the bottom 20% receiving a one-star rating and the remaining 70% receiving a distribution of two-, three-, and four-star ratings.

In September 2023, CMS announced a freeze on four of the quality measures used in the Nursing Home Five-Star Quality Rating System From April 2024 until July 2024 CMS will freeze the staffing level measures for all SNFs.

Beginning with the July 2024 refresh, CMS will change the staffing case-mix adjustment methodology to a model based on PDPM

State Legislation Concerning Nursing Home Supervision — California passed into law a bill which changes the limitations, or “caps,” on non-economic damages that can be awarded in medical negligence cases filed against healthcare providers (including skilled nursing and long-term care facilities).

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The Chevron doctrine is frequently implicated in litigation over healthcare regulation, ranging from rules concerning staffing requirements and the validity of arbitration provisions, to requirements for healthcare workers to be vaccinated.

As such, the Loper decision likely will have significant and lasting consequences for the promulgation and enforcement of federal regulations by HHS and CMS, and may bear on the depth and detail of future legislation that is passed and enacted as statutes by Congress so that such laws can be enforced without administrative rulemaking or agency enforcement mechanisms.

Monitoring Compliance in Our Facilities

Subsequent analysis has focused on the limits of the Loper decision, including any deference that courts may still afford to administrative agencies when based on agency fact-finding and policy-making, particularly where such power is expressly delegated to the agency by statute.

The Loper decision likely will have significant and lasting consequences for the promulgation and enforcement of federal regulations by HHS and CMS, and may bear on the depth and detail of future legislation that is passed and enacted as statutes by Congress so that such laws can be enforced without administrative rulemaking or agency enforcement mechanisms.

Monitoring Compliance in Our Independent Subsidiaries

Governmental agencies and other authorities periodically inspect our independent subsidiaries to assess compliance with various standards, rules and regulations, with potential fines, sanctions and other penalties for noncompliance.

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Accordingly, facilities that have poor regulatory histories before acquisition by our independent subsidiaries and that develop new deficiencies after acquisition are more likely to have sanctions imposed upon them by CMS or state regulators.

In addition, CMS has increased its focus on facilities with a history of serious or sustained quality of care problems through the special focus facility (SFF) initiative.

In addition, CMS has increased its focus on facilities with a history of serious or sustained quality of care problems through the Special Focus Facility (SFF) program.

SFFs receive heightened scrutiny and more frequent regulatory surveys.

Failure to improve the quality of care can result in fines and termination from participation in Medicare and Medicaid.

A facility “graduates” from the program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.

A facility “graduates” from the SFF program once it demonstrates significant improvements in quality of care that are continued over a defined period of time.

In October 2022, CMS issued a Memorandum identifying the changes it intends to make in connection with the oversight of those facilities that fall under the SFF program, including increased penalties for SFFs that fail to improve their performance upon further inspection by CMS, increasing the standards SFFs must meet to graduate from the SFF program, maintaining heightened oversight of any SFF for a period of three years after it graduates and increasing the technical assistance CMS provides to SFFs.

Sanctions such as denial of payment for new admissions often are scheduled to go into effect before surveyors return to verify compliance.

Generally, if the surveyors confirm that the facility is in compliance upon their return, the sanctions never take effect.

Generally, if the surveyors confirm that the facility is in compliance upon their re-evaluation, the sanctions never take effect.

However, if they determine that the facility is not in compliance, the denial of payment goes into effect retroactive to the date given in the original notice, leaving operators with the task of deciding whether to continue accepting patients after the potential denial of payment date--risking the retroactive denial of revenue.

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Since the first quarter of 2024, Same Facilities skilled nursing occupancy has surpassed pre-pandemic occupancy.

Our focus on rebuilding census resulted in Same Facilities occupancy of 80.8% during the three months ended June 30, 2024, an increase of 2.2% compared to the same period in 2023, demonstrating our ability to gain additional market share even at our more mature operations.

Further, our Transitioning Facilities occupancy increased by 3.1% to 75.7% compared to the same period in 2023, highlighting our ability to increase occupancy during the transition period and to transform the underperforming operations that we have acquired.

Throughout most of our history, our business has been affected by seasonal fluctuations including occupancy and acuity.

Our focus on rebuilding census resulted in Same Facilities occupancy of 81.7% during the three months ended September 30, 2024, an increase of 2.2% compared to the same period in 2023, demonstrating our ability to gain additional market share even at our more mature operations.

Further, our Transitioning Facilities occupancy increased by 3.5% to 76.9% compared to the same period in 2023, highlighting our organic growth ability that results from transforming underperforming operations that we have acquired.

Throughout most of our history, our business is affected by seasonal fluctuations in occupancy and acuity, which are most prominent when comparing the summer and winter months of the calendar year.

For skilled nursing occupancy and skilled mix, we typically experience stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters.

