What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-05 compared with 2024-02-01 · 186 added, 161 removed, 434 unchanged (44% of the section changed)

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We are a provider of health care services across the post-acute care continuum.

We engage in the operation, ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare related properties and ancillary businesses located in Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Texas, Utah, Washington and Wisconsin.

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

As of December 31, 2023, we offered skilled nursing, senior living and rehabilitative care services through 297 skilled nursing and senior living facilities.

We engage in the operation, ownership, acquisition, development and leasing of skilled nursing, senior living and other healthcare related properties and ancillary businesses located in Alabama, Arizona, California, Colorado, Idaho, Iowa, Kansas, Nebraska, Nevada, South Carolina, Tennessee, Texas, Utah, Washington and Wisconsin.

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 December 31, 2024, we offered skilled nursing, long term acute care, senior living and rehabilitative care services through 327 skilled nursing and senior living facilities.

Our real estate portfolio includes 129 owned real estate properties, which includes 96 facilities operated and managed by us, 33 operations leased to and operated by third-party operators and the Service Center location.

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

Ensign is a holding company with no direct operating assets, employees or revenues.

Of the 33 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 Ensign Group, Inc.

is a holding company with no direct operating assets, employees or revenues.

Our subsidiaries are operated by separate, independent entities, each of which has its own management, employees and assets.

In addition, certain of our wholly-owned subsidiaries including Ensign Services, Inc.

and Cornet Limited, Inc., referred to collectively as the Service Center, provide centralized accounting, payroll, human resources, information technology, legal, risk management and other centralized services to the other independent subsidiaries through contractual relationships with such subsidiaries.

We also have a wholly-owned captive insurance subsidiary that provides some claims-made coverage to our independent subsidiaries for general and professional liability, as well as coverage for certain workers’ compensation insurance liabilities and our captive real estate trust owns and operates our real estate portfolio.

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References herein to the consolidated “Company” and “its” assets and activities, as well as the use of the terms “we,” “us,” “our” and similar terms in this Annual Report, are not meant to imply, nor should they be construed as meaning that The Ensign Group, Inc.

has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group.

has direct operating assets, employees or revenue, or that any of the subsidiaries are operated by The Ensign Group, Inc.

Recent Activities

Operational Update — On May 11, 2023, the United States Department of Health and Human Services (HHS) ended the public health emergency (PHE).

Our primary focus has always been and continues to be the health and safety of our patients, residents, employees and their respective families.

Even with the end of the PHE, we continue to implement new measures and maintain existing ones to provide the safest possible environment within our sites of service, taking into consideration the vulnerable nature of our patients.

We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic.

Our combined Same Facilities and Transitioning Facilities occupancy is 78.9%, which represents a 3.2% increase compared to the prior year and is closer to our pre-pandemic occupancy levels, which was 80.1% in March 2020.

As we shift to an endemic, we believe that we will continue to see the return of our seasonal occupancy and skilled mix.

Throughout most of our history, our seasonality trends for skilled nursing occupancy and skilled mix typically included the greatest growth during the first and fourth quarters and softening in the second and third quarters.

As we exited the pandemic and enter the endemic, we saw a shift towards pre-pandemic occupancy and skilled mix levels.

This was possible due to the innovative approaches and strategic partnerships developed during the pandemic which supported our occupancy improvements and continue to enable us to gain additional market share.

These key initiatives together with our dedication to our cultural and operational fundamentals resulted in a strong 2023 results.

We receive relief funding from various states, including healthcare relief funding under the American Rescue Plan Act (ARPA), increases in the Federal Medical Assistance Percentage (FMAP) under the Families First Coronavirus Response Act (FFCRA) and other state specific relief programs.

We use this funding, which reimburses the recipient for healthcare and labor related patient care services and expenses that are attributable to the COVID-19 pandemic.

The end of the PHE created a gradual phase down of the temporary increase in FMAP funding in 2023.

State specific approaches have been developed including various states having increased their base rates to account for increases in expenses in the post-pandemic environment.

During the years ended December 31, 2023 and 2022, we recognized $64.8 million and $81.8 million, respectively, of combined state relief funding as revenue.

Standard Bearer Update — In January of 2022, we formed Standard Bearer Healthcare REIT, Inc.

or Standard Bearer, a captive REIT.

Standard Bearer is a holding company with subsidiaries that own a majority of our real estate portfolio.

We believe we exist to dignify and transform post-acute care.

We set out a strategy to achieve our goal of ensuring our patients are receiving the best possible care through our ability to acquire, integrate and improve our operations.

Our results serve as a strong indicator that our strategy is working and our transformation is underway.

Our dedication to our cultural and operational fundamentals continues to deliver strong results.

Refer to Results of Operations for further discussion.

Operational Update — Our combined Same Facilities and Transitioning Facilities occupancy increased by 2.9% compared to the same period in 2023.

