What changed in this filing

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Item 1A. Risk Factors

2025-11-03 compared with 2025-07-24 · 80 added, 44 removed, 759 unchanged (14% of the section changed)

5 unchanged sentences

• Changes to the U.S.

healthcare system, both at a state and federal level, including regulations, new transparency and disclosure requirements, and potential spending and staffing levels, continue to impose new requirements upon us that could materially impact our business.

healthcare system, both at a state and federal level, including recent regulations, new transparency and disclosure requirements, and potential spending levels, continue to impose new requirements upon us that could materially impact our business.

• Anticipated changes in the U.S.

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• If our independent subsidiaries are not fully reimbursed for all services for which each facility bills through consolidated billing, our revenue, financial condition and results of operations could be adversely affected.

• Increased competition for, or a shortage of, nurses and other skilled personnel, could increase our staffing and labor costs and subject us to monetary fines resulting from a failure to maintain minimum staffing requirements, or may affect reimbursement.

• Annual caps, uncertainty regarding reimbursement and other cost-reductions for outpatient therapy services may reduce our future revenue and profitability or cause us to incur losses.

9 unchanged sentences

• If our regular internal investigations into the care delivery, recordkeeping and billing processes of our independent subsidiaries detect instances of noncompliance, efforts to correct such non-compliance could materially decrease our revenue.

• The OHCA CMIR has the potential to delay, and ultimately prevent, proposed transactions and require disclosure of confidential information.

• We may be unable to complete future facility or business acquisitions at attractive prices or at all, or may elect to dispose of underperforming or non-strategic independent subsidiaries, either of which could decrease our revenue.

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• In undertaking acquisitions, we may be adversely impacted by costs, liabilities and regulatory issues that may adversely affect our operations.

• If we do not achieve or maintain competitive quality of care ratings from CMS or private organizations engaged in similar monitoring activities, our business may be negatively affected.

• If we do not achieve or maintain competitive quality of care ratings from CMS or private organizations engaged in similar monitoring activities, which frequently change, our business may be negatively affected.

• If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected, and our self-insurance programs may expose us to significant and unexpected costs and losses.

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• We are a holding company with no operations and rely upon our multiple independent subsidiaries.

• Our implementation of a new enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.

• Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.

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The rules of Medicare and Medicaid, including reductions of reimbursement rates, changes to spending requirements, data reporting, measurement and evaluation standards could have a material, adverse effect on our revenues, financial condition and results of operations.

We derived 23.8% and 24.2% of our service revenue from the Medicare programs for the three and six months ended June 30, 2025, respectively, and 25.1% and 25.8% for the three and six months ended June 30, 2024, respectively.

We derived 23.5% and 24.0% of our service revenue from the Medicare programs for the three and nine months ended September 30, 2025, respectively, and 24.5% and 25.3% for the three and nine months ended September 30, 2024, respectively.

In addition, many other payors may use published Medicare rates as a basis for reimbursements.

11 unchanged sentences

• changes in methodology for patient assessment and/or determination of payment levels;

• changes in staff requirements as a condition of payment or eligibility for Medicare reimbursement (See also, Item 2., under Government Regulation );

• the reduction or elimination of annual rate increases, implementation of reimbursement decreases, or the end of the reduced payments deferment (See also, Item 2., under Government Regulation );

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The costs of final implementation may be significant, with potential fines and payment reductions resulting from a failure to meet CMS's implementation requirements.

The current Presidential Administration, whether through executive orders or through the actions of HHS, may take additional actions through rulemaking, priority-setting and other exercises of discretion that may materially affect our business in ways that cannot presently be foreseen.

Reductions in reimbursement rates or the scope of services being reimbursed could have a material, adverse effect on our revenue, financial condition and results of operations or even result in reimbursement rates that are insufficient to cover our operating costs.

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A significant portion of reimbursement for skilled nursing services comes from Medicaid.

In fact, Medicaid is our largest source of revenue, accounting for 46.0% and 45.4% of our revenue for the three and six months ended June 30, 2025, respectively, and 46.1% and 45.6% for the three and six months ended June 30, 2024, respectively.

In fact, Medicaid is our largest source of revenue, accounting for 46.0% and 45.6% of our revenue for the three and nine months ended September 30, 2025, respectively, and 45.7% for both the three and nine months ended September 30, 2024, respectively.