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As these operations become "operations of choice" in each of their respective healthcare markets, we typically see both occupancy and skilled mix increase.

Our total revenue for the three months ended June 30, 2024 increased $114.9 million, or 12.5%, compared to the three months ended June 30, 2023, while our diluted GAAP earnings per share grew by 8.9%, from $1.12 to $1.22, compared to the three months ended June 30, 2023.

Throughout the quarter, we continued to make progress on targeted initiatives related to increasing occupancy in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles.

We continue to experience healthy growth in both revenue and overall results.

During the six months ended June 30, 2024, we added fifteen new operations.

We continue to work diligently with existing and recently acquired operations so that each can reach its full clinical and financial potential.

Our total revenue for the three months ended September 30, 2024 increased $141.0 million, or 15.0%, compared to the three months ended September 30, 2023, while our diluted GAAP earnings per share grew by 20.7%, from $1.11 to $1.34, compared to the three months ended September 30, 2023.

Throughout the quarter, we continued to make progress on targeted initiatives related to increasing occupancy and the level of acuity and complexity of the patients we serve in our facilities, attracting and developing our people and acquiring underperforming skilled nursing operations and integrating them with our proven cultural and operational principles.

During the nine months ended September 30, 2024, we added 26 new operations.

We consistently experience healthy growth in both revenue and overall results as we continue to work diligently with existing and recently acquired operations so that each can reach its full clinical and financial potential.

Our strength remains in our operating model, which empowers each operator to form their own market-specific strategy and adjust to the needs of their local medical communities, including methods for attracting new healthcare professionals into our workforce and retaining and developing existing staff.

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The following table sets forth details of operating results for our revenue, expenses and earnings, and their respective components, as a percentage of total revenue for the periods indicated:

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

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

2024 2023 2024 2023

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Interest income 0.7 0.5 0.7 0.4

Other income 0.1 0.1 0.2 0.2

Other income (expense)

0.4 (0.1) 0.2 0.1

Other income, net 0.9 % 0.2 % 0.7 % 0.3 %

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7.3 % 6.8 % 7.0 % 6.8 %

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

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

2024 2023 2024 2023

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• litigation;

• impairment of long-lived assets;

• acquisition related costs;

• costs incurred related to system implementations;

• business interruption recoveries and

• loss on long-lived assets and gain on business interruption recoveries and

• depreciation and amortization of patient base intangible assets.

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The table below reconciles income before provision for income taxes to Adjusted EBT for the periods presented:

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

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

2024 2023 2024 2023

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(555) 2,783 (1,425) 1,965

Business interruption recoveries

Loss on long-lived assets and gain on business interruption recoveries

486 (259) 2,335 (1,009)

Impairment of long-lived assets

Acquisition related costs (b)

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236 135 449 182

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business and legal adjustments associated with a favorable overturned verdict.

$ 108,352 $ 92,091 $ 311,141 $ 266,906

(a) Litigation relates to specific proceedings and adjustments arising outside of the ordinary course of business.

(b) Costs incurred to acquire operations that are not capitalizable.

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The table below reconciles net income to EBITDA, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:

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

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

2024 2023 2024 2023

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(555) 2,783 (1,425) 1,965

Impairment of long-lived assets

Business interruption recoveries

Loss on long-lived assets and gain on business interruption recoveries

486 (259) 2,335 (1,009)

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$ 178,676 $ 516,706

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business and legal adjustments associated with a favorable overturned verdict.

(a) Litigation relates to specific proceedings and adjustments arising outside of the ordinary course of business.

(b) Costs incurred to acquire operations that are not capitalizable.

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Skilled services Standard Bearer All Other Eliminations Consolidated

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Segment income (loss) 128,489 7,274 (36,603) — 99,160

Loss on long-lived assets — — — — (486)

Income before provision for income taxes $ 98,674

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Skilled services Standard Bearer All Other Eliminations Consolidated

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Segment income (loss) 117,816 7,165 (42,936) — $ 82,045

Loss on insurance recoveries from real estate

— — — — (100)

Income before provision for income taxes $ 82,045

Our total revenue increased by $114.9 million, or 12.5%, compared to the three months ended June 30, 2023.

Our total revenue increased by $141.0 million, or 15.0%, compared to the three months ended September 30, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.2% and 3.5% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

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Skilled Services

The following tables present the skilled services revenue and key performance metrics by category during the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

The following tables present the skilled services revenue and key performance metrics by category during the three months ended September 30, 2024 and 2023:

Three Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 48.5 % 48.4 % 0.1 % 0.2 %

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 50.2 % 49.6 % 0.6 % 1.2 %

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 38.9 % 35.3 % 3.6 % 10.2 %

Three Months Ended June 30,

Three Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 47.8 % 57.2 % NM NM

Three Months Ended September 30,

2024 2023 Change % Change

FACILITY CLOSED RESULTS:

(Dollars in thousands)

Skilled services revenue $ — $ 1,026 $ (1,026) NM

Actual patient days — 4,018 (4,018) NM

Occupancy percentage — Operational beds — % 82.8 % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services.