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 81.3% during the year ended December 31, 2024 compared to 79.2% in the same period in 2023.

These results were possible due to the innovative approaches and strategic partnerships which supported our multiple year growth in occupancy improvements and continue to enable us to gain additional market share.

These key initiatives together with our dedication to our cultural and operational fundamentals resulted in strong 2024 results.

Operational and New State Expansions — During the year ended December 31, 2024, we expanded our operations with the addition of 28 stand-alone skilled nursing operations and three campus operations, which added a total of 3,030 operational skilled nursing beds and 218 operational senior living units to be operated by our independent subsidiaries.

Subsequent to December 31, 2024, we added seven stand-alone skilled nursing operations, which added 682 operational skilled nursing beds to be operated by our independent subsidiary.

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

Twelve of the operations mentioned above are located in Tennessee and Alabama, which are new states for us.

The expansion into the two new states are part of our strategic vision to further strengthen our growing national presence in both existing and new attractive markets.

Standard Bearer Update — Standard Bearer Healthcare REIT, Inc.

(Standard Bearer), our captive REIT, is a holding company with subsidiaries that own a majority of our real estate portfolio.

We expect the REIT structure to allow us to better demonstrate the growing value of our owned real estate and provide us with an efficient vehicle for future acquisitions of properties that could be operated by our independent subsidiaries or other third parties.

This structure gives us new pathways to growth with transactions we would not have considered in the past.

During the year ended December 31, 2023, Standard Bearer acquired the real estate of three stand-alone skilled nursing facilities and two campus operations for an aggregate purchase price of $65.9 million .

Of these additions, the three skilled nursing facilities and one campus operation acquired are operated by our independent subsidiaries and the other campus operation is leased to a new third-party operator.

Our existing relationship with third-party operators within our industry allowed us to expand our growing REIT structure to operators outside of our organization.

During the year ended December 31, 2024, Standard Bearer added $131.9 million of real estate associated with 11 stand-alone skilled nursing operations, three stand-alone senior living operations and three campus operations.

Of these additions, the stand-alone skilled nursing and campus operations are operated by 14 of our independent subsidiaries and the three stand-alone senior living operations are leased to a third-party operator.

Our existing relationships with third-party operators within our industry have allowed us to expand our growing REIT structure to operators outside of our organization.

As of December 31, 2024, the fair value of Standard Bearer's real estate portfolio is approximately $1.3 billion.

The fair value was determined by a third-party independent valuation specialist and incorporated each property's rental income, capitalization rate, rental yield rate and discount rate.

Expansion into a New State — Subsequent to December 31, 2023, we expanded our operations into the state of Tennessee with the addition of one stand-alone skilled nursing operation.

This expansion is part of our strategic vision to further strengthen our growing national presence in both existing and new attractive markets.

Common Stock Repurchase Program — 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 repurchase any shares pursuant to this program during the fiscal year 2023.

Litigation — In regard to the proceeding discussed in Item 3.

Legal Proceedings , the parties agreed to settle the litigation for $48.0 million, subject to the review and approval of all parties, including the DOJ.

The settlement does not include admissions on the part of the Company and the Company maintains that it has at all times complied and continues to comply with all applicable State and Federal statutes (including but not limited to the FCA and the AKS).

Subsequent to December 31, 2024, Standard Bearer added $50.9 million of real estate associated with four stand-alone skilled nursing operations and one campus operation.

Four of the acquisitions were related to exercising purchase options from CareTrust REIT, Inc.

(CareTrust) lease arrangements, which the operations are currently operated and managed by our independent subsidiaries.

The remaining real estate acquisition was leased back to our independent subsidiaries.

Insignia Pathway — In December 2024, we funded $35.0 million to the formation of Insignia Pathway, an independent public charity, with a mission to empower, support and expand the post acute care workforce through recruiting talent, providing resources, education, housing and advocacy to enhance professional growth, job satisfaction and community impact.

Insignia Pathway is dedicated to addressing workforce challenges, fostering equity and inspiring the current and next generation to join the essential field of post acute care.

Insignia Pathway is currently in the process of applying for recognition of exemption as an organization under Section 501(c)(3) of the Internal Revenue Code.

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 fiscal year 2024.

Key Performance Indicators

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• Average daily rates — The routine revenue by payor source for a period at the skilled nursing facilities divided by actual patient days for that revenue source for that given period.

These rates exclude additional state relief funding, which includes ARPA, FFCRA and other state relief programs.

These rates exclude additional state relief funding, which includes the American Rescue Plan Act (ARPA), the Family First Coronavirus Response Act (FFCRA) and other state specific relief programs.

• Occupancy percentage (operational beds) — The total number of patients occupying a bed in a skilled nursing facility as a percentage of the beds in a facility which are available for occupancy during the measurement period.