Medicaid is a state-administered program financed by both state funds and matching federal funds.

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Additionally, states must conduct Medicaid eligibility redeterminations every six months, rather than annually, for individuals enrolled under Medicaid.

Any discontinuance or reduction in federal matching of provider tax-related Medicaid expenditures or delays in eligibility or coverage could have a significant and adverse effect on states' Medicaid expenditures, and as a result could have a material and adverse effect on our business, financial condition or results of operations.

Any discontinuance or reduction in federal matching of provider tax-related Medicaid expenditures or delays in eligibility or coverage could have a significant and adverse effect on states' Medicaid expenditures (e.g., California, Colorado, and Nevada), and as a result could have a material and adverse effect on our business, financial condition or results of operations.

The federal government shutdown does not immediately affect Medicare and Medicaid programs because payments under each program continue even during a lapse of appropriations in most instances.

Also, the contingency plans in place for such programs require certain minimum staffing and funding for such programs to continue.

However, the shutdown may cause delays in oversight and administration of such programs or even pause certain functions within the program.

This includes processes related to claims review, waiver approvals, provider enrollment and other technical assistance under the programs.

The shutdown will also result in a reduced workforce overseeing the programs.

As a result, these changes may cause payments to be delayed and adversely affect certain aspects of our independent subsidiaries' financial operations.

The longer the shutdown is in effect the more likely additional challenges may arise due to these administrative burdens.

State-level direct spending requirements could negatively impact our results of operations.

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In addition, even if the ACA is not amended or repealed, the President and the executive branch of the federal government, as well as CMS and HHS, have a significant impact on the implementation of the provisions of the ACA.

It is expected that the current Presidential Administration will make changes impacting the implementation and enforcement of the ACA, which could harm our business, operating results and financial condition.

We have already seen such changes with the Biden-Harris Administration's regulatory activity promulgating rules regarding anti-discrimination under Section 1557 of the ACA and rulemaking requiring SNFs to disclose their ownership and the ownership of service providers under Section 6101 of the ACA.

It is expected that the current Presidential Administration will make changes affecting the implementation and enforcement of the ACA, which could harm our business, operating results and financial condition.

We have already seen such changes with the current Presidential Administration's impacts to the Biden-Harris Administration's regulatory activity promulgating rules regarding anti-discrimination under Section 1557 of the ACA and rulemaking requiring SNFs to disclose their ownership and the ownership of service providers under Section 6101 of the ACA.

It is not possible to know whether, when, or how any or all of these regulations or their implementation will be changed, the manner in which any change may be effected, and the ultimate effects of such changes on our business.

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In 2023, CMS issued a final rule requiring SNFs to disclose certain information regarding their ownership and managerial relationships which was fully implemented in November of 2024.

This final rule is more invasive and comprehensive than the ownership information already disclosed through Medicare's Nursing Home Compare website.

In furtherance of this rule, CMS is requiring all SNFs to revalidate certain information using CMS's newly promulgated SNF Attachment by January 1, 2026.

These disclosure requirements are more invasive and comprehensive than the ownership information already disclosed through Medicare's Nursing Home Compare website.

Refer to Item 2., under Government Regulation , for additional information.

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political environment, including those as a result of the change in Presidential administration and control of Congress, and to regulatory agencies, particularly HHS, may result in significant changes to regulatory framework, enforcements, reimbursements and our business.

As a result of the 2024 presidential election, changes in control of in the Presidency and the Senate that took effect in January of 2025 may result in significant changes in, and have resulted in uncertainty with respect to, legislation, regulation, implementation or repeal of laws and rules related to government health programs, including Medicare and Medicaid.

As a result of the 2024 presidential election, changes in control of in the Presidency and the Senate that took effect in January of 2025 have resulted in changes to have caused, and will continue to cause uncertainty with respect to, legislation, regulation, implementation or repeal of laws and rules related to government health programs, including Medicare and Medicaid.

This includes changes to the Medicaid program contained in the OBBB, which could reduce Medicaid funds available for reimbursement, potentially limit the amount of reimbursement paid by Medicaid for our services, potentially limit our potential resident population, adversely affect potential residents’ eligibility and ability to pay for services performed by our independent subsidiaries.

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On April 2, 2025, President Trump signed the executive order to impose a variety of tariffs to the global trading partners of the United States.