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(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2023.

Skilled services revenue increased by $107.1 million, or 12.1%, compared to the three months ended June 30, 2023.

(5) Facility Closed results represent one closed operation during 2024 due to the transitioning of an intermediate care facility program to group home setting, which is included in All Other category.

The operation revenue was excluded from Same Facilities results for the three months ended September 30, 2023 for comparison purposes.

Skilled services revenue increased by $130.1 million, or 14.4%, compared to the three months ended September 30, 2023.

The increases in skilled services revenue were across all payer types, including increases in Medicaid revenue of $52.6 million, or 12.2%, Medicare revenue of $26.0 million, or 11.0%, managed care revenue of $31.8 million, or 18.6% and private revenue of $19.7 million, or 30.3%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations.

Our consolidated occupancy increased by 2.1% to 80.1%, during the three months ended June 30, 2024 compared to the same period in 2023.

In addition, in the second quarter of 2024, we experienced an increase in skilled days, driven by steady growth in our managed care and our Medicaid patients.

Revenue in our Same Facilities increased by $47.5 million, or 6.8%, compared to the same period in 2023, due to increased occupancy and revenue per patient day.

Our Same Facilities occupancy continues to surpass pre-pandemic levels.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.2%, mainly due to an increase in managed care days of 5.7% and managed care revenue per patient day of 3.9%.

We continued to see a shift in our patient population from Medicare to managed care as Medicare Advantage enrollment accounted for a larger portion of the overall population.

Our consolidated occupancy increased by 2.0% to 80.9%, during the three months ended September 30, 2024 compared to the same period in 2023.

In addition, in the third quarter of 2024, we experienced an increase in skilled days, driven by steady growth in our managed care, Medicare and our Medicaid-skilled patients.

Revenue in our Same Facilities increased by $51.4 million, or 7.3%, compared to the same period in 2023, due to increased occupancy, skilled days and revenue per patient day.

Our Same Facilities occupancy and skilled mix by nursing days continue to surpass pre-pandemic levels.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.1%, mainly due to an increase in managed care days of 9.1% .

We continued to see a shift in our patient population from Medicare to managed care as Medicare Advantage enrollment continues to accounted for a larger portion of the overall Medicare eligible population.

In addition, Medicaid revenue increased by $18.3 million or 5.5%, mainly from the increase in Medicaid days and revenue per patient day.

Revenue generated by our Transitioning Facilities increased by $6.9 million, or 6.0%, primarily due to improved occupancy growth and an increase in revenue per patient day.

Our Managed Care revenue increased by 36.5% and private and other revenue increased by 17.4%, demonstrating our ability to focus on increasing occupancy across payer types.

Included in the three months ended June 30, 2023 is the revenue related to a facility not operating at full capacity starting in first quarter of 2024 due to flooding.

Skilled services revenue generated by Recently Acquired Facilities increased by $52.6 million compared to the three months ended June 30, 2023 .

The increase was primarily due to 22 operational expansions between July 1, 2023 and June 30, 2024 across ten states.

Revenue generated by our Transitioning Facilities increased by $9.0 million, or 7.5%, primarily due to increases in occupancy and revenue per patient day.

Our Managed Care revenue increased by 17.2%, Medicare revenue increased by 15.7% and private and other revenue increased by 10.0%, demonstrating our ability to focus on increasing occupancy across payer types.

Included in the three months ended September 30, 2023 is the revenue related to a facility that was not operating at full capacity starting in the first quarter of 2024 due to flooding.

Skilled services revenue generated by Recently Acquired Facilities increased by $70.8 million compared to the three months ended September 30, 2023 .

The increase was primarily due to 28 operational expansions between October 1, 2023 and September 30, 2024 across eight states.

Historically, we have generally experienced lower occupancy rates and lower skilled mix at Recently Acquired Facilities and therefore, we anticipate lower overall occupancy during years of growth.

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The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :

Three Months Ended June 30,

Three Months Ended September 30,

Same Facility Transitioning Acquisitions Total

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$ 399.86 $ 378.34 $ 342.49 $ 317.22 $ 425.50 $ 460.15 $ 395.24 $ 374.85

(1) The rates are based on contractually agreed-upon amounts or rates, excluding the estimates of variable consideration under the revenue recognition standard, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606 and state relief funding during the three months ended June 30, 2023.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.5% and 4.9%, respectively, compared to the three months ended June 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023 and a shift to higher acuity patients.

Our average Medicaid rates increased 10.1% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states, and change in Medicaid mix.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 4.5% and 3.0%, respectively, compared to the three months ended September 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023, a shift to higher acuity patients and changes in patient payer-mix.