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We participate in supplemental payment programs and quality improvement programs in various states that provide supplemental Medicaid payments for skilled nursing facilities that are licensed to non-state government-owned entities such as city and county hospital districts.

Numerous independent subsidiaries entered into transactions with various hospital districts providing for the transfer of the licenses for those skilled nursing facilities to the hospital districts.

A number of our independent subsidiaries have entered into transactions with various hospital districts providing for the transfer of the licenses for those skilled nursing facilities to the hospital districts.

Each affected independent subsidiary agreement between the hospital district and our subsidiary is terminable by either party to fully restore the prior license status.

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Of these properties, 92 are leased to our independent subsidiaries and 33 are leased to facilities wholly-owned and managed by third-party operators.

During the year ended December 31, 2023, we generated rental revenues of $82.5 million, of which $66.7 million, was derived from our independent subsidiaries' operators and therefore eliminated in consolidation.

Of those 33 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 year ended December 31, 2024, we generated rental revenues of $95.1 million, of which $78.1 million 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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Primary Components of Expense

Cost of Services (exclusive of rent and depreciation and amortization shown separately) — Our cost of services represents the costs of operating our independent subsidiaries, which primarily consists of payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients.

Cost of Services (exclusive of rent and depreciation and amortization shown separately) — Our cost of services represents the costs of operating our operating subsidiaries, which primarily consists of payroll and related benefits, supplies, purchased services, and ancillary expenses such as the cost of pharmacy and therapy services provided to patients.

Cost of services also includes the cost of general and professional liability insurance, rent expenses related to leasing our operational facilities that are not included in facility rent - cost of services, and other general cost of services with respect to our operations.

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General and Administrative Expense — General and administrative expense consists primarily of payroll and related benefits and travel expenses for our Service Center personnel, including training and other operational support.

General and administrative expense also includes professional fees (including accounting and legal fees), litigation expense related to specific proceedings that are outside the ordinary course of business, costs relating to our information systems and stock-based compensation related to our Service Center employees.

General and administrative expense also includes professional fees (including accounting and legal fees), costs relating to our information systems and stock-based compensation related to our Service Center employees.

Depreciation and Amortization — Property and equipment are recorded at their original historical cost.

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We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management.

For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Variable consideration within revenue recognition — Revenue recognized from healthcare services are adjusted for estimates of variable consideration to arrive at the transaction price.

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If actual amounts of consideration ultimately received differ from our estimates, we adjust these estimates, which would affect net service revenue in the period such variances become known.

Self-insurance for general and professional liability — The self-insured retention and deductible limits for general and professional liability for all states are self-insured through our wholly-owned captive insurance subsidiary (the Captive Insurance), the related assets and liabilities of which are included in the accompanying consolidated balance sheets.

Our general and professional liability as of the year ended December 31, 2023 and 2022 was $117.7 million and $87.0 million, respectively.

Self-insurance for general and professional liability — The self-insured retention and deductible limits for general and professional liability for all states, except Kansas, are self-insured through our wholly owned captive insurance subsidiary (the Captive Insurance), the related assets and liabilities of which are included in the accompanying consolidated balance sheets.

Our general and professional liability as of the years ended December 31, 2024 and 2023 was $160.1 million and $117.7 million, respectively.

Our policy is to accrue amounts equal to the actuarially estimated costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not reported.

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Our results serve as a strong indicator that our strategy is working and our transformation is underway.

Over the last five years, our total revenue increased by $2.0 billion, or 112.5%, representing a 16.3% compound annual growth rate (CAGR) while our diluted GAAP earning per share (EPS) from continued operations grew by $2.56 from 2018 to $3.65 in 2023, representing a 27.4% CAGR.

Over the last five years, our total revenue increased by $2.2 billion, or 109.2%, representing a 15.9% compound annual growth rate (CAGR) while our diluted GAAP earning per share (EPS) from continuing operations grew by $3.48 from 2019 to 2024, representing a 25.6% CAGR.

Our total revenue for the year ended December 31, 2024 increased $531.1 million, or 14.2%, compared to the year ended December 31, 2023.

Throughout 2023, we have continued to make progress on targeted initiatives related to increasing occupancy in our facilities, attracting and developing our people and acquiring new skilled nursing operations and integrating them with our proven cultural and operational principals.

We continue to experience healthy growth in both revenue and operational earnings.

Our combined Same Facilities and Transitioning Facilities occupancy increased by 3.2% compared to 2022.

As our census continues to return to pre-pandemic levels, we anticipate a return to our historical seasonality trends, which typically result in higher occupancy and skilled mix during the first and fourth quarters and softening in the second and third quarters.

See Recent Activities for our operational update.

During the year ended December 31, 2023, we added 26 new operations, which included 17 operations in California.

These California facilities include a group of highly skilled team members who will further our mission of dignifying long term care.