In the months since then, the tariffs with various countries have been increased, decreased, paused, and reinstated as part of a broader trade negotiation strategy that has caused uncertainty in various product markets.

These tariffs have the potential to increase costs on goods that are imported into the United States.

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In these Reviews, third-party firms engaged by CMS conduct extensive analysis of claims data and medical and other records to identify potential improper payments under the federal and state programs.

The SNF PPS FY 2025 Final Rule implemented increased penalties that surveyors may impose on SNFs for perceived non-compliance with CMS’s requirements for SNF participation in Medicare.

In addition, in 2023, CMS updated the survey resources that CMS and state surveyors use in evaluating our SNFs’ compliance with federal Requirements for Participation, incorporating recent changes to CMS’s methods for surveying infection control procedures.

The SNF PPS FY 2025 Final Rule introduced higher penalties that surveyors can impose on SNFs if they are found to be non-compliant with CMS’s requirements for SNF participation in Medicare program.

In addition, in 2023, CMS updated the survey resources and guidelines used both by CMS and state surveyors in evaluating our SNFs’ compliance with federal participation requirements.

These updates included new approaches for evaluating infection control procedures, reflecting recent changes in CMS's survey methodologies.

In 2022, CMS updated guidance for Phase 2 and 3 of the requirements of participation, discussed in greater detail in Item 2., under Government Regulation .

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Ongoing failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare decertification.

As of June 30, 2025 and through the filing date of this report, 10 of our independent subsidiaries had multi-claim reviews scheduled or in process, either pre- or post-payment.

As of September 30, 2025 and through the filing date of this report, 14 of our independent subsidiaries had multi-claim reviews scheduled or in process, either pre- or post-payment.

We anticipate that these reviews could increase in frequency in the future.

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• qualifications of healthcare and support personnel;

• state-specified and potential federal mandates for specific nurse staffing levels;

• state-specified mandates for specific nurse staffing levels;

• quality and maintenance of medical equipment and facilities;

8 unchanged sentences

CMS's ownership transparency rule, which was fully implemented by November of 2024, and similar state disclosure requirements such as California’s, discussed in Item 2., under Government Regulation , may provide an additional basis for further investigation, administrative action and ultimately fines, penalties, or sanctions if finalized, and may dissuade parties from working with us or our independent subsidiaries due to the reporting and disclosure obligations of being an Additional Disclosable Party under that final rule.

We believe that such regulations that may adversely affect our business, operation and profitability.

We believe that such regulations may adversely affect our business, operation and profitability.

The quantity and scope of these regulations may increase in the future, and we cannot predict the ultimate content, timing or impact on us of any healthcare reform legislation.

19 unchanged sentences

From time to time in the ordinary course of business, we receive deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys.

CMS's updated guidance to these surveyors incorporate recent changes to CMS’s methods for surveying infection control procedures.

Additionally, CMS's recently finalized rule requiring disclosure of ownership and financial relationships between nursing facilities and property owners or management entities, as well as other state rules over ownership transparency, may provide an additional basis for further investigation, administrative action, and ultimately fines, penalties, or sanctions and could dissuade individuals and businesses from doing business with us or our independent subsidiaries.

CMS's updated guidance to these surveyors incorporates recent changes to CMS’s methods for surveying infection control procedures.

Additionally, CMS's rule requiring disclosure of ownership and financial relationships between nursing facilities and property owners or management entities, which now carries new requirements for re-certification by January 1, 2026, as well as other state rules over ownership transparency, may provide an additional basis for further investigation, administrative action, and ultimately fines, penalties, or sanctions and could dissuade individuals and businesses from doing business with us or our independent subsidiaries.

Although most inspection deficiencies are resolved through an agreed-upon plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed or certified facility.

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This three-year look-back for sustained improvements by facilities that graduate the SFF program poses risk for our independent subsidiaries, specifically those that may be subject to the SFF program or that have been subject to the SFF program in the past.

As of June 30, 2025, we have one facility that graduated from the SFF program within the past three years.

As of September 30, 2025, we have one facility that graduated from the SFF program within the past three years.

First, for SNFs that are selected by CMS for participation in the SFF program, or which currently are in the SFF program, even graduation from the program is no longer an assurance that the SNF will be able to continue its operations.

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Under both the 2024 and 2025 PFS Final Rules, reductions in conversion factor, payments to providers and conditions imposed in exchange for higher payments may impose operational requirements and working conditions that further detract from and reduce our financial performance.