For example, we continue to see a shift from Medicare to Medicare Advantage in states that have higher acuity patients, such as Arizona.

Our average Medicaid rates increased 6.0% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states and changes in Medicaid mix.

For example, we continue to have an increase in Medicaid days in states with higher rates, such as California.

Payor Sources as a Percentage of Skilled Nursing Services.

We use our skilled mix as measures of the quality of reimbursements we receive at our affiliated skilled nursing facilities over various periods.

We use our skilled mix as a measure of the quality of reimbursements we receive at our affiliated skilled nursing facilities over various periods.

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

Three Months Ended June 30,

Three Months Ended September 30,

Same Facility Transitioning Acquisitions Total

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100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Three Months Ended June 30,

Three Months Ended September 30,

Same Facility Transitioning Acquisitions Total

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The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2024 2023 $ %

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Cost of services related to our skilled services segment increased by $110.9 million, or 15.5% from the same period in 2023.

Cost of services as a percentage of revenue increased to 79.9% from 78.8% due to the increase in labor cost as a result of new acquisitions with higher expenses in the turnaround stage, as well as an increase related to general and professional liability reserves.

We continue to make progress in reducing contracted labor by driving up retention and hiring.

Cost of services as a percentage of revenue increased to 79.8% from 79.0% due to increased labor cost as a result of new acquisitions with higher expenses in the turnaround stage, increased healthcare costs and general and professional liability reserves and increased expense related to the deferred compensation investment program of $2.3 million compared to the three months ended September 30, 2023.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

Standard Bearer

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2024 2023 $ %

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$ 14,758 $ 13,594 $ 1,164 8.6 %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $3.4 million, or 17.3%, to $23.4 million, compared to the three months ended June 30, 2023.

The increase in revenue is primarily attributable to 12 real estate purchases, as well as annual rent increases since the three months ended June 30, 2023.

FFO — Our FFO increased by $1.3 million, or 9.5%, to $14.5 million, compared to the three months ended June 30, 2023.

The increase in rental revenue of $3.4 million is offset by increases in interest expense of $2.1 million associated with the intercompany agreements as we continue to grow our real estate portfolio.

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $3.4 million, or 16.4%, to $24.4 million, compared to the three months ended September 30, 2023.

The increase in revenue is primarily attributable to 10 real estate purchases, as well as annual rent increases since the three months ended September 30, 2023.

FFO — Our FFO increased by $1.2 million, or 8.6%, to $14.8 million, compared to the three months ended September 30, 2023.

The increase in rental revenue of $3.4 million was offset by increases in interest expense of $2.1 million associated with the intercompany agreements between Standard Bearer and us as we continue to grow our real estate portfolio.

All Other Revenue

Our other revenue increased by $9.0 million, or 23.4%, to $47.3 million, compared to the three months ended June 30, 2023.

Our other revenue increased by $12.0 million, or 30.7%, to $51.1 million, compared to the three months ended September 30, 2023.

Other revenue includes senior living revenue of $23.7 million, revenue from other ancillary services of $24.5 million and rental income of $2.9 million.

The increase in other revenue is primarily attributable to our other ancillary services.

The increase in other revenue is primarily attributable to the increase in occupancy in our senior living operations and growth in our other ancillary services.

Consolidated Financial Expenses

Rent-cost of services — Our rent-cost of services as a percentage of total revenue decreased by 0.3% to 5.1%, as our operational expansions included a mix of both leases and purchases of real estate.

Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.3% to 5.1%, since our operational expansions included a higher mix of real estate purchases.

General and administrative expense — General and administrative expense increased $5.1 million or 9.9%, to $56.2 million.

This increase was primarily driven by additional headcount due to acquisition activities and system implementation costs.

This increase was primarily driven by additional headcount due to acquisition activities.

General and administrative expense as a percentage of revenue decreased by 0.2% to 5.2%.

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This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures.

Depreciation and amortization increased by 0.1%, to 2.0%, as a percentage of revenue.

Other income, net — Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net as a percentage of revenue increased by 0.3% due to the increase in interest income from our investments.

Provision for income taxes — Our effective tax rate was 22.7% for the three months ended June 30, 2024, compared to 20.9% for the same period in 2023.

The effective tax rate for both periods is driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses including non-deductible compensation.

Depreciation and amortization expense as a percentage of revenue remained consistent at 1.9%.

Other income, net — Other income, net as a percentage of revenue increased by 0.7%.

Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net increased by $7.1 million due to the increase in interest income from our investments and gains in our deferred compensation plan which incurs gains or losses depending on market performance.

During the three months ended September 30, 2024 and 2023, the deferred compensation plan had a gain of $3.2 million and a loss of $1.4 million, respectively.

We also recorded an offsetting expense and reduction in expense allocated between cost of services and general and administrative expenses.