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

Throughout 2024, 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 year ended December 31, 2024, we added 31 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 combined Same Facilities and Transitioning Facilities occupancy increased by 2.9% compared to the same period in 2023.

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 81.3% during the year ended December 31, 2024 compared to 79.2% in 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 4.1% to 76.0% 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, our historic seasonal trend tends to show stronger occupancy and acuity during the first and fourth quarters and softening in the second and third quarters.

Additionally, we historically have acquired operations with lower occupancy and skilled mix.

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

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.

Despite continued labor pressures, there are positive trends on both turnover and agency usage in some of our markets.

During 2023, we added over 5,000 team members, or 18%, to our independent subsidiaries and the Service Center.

Despite continued labor pressures, there are positive trends on both turnover and agency usage across our operations.

During 2024, we added over 4,000 full-time equivalent team members, or 11%, to our independent subsidiaries and the Service Center.

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:

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Interest expense (0.2) (0.2)

Other income 0.7 —

Interest income 0.7 0.5

Other income (expense)

OTHER INCOME (EXPENSE), NET 0.7 % 0.5 %

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We believe the presentation of certain Non-GAAP Financial Measures are useful to investors and other external users of our financial statements regarding our results of operations because:

• they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as other income (expense), net and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired;

• they are widely used by investors and analysts in our industry as a supplemental measure to evaluate the overall performance of companies in our industry without regard to items such as interest income, interest expense and depreciation and amortization, which can vary substantially from company to company depending on the book value of assets, capital structure and the method by which assets were acquired;

• they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating results.

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These measures are useful in this regard because they do not include such costs as other expense, income taxes, depreciation and amortization expense, which may vary from period-to-period depending upon various factors, including the method used to finance operations, the amount of debt that we have incurred, whether an operation is owned or leased, the date of acquisition of a facility or business, and the tax law of the state in which a business unit operates.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of Adjusted EBITDAR targets.

We also establish compensation programs and bonuses for our leaders that are partially based upon the achievement of certain Non-GAAP Financial Measures.

Despite the importance of these measures in analyzing our underlying business, designing incentive compensation and for our goal setting, the Non-GAAP Financial Measures have no standardized meaning defined by GAAP.

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• litigation;

• gain on sale of assets and business interruption of recoveries;

• write-off of deferred financing fees;

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

• acquisition related costs;

• costs incurred related to new systems implementation;

• depreciation and amortization of patient base intangible assets.

• costs incurred related to system implementations;

• write off of deferred financing fees;

• amortization of patient base intangible assets.

We believe EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our asset base (depreciation and amortization expense) from our operating results.

We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) other income (expense), net, (b) provision for income taxes, and (c) depreciation and amortization.

We calculate EBITDA as net income, adjusted for net losses attributable to noncontrolling interest, before (a) interest income, (b) provision for income taxes, (c) depreciation and amortization, and (d) interest expense.

EBITDA in the prior period has been recast to conform to the current period presentation.

Adjusted EBITDA

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We believe that the presentation of Adjusted EBITDA, when combined with EBITDA and GAAP net income attributable to The Ensign Group, Inc., is beneficial to an investor’s complete understanding of our operating performance.

Adjusted EBITDA is EBITDA adjusted for the same non-core business items as listed in Adjusted EBT, except for depreciation and amortization of patient base intangible assets and write-off of deferred financing fees.

Adjusted EBITDA is EBITDA adjusted for the same non-core business items as listed in Adjusted EBT, except for write off of deferred financing fees and amortization of patient base intangible assets.

Funds from Operations (FFO)

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In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs, which excludes historical cost depreciation from net income.

We define (in accordance with the definition used by NAREIT) FFO to consist of Standard Bearer segment income, excluding depreciation and amortization related to real estate, gains or losses from the sale of real estate, insurance recoveries related to real estate and impairment of depreciable real estate assets.

VALUATION MEASURE

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36,226 30,767

Litigation (a)

Gain on sale of assets and business interruption recoveries (1,132) (4,380)

Write-off of deferred financing fees (b)

Acquisition related costs (c)

Costs incurred related to new systems implementation

Depreciation and amortization - patient base (d)

Litigation (1)

(1,425) 60,781

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business, which includes the portion attributable to non-controlling interests.

(b) Represents the write-off of deferred financing fees associated with the amendment of the Credit Facility.

(d) Included in depreciation and amortization are amortization expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities.

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

2,335 (1,132)

Acquisition related costs (2)

Costs incurred related to system implementations

Depreciation and amortization - patient base (3)

Interest expense - write off deferred financing fees (4)

$ 427,976 $ 365,310

(1) Represents specific proceedings and adjustments arising outside of the ordinary course of business.

(2) Represents costs incurred to acquire operations that are not capitalizable.

(3) Represents amortization expenses related to patient base intangible assets at newly acquired skilled nursing and senior living facilities.

(4) Represents the write off of deferred financing fees associated with mortgage loans.