Although the 2026 PFS Proposed Rule indicates there may be an increase in conversion factors, this is not a guarantee until a final rule is effective and does not guarantee increases will occur again in the future rulemakings, or that Congress will defer or limit the impact of cuts due to Medicare sequestration.

Similarly, new final rules concerning the PACE program and the information it will collect from our independent subsidiaries may adversely affect the risk-adjusted reimbursement.

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Healthcare businesses are increasingly the target of cyberattacks whereby hackers disrupt business operations or obtain protected health information, often demanding large ransoms.

In 2024, healthcare was among the most-breached sector of the economy based on publicly disclosed information, a trend that is expected to continue in 2025 and beyond.

In 2024, healthcare was among the most-breached sector of the economy based on publicly disclosed information.

This trend of healthcare as a vulnerable cybersecurity target continues in 2025 and is expected to remain a significant risk in the future.

The frequency of this activity has increased precipitously over the last five years.

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Proposed legislation, such as the previously proposed Nursing Home Improvement Act and the proposed HCBS Access Act, may make it more expensive to compete for, hire, and retain nursing staff, if passed into law in substantially the same form as previously introduced to Congress.

Although implementation of the Staffing Rule has been delayed under the OBBB, future Presidential Administrations and HHS and CMS, under new leadership, could impose more stringent requirements for staffing.

CMS has published guidance to surveyors addressing topics that specifically include nurse staffing and collection of payroll data to evaluate appropriate staffing levels, which may lead to future regulations that increase our staffing requirements and labor costs or lower revenues.

Similar state-level requirements in the states where our independent SNFs operate, whether such requirements are passed by statute, regulation, or executive order, may result in a shortage or inability to obtain nurses and skilled staff.

Although the Staffing Rule is not likely to take effect due to HHS and CMS's abandonment of appeals in its defense, promulgation of an interim final rule to prohibit the Staffing Rule's staffing ratios from taking effect, and defunding of the Staffing Rule by the OBBB, future presidential administrations may revive this concept and seek to restore that rule or impose new staffing rules that are equally or more stringent.

State-level staffing requirements in the states where our independent SNFs operate, whether such requirements are passed by statute, regulation, or executive order, may result in a shortage or inability to obtain nurses and skilled staff.

Prior concerns about the COVID-19 vaccination IFR may be abated by the Omnibus Final Rule’s withdrawal of that IFR.

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As discussed in detail in Item 2., under Government Regulation , sub-heading Part B Rehabilitation Requirements , several government actions have been taken in recent years to try and contain the costs of rehabilitation therapy services provided under Medicare Part B, including the MPPR, institution of annual caps, mandatory medical reviews for annual claims beyond a certain monetary threshold, and a reduction in reimbursement rates.

Of specific concern has been CMS efforts to lower Medicare Part B reimbursement rates for outpatient therapy services, which are reduced by 2.83% in the 2025 PFS Final Rule.

Such cost-containment measures and ongoing payment changes could have an adverse effect on our revenue.

Of specific concern has been CMS efforts to lower Medicare Part B reimbursement rates for outpatient therapy services, which are reduced by 2.83% in the 2025 PFS Final Rule, although the 2026 PFS Proposed Rule represents an effort to reverse this trend and increase payments for provider services.

Such actual increases, however, cannot be confirmed until the final rule for the 2026 PFS is issued, which is expected in November or December of 2025.

Any future cost-containment measures and ongoing payment changes could have an adverse effect on our revenue.

The Office of the Inspector General or other regulatory authorities may choose to more closely scrutinize billing practices in areas where we operate or propose to expand, which could result in an increase in regulatory monitoring and oversight, decreased reimbursement rates, or otherwise adversely affect our business, financial condition and results of operations.

1 unchanged sentence

The OIG identified SNF compliance as an issue of concern in its 2021, 2022, 2023, 2024 and 2025 semi-annual reports to Congress.

In March of 2025, OIG found that, over a 3-year period, Medicare Part D improperly paid approximately $465 million for drugs that should have been reimbursed under Medicare Part A through its SNF benefits.

This issue was also added to the OIG's work plan, with a focus on SNFs' compliance with Medicare Part A billing requirements for drugs that the OIG found were improperly paid by Medicare Part D.

In June 2024, the OIG continued to focus on SNFs, adding the SFF Program to its Work Plan.