Provision for income taxes — Our effective tax rate was 20.4% for the three months ended September 30, 2024, compared to 22.0% for the same period in 2023.

The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses including non-deductible compensation.

See Note 14, Income Taxes , in the Notes to the Interim Financial Statements for further discussion.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

The following tables set forth details of operating results for our revenue and earnings, and their respective components, by our reportable segment for the periods indicated.

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Skilled Services Standard Bearer All Other Eliminations Consolidated

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Segment income (loss) 377,483 21,892 (116,704) — 282,671

Impairment of long-lived assets

Loss on long-lived assets

Income before provision for income taxes $ 280,336

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Skilled Services Standard Bearer All Other Eliminations Consolidated

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Income before provision for income taxes $ 241,480

Our total revenue increased $238.3 million, or 13.2%, compared to the six months ended June 30, 2023.

Our total revenue increased by $379.3 million, or 13.8%, compared to the nine months ended September 30, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.2% and 2.9% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

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Skilled Services Segment

The following tables present the skilled services revenue and key performance metrics by category during the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

The following tables present the skilled services revenue and key performance metrics by category during the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 48.8 % 50.6 % (1.8) % (3.6) %

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 50.2 % 51.6 % (1.4) % (2.7) %

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 38.4 % 38.7 % (0.3) % (0.8) %

Six Months Ended June 30,

Nine Months Ended September 30,

2024 2023 Change % Change

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Skilled mix by nursing revenue 51.0 % 61.2 % NM NM

Nine Months Ended September 30,

2024 2023 Change % Change

FACILITY CLOSED RESULTS:

(Dollars in thousands)

Skilled services revenue $ 574 $ 3,074 $ (2,500) NM

Actual patient days 2,082 13,794 (11,712) NM

Occupancy percentage — Operational beds 52.6 % 90.7 % NM NM

(1) Campus represents a facility that offers both skilled nursing and senior living services.

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(4) Recently Acquired Facility (Acquisitions) results represent all facilities purchased on or subsequent to January 1, 2023.

Skilled services revenue increased $225.8 million, or 13.0%, compared to the six months ended June 30, 2023.

(5) Facility Closed results represent a closed operation during the nine months ended September 30, 2024 due to the transitioning of an intermediate care facility program to group home setting, which is included in All Other category.

The operation revenue was excluded from Same Facilities results for the nine months ended September 30, 2024 and 2023 for comparison purposes.

Skilled services revenue increased $355.9 million, or 13.5%, compared to the nine months ended September 30, 2023.

The increases in skilled services revenue were across all payer types including increases in Medicaid revenue of $158.3 million, or 12.8%, Medicare revenue of $54.7 million, or 7.5%, managed care revenue of $93.2 million, or 19.1%, and private revenue of $49.7 million, or 27.5%.

The increase in skilled services revenue was primarily driven by strong occupancy performance across our skilled services operations.

Our consolidated occupancy increased by 2.1% to 80.1% during the six months ended June 30, 2024 compared to the same period in 2023.

In addition, we continue to increase our skilled days, mainly in the steady growth in our managed care and our long-term care Medicaid patients.

Our consolidated occupancy increased by 2.1% to 80.4% during the nine months ended September 30, 2024 compared to the same period in 2023, as a result of an increase in long-term care Medicaid patients and an increase in managed care skilled days.

Revenue in our Same Facilities increased $147.8 million, or 7.0%, compared to the same period in 2023, due to increased occupancy from long-term care patients and revenue per patient day and strong skilled days.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and local communities, increased our managed care revenue by 12.6%, mainly due to increases in managed care days of 6.5% and revenue per patient day of 4.0%.

We continued to see a shift in our patient population from Medicare to managed care as Medicare Advantage enrollment accounts for a larger portion of the overall population.

In addition, Medicaid revenue increased by $68.8 million or 7.0%, mainly from the increases in Medicaid days and revenue per patient day.

Our skilled mix days and revenue declined mainly due to our non-skilled patients days and revenue growth outpacing our skilled days and revenue.

Revenue generated by our Transitioning Facilities increased $24.9 million, or 7.1%, primarily due to improved occupancy growth and an increase in revenue per patient day.

Managed Care and private revenue increased by 29.8% and 20.0%, respectively, demonstrating our ability to focus on increasing occupancy across payer types.

Skilled services revenue generated by Recently Acquired Facilities increased by approximately $114.8 million compared to the six months ended June 30, 2023.

The increases were primarily due to 22 operational expansions between July 1, 2023 and June 30, 2024 across ten states.

Included in the nine months ended September 30, 2023 is the revenue related to a facility that was not operating at full capacity starting in the first quarter of 2024 due to flooding.

Skilled services revenue generated by Recently Acquired Facilities increased by approximately $185.6 million compared to the nine months ended September 30, 2023.

The increases were primarily due to 28 operational expansions between October 1, 2023 and September 30, 2024 across eight states.