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

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Net income $ 298,458 $ 209,850

net income (loss) attributable to noncontrolling interests

Other (income) expense, net

Net income attributable to noncontrolling interests

Interest income

28,749 19,216

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Depreciation and amortization

84,138 72,387

Interest expense 8,286 8,087

EBITDA $ 449,284 $ 333,569

Adjustments to EBITDA:

Stock-based compensation expense 36,226 30,767

Litigation (1)

(1,425) 60,781

Litigation (a)

Gain on sale of assets and business interruption recoveries

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

2,335 (1,132)

Acquisition related costs (b)

Costs incurred related to new systems implementation

Acquisition related costs (2)

Costs incurred related to system implementations

ADJUSTED EBITDA

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ADJUSTED EBITDAR

(a) Litigation relates to specific proceedings arising outside of the ordinary course of business, which excludes the portion attributable to non-controlling interests.

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

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

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

Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

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

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.

Year Ended December 31, 2024

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Total revenue $ 4,076,825 $ 95,086 $ 192,881 $ (104,307) $ 4,260,485

Total expenses, including other income (expense), net

Total expenses, including other income, net

3,558,362 65,751 352,250 (104,307) 3,872,056

Segment income (loss) 518,463 29,335 (159,369) — 388,429

Gain on sale of assets and insurance recoveries from real estate, net

Loss on long-lived assets

Income before provision for income taxes $ 386,094

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Total revenue $ 3,578,855 $ 82,486 $ 155,804 $ (87,790) $ 3,729,355

Total expenses, including other income (expense), net

Total expenses, including other income, net

3,113,930 53,421 377,055 (87,790) 3,456,616

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Income before provision for income taxes $ 272,762

Our total revenue increased $703.9 million, or 23.3%, compared to the year ended December 31, 2022.

The increase in revenue was primarily driven by an increase in occupancy of 3.2% from our skilled services Same Facilities and Transitioning Facilities coupled with increasing daily revenue rates and the impact of acquisitions.

Specifically, our skilled services Recently Acquired Facilities increased total revenue by $450.0 million, when compared to the same period in 2022, with 52.0% of these operations being acquired in 2023.

We believe this demonstrates our ability to increase our market share through strategic acquisitions of operations that have higher skilled mix and higher occupancy than our typical acquisitions.

These increases are offset by a decrease in state relief revenue of $17.1 million as the end of the PHE created a gradual phase down of the temporary increase in FMAP funding.

All state relief revenue is included in Medicaid revenue.

Our total revenue increased by $531.1 million, or 14.2%, compared to the year ended December 31, 2023.

The increase in revenue was primarily driven by an increase in occupancy of 2.7% and 4.1% from our skilled services in Same Facilities and Transitioning Facilities, respectively, coupled with increasing daily revenue rates and the impact of acquisitions.

Additionally, our skilled services in Recently Acquired Facilities increased total revenue by $271.7 million, when compared to the same period in 2023.

Skilled Services Segment

The following table presents the skilled services revenue and key performance metrics by category during the year ended December 31, 2023 and 2022:

The following tables present the skilled services revenue and key performance metrics by category during the years ended December 31, 2024 and 2023:

Year Ended December 31,

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Actual patient days 1,191,663 566,398 625,265 NM

Occupancy percentage — Operational beds 76.8 % 67.9 % NM

Skilled mix by nursing days 27.5 % 24.3 % NM

Skilled mix by nursing revenue 49.3 % 42.8 % NM

Occupancy percentage — Operational beds 81.6 % 84.4 % NM NM

Skilled mix by nursing days 28.9 % 37.4 % NM NM

Skilled mix by nursing revenue 48.9 % 59.7 % NM NM

Year Ended December 31,

2024 2023 Change % Change

FACILITY CLOSED RESULTS:

(Dollars in thousands)

Skilled services revenue $ 574 $ 3,942 $ (3,368) NM

Actual patient days 2,082 17,228 (15,146) NM

Occupancy percentage — Operational beds 52.6 % 90.8 % 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.

(5) Facility Closed results represent a closed operation during the year ended December 31, 2024 due to the transitioning of an intermediate care facility program to a group home setting, which is included in the All Other category.

The skilled services revenue was excluded from Same Facility results for the years ended December 31, 2024 and 2023 for comparison purposes.

Skilled services revenue increased $498.0 million, or 13.9%, compared to the year ended December 31, 2023.

The increases in skilled services revenue were across all payer types including increases in Medicaid revenue of $238.0 million, or 14.2%, Medicare revenue of $69.4 million, or 7.0%, managed care revenue of $123.6 million, or 18.6% and private revenue of $67.0 million, or 26.6%.

The increase in skilled services revenue was driven by strong performance across our existing skilled services operations as our census continued to recover in 2023, as well as the favorable impact of skilled census from our recent acquisitions.