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Prior publications and statements by the Biden-Harris Administration have also called for greater scrutiny of SNF facilities.

Following the 2024 presidential election, it is not yet known whether the new Presidential Administration will follow the same policies and seek further or escalating scrutiny of SNFs, or whether it will retain any or all of the Biden-Harris Administration’s priorities regarding SNFs.

Following the 2024 presidential election, it is not yet known whether the new Presidential Administration will follow the same policies and seek further or escalating scrutiny of SNFs.

The SNF PPS FY 2026 did not significantly change any of the previous administration's rules with the exception of the non-enforcement of the Staffing Rule under the OBBB and subsequent changes in HHS priorities, including the abandonment of appeals seeking to defend the rule and promulgating an interim final rule to stop the Rule's staffing ratios from taking effect.

To respond to the local community needs and the shifting of higher acuity patients from the acute care setting to the SNF setting, over time our overall patient mix has consistently shifted to higher acuity and higher-resource utilization patients in most facilities we operate.

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We generally receive higher reimbursement rates for high acuity patients, and payors reimburse us at different rates.

For the three and six months ended June 30, 2025, 69.8% and 69.6% of our revenue was provided by government payors that reimburse us at predetermined rates.

For the three and nine months ended September 30, 2025, 69.5% and 69.6% of our revenue was provided by government payors that reimburse us at predetermined rates.

If our labor or other operating costs increase, we will be unable to recover such increased costs from government payors.

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CMS first requested information regarding these priorities in 2022 and subsequently published further requests for information from the public in the Federal Register to aid in studies and anticipated rulemaking.

The change in Presidential Administration, including new leadership of HHS and CMS, may result in a change in these priorities.

This prior research and rulemaking may be materially altered or abandoned.

Following the change in Presidential Administration and control of the Senate, both the OBBB and changes in HHS legal priorities, including the abandonment of appeals defending the Staffing Rule and interim rulemaking to stop the Staffing Rule's staffing ratios from taking effect, have resulted in the Staffing Rule being unenforceable at this time and not likely to be pursued in the future.

Other rules from the Biden-Harris Administration, such as increased ownership disclosure requirements, however, remain in effect.

The identification and pursuit of HHS priorities under the current Presidential Administration may continue to be unpredictable in the future.

Certain results of the Biden-Harris Administration’s rulemaking, including enhanced enforcement ability, may be retained under the current Presidential Administration, as signaled by its recent decision to prohibit pre-dispute agreements to arbitrate disputes in SNF admission agreements.

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If a court in such litigation decided to disregard the corporate form, the resulting judgment could increase our liability and adversely affect our financial condition and results of operations.

Prior to CMS’s most recent action against binding pre-dispute arbitration provisions contained in admission agreements, Congress repeatedly considered, without passage, a bill that would require, among other things, that agreements to arbitrate nursing home disputes be made after the dispute has arisen rather than before prospective patients move in, to prevent nursing home operators and prospective patients from mutually entering into a pre-admission, pre-dispute arbitration agreement.

Prior to CMS’s most recent action prohibiting binding pre-dispute arbitration provisions contained in admission agreements, Congress repeatedly considered, without passage, a bill that would require, among other things, that agreements to arbitrate nursing home disputes be made after the dispute has arisen rather than before prospective patients move in, to prevent nursing home operators and prospective patients from mutually entering into a pre-admission, pre-dispute arbitration agreement.

This bill, known as the Fairness in Nursing Home Arbitration Act, was introduced in the House of Representatives in 2021;

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No action was taken in the prior Congress following referral of the bill to those committees.

Our independent subsidiaries use arbitration agreements, which have generally been favored by the courts, to streamline the dispute resolution process and reduce our exposure to legal fees and excessive jury awards.

Our independent subsidiaries have used arbitration agreements where permissible by law, which have generally been favored by the courts, to streamline the dispute resolution process and reduce our exposure to legal fees and excessive jury awards.

CMS previously identified these arbitration agreements as an area of focus and issued guidance to state surveyors regarding federal requirements for the use of arbitration agreements in nursing home care, with non-compliance potentially resulting in fines and other sanctions.

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Failure to refund overpayments within required time frames (as described in greater detail above) could result in FCA liability and our business, financial condition and results of operations could be materially and adversely affected and our stock price could decline.