In addition, we acquired 17 operations in February 2023 that contributed to the year over year increase.

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The following table reflects the change in skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate (1) :

Six Months Ended June 30,

Nine Months Ended September 30,

Same Facility Transitioning Acquisitions Total

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$ 401.33 $ 380.01 $ 339.45 $ 318.15 $ 437.60 $ 469.52 $ 396.61 $ 375.58

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.1% and 4.5%, respectively, compared to the six months ended June 30, 2023.

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 4.9% and 4.2%, respectively, compared to the nine months ended September 30, 2023.

The increase is attributable to the 4.0% net market basket increase that became effective in October 2023 and a shift toward higher acuity patients.

Our average Medicaid rates increased 10.2% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states, and change in Medicaid mix.

Our average Medicaid rates increased 8.7% due to state reimbursement increases, our participation in supplemental Medicaid payment programs and quality improvement programs in various states and changes in Medicaid mix.

For example, we continue to have an increase in Medicaid days in states with higher rates, such as California.

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The following tables set forth our percentage of skilled nursing patient revenue and days by payor source:

Six Months Ended June 30,

Nine Months Ended September 30,

Same Facility Transitioning Acquisitions Total

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TOTAL SKILLED NURSING 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Six Months Ended June 30,

Nine Months Ended September 30,

Same Facility Transitioning Acquisitions Total

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The following table sets forth total cost of services for our skilled services segment for the periods indicated (dollars in thousands):

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2024 2023 $ %

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Cost of services related to our skilled services segment increased by $302.6 million, or 14.5%, from the same period in 2023.

Cost of services as a percentage of revenue increased to 79.5% from 78.8%, due to an increase in labor cost as a result of new acquisitions with higher expenses in the turnaround stage, as well as an increase related to general and professional liability reserves.

In addition, included in cost of services during the six months ended June 30, 2024 is the expense related to the deferred compensation investment program of $1.6 million compared to a gain of $1.3 million during the six months ended June 30, 2023.

We continue to make progress in reducing contracted labor by driving up retention and hiring.

Cost of services as a percentage of revenue increased to 79.6% from 78.9%, due to increased labor costs as a result of new acquisitions with higher expenses in the turnaround stage, increased health insurance, worker compensation and general and professional liability reserves and increased expense related to the deferred compensation investment program of $2.6 million compared to the nine months ended September 30, 2023.

Our cost of services as a percentage of revenue varies depending on the volume of acquisitions during the period, which typically have higher costs during the transition period.

Standard Bearer

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2024 2023 $ %

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FFO $ 43,371 $ 40,045 $ 3,326 8.3 %

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $5.9 million, or 14.9%, to $45.6 million, compared to the six months ended June 30, 2023.

The increase in revenue is primarily attributable to 12 real estate purchases as well as annual rent increases since the six months ended June 30, 2023.

FFO — Our FFO increased by $2.2 million, or 8.2%, to $28.6 million, compared to the six months ended June 30, 2023.

Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $9.4 million, or 15.5%, to $70.0 million, compared to the nine months ended September 30, 2023.

The increase in revenue is primarily attributable to 10 real estate purchases as well as annual rent increases since the nine months ended September 30, 2023.

FFO — Our FFO increased by $3.3 million, or 8.3%, to $43.4 million, compared to the nine months ended September 30, 2023.

The increase in rental revenue of $9.4 million is offset by increases in interest expense of $5.7 million associated with the intercompany debt arrangements between Standard Bearer and us, as we continue to grow our real estate portfolio.

All Other Revenue

Our other revenue increased by $14.5 million, or 19.2%, to $89.9 million, compared to the six months ended June 30, 2023.

Other revenue for 2024 includes senior living revenue of $42.2 million, revenue from other ancillary services of $41.8 million and rental income of $5.9 million.

Our other revenue increased by $26.5 million, or 23.1%, to $141.1 million, compared to the nine months ended September 30, 2023.

Other revenue for the nine months ended September 30, 2024 includes senior living revenue of $65.9 million, revenue from other ancillary services of $66.3 million and rental income of $8.9 million.

The increase in other revenue is primarily attributable to our other ancillary services.

Consolidated Financial Expenses

Rent-cost of services — Our rent-cost of services as a percentage of total revenue decreased by 0.2% to 5.1%, as our operational expansions included a mix of both leases and purchases of real estate.

Rent-cost of services — Our rent-cost of services as a percentage of revenue decreased by 0.2% to 5.1%, as our operational expansions included a higher mix of real estate purchases.

General and administrative expense — General and administrative expense increased by $13.1 million or 8.4%, to $169.5 million.

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This increase was primarily related to the additional depreciation and amortization incurred as a result of our newly acquired operations and capital expenditures.

Depreciation and amortization expense remained consistent at 2.0%, as a percentage of revenue.