Our consolidated occupancy increased by 3.2% during the year ended December 31, 2023 compared to the same period in 2022.

Revenue in our Same Facilities increased $201.8 million, or 7.9%, compared to the same period in 2022, due to increases in occupancy from both skilled and long-term care patients and revenue per patient day.

Our diligent efforts to strengthen our partnerships with various managed care organizations, hospitals and the local communities we operate in, increased our managed care revenue by 14.8%, mainly due to increases in managed care days of 7.2% and revenue per patient day of 5.3%.

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.

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

Our consolidated occupancy increased by 2.5% to 80.5% during the year ended December 31, 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 $195.3 million, or 6.9%, compared to the same period in 2023, due to increased occupancy from long-term care patients, strong skilled days and revenue per patient day.

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 increases in managed care days of 6.5% and revenue per patient day of 3.6%.

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

In addition, Medicaid revenue increased by $89.8 million or 6.8%, mainly from the increases in Medicaid days and revenue per patient day.

Revenue generated by our Transitioning Facilities increased $20.8 million, or 9.0%, primarily due to improved occupancy growth and an increase in revenue per patient day.

Our Medicaid revenue increased by 10.9%, Managed Care revenue increased by 12.3% and private revenue increased by 18.1%, demonstrating our ability to focus on increasing occupancy across payer types.

Our skilled mix days and revenue percentage decline was due to our non-skilled days and revenue growing at a faster pace than our skilled days and revenue.

Both skilled and non-skilled days and revenue increased from the prior year.

Revenue generated by our Transitioning Facilities increased $34.3 million, or 7.3%, primarily due to improved occupancy growth, increases in skilled mix days and revenue per patient day.

The increases in revenue were derived from managed care revenue of 25.5%, Medicare revenue of 2.1%, Medicaid revenue of 3.9% and private revenue of 16.5%.

These increases demonstrate our ability to focus on increasing occupancy across payer types.

Included in the year ended December 31, 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 $271.7 million compared to the year ended December 31, 2023.

The increases were primarily due to 26 operational expansions in 2023 as well as the full year impact of the 24 operational expansions in 2022.

In the future, if we acquire additional turnaround or start-up operations, we typically expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the maturity of the facilities within our portfolio.

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

Included in our metrics for Recently Acquired Facilities are 17 facilities we acquired that are mature and have higher occupancy rates, higher skilled mix days and higher skilled mix revenue than our typical acquisitions.

The increases were primarily due to 31 operational expansions between January 1, 2024 and December 31, 2024 across ten 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.

Included in our metrics for Recently Acquired Facilities are 17 facilities we acquired in California in 2023 that were more mature and accordingly, had higher occupancy rates, higher skilled mix days and higher skilled mix revenue than our typical acquisitions.

In the future, if we acquire additional turnaround or start-up operations, we expect to see lower occupancy rates and skilled mix and these metrics are expected to vary from period to period based upon the type of the facilities and operations that we acquire.

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) :

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$ 403.02 $ 382.15 $ 342.94 $ 320.41 $ 436.43 $ 466.18 $ 398.66 $ 378.02

(1) These rates exclude state relief funding and include sequestration reversal of 1% for the second quarter in 2022 and 2% for the first quarter of 2022.

(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 year ended December 31, 2023 .

Our Medicare daily rates at Same Facilities and Transitioning Facilities increased by 5.1% and 4.1%, respectively, compared to the year ended December 31, 2023.

The increase is attributable to the 2.7% and 4.0% net market basket increase that became effective in October 2022 and October 2023, respectively, offset by the phased reinstatement of the sequestration.

During the year ended December 31, 2022, Medicare daily rates included three months of sequestration suspension of 1%, three months of sequestration suspension of 2% and six months of no sequestration suspension.

Our average Medicaid rates increased 5.6% due to state reimbursement increases and our participation in supplemental Medicaid payment programs and quality improvement programs in various states.

Medicaid rates exclude the amount of state relief revenue we recorded.

The increase is attributable to the 4.0% and 4.2% net market basket increase that became effective in October 2023 and October 2024, respectively, and a shift toward higher acuity patients.

Our average Medicaid rates increased 8.3% 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.

In addition, during the COVID periods from 2020 through 2023, we received state relief funding through Medicaid programs from various states such as California.

These funds have been excluded from our average daily rates from 2020-2023.

Starting in 2024, several of the states we operate in have incorporated the state relief funding as part of the state per diem rates or enhanced their supplemental programs.

As results, these revenue are included in the 2024 average daily revenue rate.

As such, the increase in Medicaid rates from 2023 to 2024 is not a lateral comparison.

Payor Sources as a Percentage of Skilled Nursing Services — We use our skilled mix as a measure of the quality of reimbursements we receive at our independent skilled nursing facilities over various periods.

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Revenue percentage 79.5 % 79.1 % 0.4 %

Cost of services related to our skilled services segment increased by $564.3 million, or 24.9% from prior year.

Cost of services as a percentage of revenue increased to 79.1% from 78.0%, due to increased costs related to general and professional liabilities reserves and wage expenses as a result of the labor environment.

In addition, included in cost of services during the year ended December 31, 2023 is the expense related to the deferred compensation investment program of $2.4 million compared to a gain of $2.6 million during the year ended December 31, 2022.

Cost of services related to our skilled services segment increased by $410.7 million, or 14.5%, from the same period in 2023.

Cost of services as a percentage of revenue increased to 79.5% from 79.1%, due to increased labor costs as a result of new acquisitions in the turnaround stage, increased insurance expenses and increased expense related to the deferred compensation investment program.

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

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Rental revenue — Our rental revenue, including revenue generated from our independent subsidiaries, increased by $12.6 million, or 15.3%, to $95.1 million, compared to the year ended December 31, 2023.

The increase in revenue is primarily attributable to five real estate purchases as well as annual rent increases since the year ended December 31, 2022.

The increase in revenue is primarily attributable to 17 real estate purchases as well as annual rent increases since the year ended December 31, 2023.

FFO — Our FFO increased by $4.4 million, or 8.0%, to $58.6 million, compared to the year ended December 31, 2023.

The increase in rental revenue of $9.5 million is offset by increases in interest expense of $4.3 million associated with the intercompany debt arrangements between Standard Bearer and us, as we continue to grow our real estate portfolio.

The increase in rental revenue of $12.6 million is offset by increases in interest expense of $7.4 million associated with the intercompany debt arrangements as Standard Bearer continues to grow its real estate portfolio.

All Other Revenue

Our other revenue increased by $37.1 million, or 23.8%, to $192.9 million, compared to the year ended December 31, 2023.

Other revenue for 2023 includes senior living revenue of $76.4 million, revenue from other ancillary services of $68.3 million and rental income of $11.1 million.

The increase in other revenue is primarily attributable to our other ancillary services as well as senior living operations' occupancy starting to rebound from COVID-19.

Other revenue for the year ended December 31, 2024 includes senior living revenue of $90.0 million, revenue from other ancillary services of $91.1 million and rental income of $11.8 million.

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

Consolidated Financial Expenses

Rent-cost of services — Our rent-cost of services as a percentage of total revenue increased by 0.2% to 5.3%, primarily due to lease obligations acquired as part of our 22 operational expansions with long-term leases since the year ended December 31, 2022.

General and administrative expense — General and administrative expense increased $104.2 million or 65.6%, to $263.0 million.

General and administrative expense as a percentage of revenue increased by 1.9% to 7.1%.

This increase was primarily due to increases in litigation expense related to specific proceedings that are outside the ordinary course of business, system implementation costs, bonuses due to enhanced performance and headcount due to acquisition activity.

Excluding the litigation expense, general and administrative expense as a percentage of revenue increased by 0.2% to 5.4%.

Depreciation and amortization — Depreciation and amortization expense increased $10.0 million, or 16.1%, to $72.4 million.

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 decreased by $37.9 million or 14.4%, to $225.1 million.

General and administrative expense as a percentage of revenue decreased by 1.8% to 5.3%.

This reduction is attributable to a settlement that was outside the ordinary course of business and finalized in 2023.

Excluding the impact of the proceeding in 2023, general and administrative expense as a percentage of revenue would be at 5.4%.

Depreciation and amortization — Depreciation and amortization expense increased by $11.8 million, or 16.2%, to $84.1 million.

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 decreased 0.2%, to 1.9%, as a percentage of revenue.

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

Other income (expense), net — Other income (expense), net as a percentage of revenue increased by 0.2%.

Other income primarily includes interest income from our investments offset by interest expense related to our debt.

Additionally, our deferred investment program may incur gains or losses depending on market performance.

During the year ended December 31, 2023, the deferred compensation investment program had a gain of $4.6 million.

During the year ended December 31, 2022, the deferred compensation investment program had a loss of $4.2 million.

The offsetting expenses or reduction in expenses are allocated between cost of services and general and administrative expenses.

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

Other income (expense), net increased by $10.4 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 years ended December 31, 2024 and 2023, the deferred compensation plan had gains of $5.2 million and $4.6 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 22.7% for the year ended December 31, 2024, compared to 23.1% 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.

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 13, Income Taxes , in the Financial Statements for further discussion.

Liquidity and Capital Resources

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 December 31, 2023 is impacted by cash generated from strong operational performance and increased acquisition and share repurchase activities.

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 (defined below).

Our liquidity as of December 31, 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 $69.0 million and $101.1 million for the year ended December 31, 2023 and 2022, respectively.

Total capital expenditures for property and equipment were $106.2 million and $87.5 million for the year ended December 31, 2023 and 2022, respectively.