Other income, net — Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net as a percentage of revenue increased by 0.3% mainly due to an increase in interest income from our investments.

Provision for income taxes — Our effective tax rate was 22.9% for the six months ended June 30, 2024, compared to 22.2% for the same period in 2023.

The effective tax rate for both periods is driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses, including non-deductible compensation.

Depreciation and amortization expense as a percentage of revenue remained consistent at 1.9%.

Other income, net — Other income, net as a percentage of revenue increased by 0.4%.

Other income primarily includes interest income from our investments, interest expense related to our debt and deferred compensation gains and losses.

Other income, net increased by $13.9 million due to increases in interest income from our investments and gains in our deferred compensation plan which incurs gains or losses depending on market performance.

During the nine months ended September 30, 2024 and 2023, the deferred compensation plan had gains of $6.1 million and $1.1 million, respectively.

We also recorded an offsetting expense allocated between cost of services and general and administrative expenses.

Provision for income taxes — Our effective tax rate was 22.0% for the nine months ended September 30, 2024, compared to 22.1% for the same period in 2023.

The effective tax rate for both periods was driven by the impact of excess tax benefits from stock-based compensation, partially offset by non-deductible expenses, including non-deductible compensation.

See Note 14, Income Taxes , in the Interim Financial Statements for further discussion.

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Our primary sources of liquidity have historically been derived from our cash flows from operations and long-term debt secured by our real property and our Credit Facility.

Our liquidity as of June 30, 2024 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.

Our liquidity as of September 30, 2024 is impacted by cash generated from strong operational performance offset by investments made for our operational expansions and ancillary businesses as well as capital expenditures to improve the quality of care at our existing operations.

Historically, we have primarily financed the majority of our acquisitions through mortgages on our properties, our Credit Facility and cash generated from operations.

Cash paid to fund acquisitions was $66.0 million for the six months ended June 30, 2024 compared to $1.6 million cash paid for the six months ended June 30, 2023.

Total capital expenditures for property and equipment were $64.6 million and $51.6 million for the six months ended June 30, 2024 and 2023, respectively.

Cash paid to fund acquisitions was $87.2 million for the nine months ended September 30, 2024 compared to cash paid of $54.0 million for the nine months ended September 30, 2023.

Total capital expenditures for property and equipment were $110.1 million and $77.4 million for the nine months ended September 30, 2024 and 2023, respectively.

We currently have approximately $135.0 million budgeted for renovation projects in 2024.

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We may, in the future, seek to raise additional capital to fund growth, capital renovations, operations and other business activities, but such additional capital may not be available on acceptable terms, on a timely basis, or at all.

Our cash and cash equivalents as of June 30, 2024 consisted of bank term deposits, money market funds and U.S.

Our cash and cash equivalents as of September 30, 2024 consisted of bank term deposits, money market funds and U.S.

Treasury bill related investments.

In addition, as of June 30, 2024, we held investments of approximately $136.9 million.

We believe our investments that were in an unrealized loss position as of June 30, 2024 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

In addition, as of September 30, 2024, we held investments of approximately $154.5 million.

We believe our investments that were in an unrealized loss position as of September 30, 2024 do not require an allowance for expected credit losses, nor has any event occurred subsequent to that date that would indicate so.

As mentioned above, our primary source of cash is from our ongoing operations.

Our positive cash flows have supported our business and have allowed us to pay regular dividends to our stockholders.

We currently anticipate that existing cash and total investments as of June 30, 2024, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

We currently anticipate that existing cash and total investments as of September 30, 2024, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

On May 16, 2024, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2024.

On August 29, 2023, the Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2023.

We did not purchase any shares pursuant to this stock repurchase program during the six months ended June 30, 2024.

Under these repurchase programs, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions and block trades in accordance with federal securities laws.

On August 29, 2023, the Board of Directors previously approved a stock repurchase program pursuant to which we could repurchase up to $20.0 million of our common stock under the program for a period of approximately 12 months from September 1, 2023, which program terminated by its terms on August 31, 2024 and is no longer in effect.

We did not purchase any shares pursuant to the stock repurchase programs during the nine months ended September 30, 2024.

Under these repurchase programs, we are authorized to repurchase our issued and outstanding common shares from time to time in open-market and privately negotiated transactions, tender offers, pursuant to contractual provisions, and block trades, or otherwise in accordance with federal securities laws.

The stock repurchase programs do not obligate us to acquire any specific number of shares.

Any such repurchases will depend on our business strategy, prevailing market conditions, our liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors.

The amounts involved in any such transaction may be material.

The following table presents selected data from our condensed consolidated statement of cash flows for the periods presented:

Six Months Ended June 30,

Nine Months Ended September 30,

NET CASH PROVIDED BY/(USED IN):

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Financing activities (825) (2,043)

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

$ 22,440 $ 151,600

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Cash provided by operating activities is net income adjusted for certain non-cash items and changes in operating assets and liabilities.