Cash paid to fund acquisitions was $156.5 million for the year ended December 31, 2024 compared to cash paid of $69.0 million for the year ended December 31, 2023.

Total capital expenditures for property and equipment were $158.2 million and $106.2 million for the years ended December 31, 2024 and 2023, respectively.

We currently have approximately $150.0 million budgeted for renovation projects in 2025.

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We currently anticipate that existing cash and total investments as of December 31, 2024, along with projected operating cash flows and available financing, will support our normal business operations for the foreseeable future.

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.

Under this program, 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.

The share repurchase program does not obligate us to acquire any specific number of shares.

We did not purchase any shares pursuant to this stock repurchase program during the year ended December 31, 2023.

On July 28, 2022, 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 August 2, 2022.

Under this program, we were 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.

The share repurchase program did not obligate us to acquire any specific number of shares.

The stock repurchase program expired on August 2, 2023 and is no longer in effect.

The Company did not purchase any shares pursuant to this 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.

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 the 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 year ended December 31, 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 consolidated statement of cash flows for the periods presented:

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Financing activities (2,162) (612)

Net increase in cash and cash equivalents 193,356 54,069

Net (decrease) increase in cash and cash equivalents

$ (45,028) $ 193,356

Cash and cash equivalents beginning of period 509,626 316,270

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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 $104.2 million increase in cash provided by operating activities for the year ended December 31, 2023 compared to the same period in 2022 w as due to cash generated from improved results at our local operations as well as $24.2 million that was paid for deferred social security taxes in 2022, which did not occur in 2023.

The $29.5 million decrease in cash provided by operating activities for the year ended December 31, 2024 compared to the same period in 2023 w as due to payment of the $48.0 million related to the litigation matter discussed in Item 3., Legal Proceedings and we funded $35.0 million to Insignia Pathway, which is discussed in Recent Activities .

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 $3.5 million decrease in cash used in investing activities for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to a decrease in cash used for operational expansions of $32.1 million, offset by an increase in cash used for capital expenditures of $18.6 million, an increase in investments of $3.1 million and a decrease of cash proceeds from the sale of fixed assets and insurance proceeds of $7.7 million.

The $207.4 million increase in cash used in investing activities for the year ended December 31, 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 $31.7 million decrease in cash used in financing activities for the year ended December 31, 2023 compared to the same period in 2022, was primarily due to $29.9 million of share repurchases as part of our stock repurchase program in 2022.

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 $1.6 million increase in cash provided by financing activities for the year ended December 31, 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.

A discussion of our cash flows for the year ended December 31, 2022 is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources, included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on February 1, 2024.

Material cash requirements from known contractual and other obligations

Total long-term debt obligations outstanding as of the end of each fiscal year were as follows:

Total long-term debt obligations, net of debt discount, outstanding as of the end of each fiscal year were as follows:

2024 2023 2022 2021 2020

(In thousands)

Credit facilities and term loans $ — $ — $ — $ — $ 210,000

Mortgage loans and promissory note

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Not included in the table above are our actuarially determined self-insured general and professional malpractice liability, workers' compensation and medical (including prescription drugs) and dental healthcare obligations which are broken out between current and long-term liabilities in our financial statements included in this Annual Report on Form 10-K.

As part of the proceeding discussed in Item 3.

Legal Proceedings , the parties agreed to settle the litigation for $48.0 million, subject to the review and approval of all parties, including the DOJ and other relevant government entities.

As part of the proceeding discussed in Item 3., Legal Proceedings , the parties agreed to settle the litigation for $48.0 million.

The settlement funds were fully paid during the year ended December 31, 2024.

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.

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

Borrowings are supported by a lending consortium arranged by Truist.

The interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin range from 1.25% to 2.25% per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility).

The interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.25% to 1.25% per annum or SOFR plus a margin ranging from 1.25% to 2.25% per annum, based on the Consolidated Total Net Debt to Consolidated EBITDA ratio (as defined in the Credit Facility).

In addition, there is a commitment fee on the unused portion of the commitments that ranges from 0.20% to 0.40% per annum, depending on the Consolidated Total Net Debt to Consolidated EBITDA ratio.

Mortgage Loans and Promissory Note

As of December 31, 2023, 23 of our subsidiaries have mortgage loans insured with HUD for an aggregate amount of $150.2 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

As of December 31, 2024, 23 of our subsidiaries had mortgage loans insured with HUD for an aggregate amount of $146.9 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 December 31, 2023, 214 of our facilities are under long-term lease arrangements, of which 96 of the operations are under nine triple-net Master Leases and one stand-alone lease with CareTrust REIT, Inc.

As of December 31, 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.

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.

Subsequent to December 31, 2024, we, through Standard Bearer, exercised the option to purchase the real estate of the four facilities from CareTrust for $44.6 million.

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 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-K

Item 7. Management’s Discussion and Analysis