The $55.8 million decrease in cash provided by operating activities for the six months ended June 30, 2024 compared to the same period in 2023 w as due primarily to the timing of income tax payments.

The $44.7 million decrease in cash provided by operating activities for the nine months ended September 30, 2024 compared to the same period in 2023 w as due primarily to the timing of income tax payments.

In 2023, the U.S.

Internal Revenue Service and California provided disaster-area tax relief for the deferral of federal and California estimated tax payments until the fourth quarter of 2023.

As of the second quarter of 2023, the Company deferred approximately $50.0 million of 2023 federal and California estimated tax payments that were paid in the fourth quarter of 2023.

In the second quarter of 2024, we paid $56.1 million in income tax payments.

The remaining change in cash provided by operating activities is due to the timing of accounts receivable collections as well as timing of payments and wages and benefits o ffset by an increase in operational performance.

As of the third quarter of 2023, the Company deferred approximately $50.0 million of 2023 federal and California estimated tax payments that were paid in the fourth quarter of 2023.

During the nine months ended September 30, 2024, we paid $82.0 million in income tax payment compared to $8.5 million during the nine months ended September 30, 2023.

This cash outflow was partially offset by an increase in operational performance.

Investing Activities

Investing cash flows consist primarily of capital expenditures, investment activities, insurance proceeds and cash used for acquisitions.

The $82.1 million increase in cash used in investing activities for the six months ended June 30, 2024 compared to the same period in 2023 was primarily due to cash used for operational expansions and capital expenditures.

The $85.7 million increase in cash used in investing activities for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily used for operational expansions and capital expenditures as well as increased investment activity as part of our capital strategy.

Financing Activities

Financing cash flows consist primarily of payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, payment for share repurchases and sale of subsidiary shares.

The $2.0 million increase in cash provided by financing activities for the six months ended June 30, 2024 compared to the same period in 2023, was primarily due to stock option exercises.

Financing cash flows consist primarily of cash provided by the issuance of common stock upon exercise of stock options, payment of dividends to stockholders, issuance and repayment of short-term and long-term debt, payment for share repurchases and the noncontrolling interest activity.

The $1.2 million increase in cash provided by financing activities for the nine months ended September 30, 2024 compared to the same period in 2023, was primarily due to stock option exercises offset by the purchase of non-controlling interest in one of our ancillary businesses.

Credit Facility with a Lending Consortium Arranged by Truist

We maintain a revolving credit facility with Truist Securities (Truist) (the Credit Facility) with availability up to $600.0 million in aggregate principal amount.

We maintain a revolving credit facility with Truist Securities (Truist) (the Credit Facility) with availability of up to $600.0 million in aggregate principal amount.

The maturity date of the Credit Facility is April 8, 2027.

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Mortgage Loans and Promissory Note

As of June 30, 2024, 23 of our subsidiaries have mortgage loans insured with HUD for an aggregate amount of $148.6 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

As of September 30, 2024, 23 of our subsidiaries had mortgage loans insured with HUD for an aggregate amount of $147.7 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

The mortgage loans bear effective interest rates at a range of 3.1% to 4.2%, including fixed interest rates at a range of 2.4% to 3.3% per annum.

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Operating Leases

As of June 30, 2024, 222 of our facilities are under long-term lease arrangements, of which 98 of the operations are under nine triple-net Master Leases and one stand-alone lease with CareTrust REIT, Inc.

As of September 30, 2024, 231 of our facilities are under long-term lease arrangements, of which 99 of the operations are under nine triple-net Master Leases and one stand-alone lease with CareTrust REIT, Inc.

The Master Leases consist of multiple leases, each with its own pool of properties, that have varying maturities and diversity in property geography.

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Additionally, four of the 100 facilities leased from CareTrust include an option to purchase that we can exercise starting on December 1, 2024.

We also lease certain facilities and our administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years and is subject to annual escalation equal to the percentage change in the Consumer Price Index with a stated cap percentage.

We also lease certain facilities and our administrative offices under non-cancelable operating leases, most of which have initial lease terms ranging from five to 20 years and are subject to annual escalation equal to the percentage change in the Consumer Price Index with a stated cap percentage.

In addition, we lease certain of our equipment under non-cancelable operating leases with initial terms ranging from three to five years.

Most of these leases contain renewal options, certain of which involve rent increases.

Eighty-two of our independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases from CareTrust, are operated under 13 separate master lease arrangements.

Ninety of our independent subsidiaries, excluding the subsidiaries that are operated under the Master Leases from CareTrust, are operated under 14 separate master lease arrangements.

Under these master leases, a default at a single facility could subject one or more of the other independent subsidiaries covered by the same master lease to the same default risk.

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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 2. Management’s Discussion and Analysis