The OHCA CMIR has the potential to delay or prevent proposed transactions and require disclosure of confidential information.

The OHCA CMIR process may delay, and potentially ultimately prevent, the closing of certain proposed transactions.

If a CMIR results in a negative finding and generates a referral to the California Attorney General, that could result in the parties not being able to conclude the proposed transaction and possibly require the subject facilities to appoint new managers.

Any delay or prevention of completing transactions could have adverse effect on the operations of our independent subsidiaries.

The risk of an adverse regulatory outcome, competitive harm, or potential legal action will persist until the CMIR is successfully concluded.

The CMIR process also seeks the disclosure of confidential information regarding our independent subsidiaries’ reimbursement rates and financial performance.

This information is subject to contractual confidentiality obligations and otherwise proprietary to our business and is likewise a source of competitive advantage in the marketplace.

If this information is disclosed to, or otherwise obtained by OHCA, we anticipate that it will be publicly available and could provide competitors with otherwise unavailable data on the financial operations and reimbursement relationships of our independent subsidiaries.

We continue to communicate with and respond to OHCA in connection with the CMIR, but there can be no assurance that there will be a positive resolution.

We may be unable to complete future asset or business acquisitions at attractive prices or at all, which may adversely affect our revenue;

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If we are unable to accomplish any of these objectives at the independent subsidiaries we acquire, we will not realize the anticipated benefits and we may experience lower than anticipated profits, or even losses.

During the six months ended June 30, 2025, we expanded our operations through a combination of long-term leases and real estate purchases, with the addition of 17 stand-alone skilled nursing operations, two stand-alone senior living operations and one campus operation.

During the nine months ended September 30, 2025, we expanded our operations through a combination of long-term leases and real estate purchases, with the addition of 28 stand-alone skilled nursing operations, five stand-alone senior living operations and one campus operation.

This growth has placed and will continue to place significant demands on our current management resources.

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Based on CMS's guidance and regulations, we expect more data to be collected by CMS and reported on the Nursing Home Compare website in the future.

Additionally, CMS's ownership transparency final rule, which requires the disclosure of SNF ownership and affiliated parties, will ultimately provide for the public disclosure of information reported to CMS under that rule.

Other states, including Iowa and California, have adopted similar statutes and regulations requiring the disclosure of this information.

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Some facilities may see a decline in their overall five-star rating absent any new inspection information, and as a result the five-star ratings of our independent subsidiaries may decline even as their quality measures remain unchanged or improve.

Additionally, on the Nursing Home Compare website, CMS recently began displaying a consumer alert icon next to nursing homes that have been cited on inspection reports for incidents of abuse, neglect, or exploitation.

Additionally, on the Nursing Home Compare website, CMS began displaying a consumer alert icon next to nursing homes that have been cited on inspection reports for incidents of abuse, neglect, or exploitation.

In 2022, CMS updated the scoring measures used for SNFs to include six dimensions of staffing and turnover.

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These changes also increase the pressure on our independent subsidiaries to obtain a smaller number of available five-star ratings, as lower ratings may make it more difficult to attract prospective residents to receive our services.

In September 2023, CMS announced that it will update the staffing level case-mix adjustment methodology and freeze four of the quality measures used in the Nursing Home Five-Star Quality Rating System beginning with the April 2024 refresh of the Nursing Home Compare website data.

In April 2024, CMS announced the freezing of four quality measures, with one short-stay measure updated effective October 2024 with the new Discharge Function Score Measure and the other three measures unfrozen in January 2025.

CMS has unfrozen its staffing level measures with changes to the time period needed to constitute the cessation of employment for the purposes of turnover measurement.

CMS announced that it is changing its staffing rating methodology to give the lowest possible score to and penalize providers that fail to provide staffing data or provide erroneous staffing data.

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In addition to the uncertainty created by future changes to CMS’s five-star ratings that currently are unknown, the potential negative consequences of freezing unfavorable data may adversely affect our star rating and negatively impact our ability to attract residents.

In June 2025, CMS announced that from July 2025 onward, it will only incorporate the two most recent surveys for Nursing Home Care Compare and the Five Star Quality Rating system.

In addition, CMS changed certain weight factors to scores under such survey programs.

These changes have the potential to affect the sample of data evaluated under such surveys which could negatively impact SNFs with more recent compliance issues.

As of July 30, 2025, the Nursing Home Compare updates have been temporarily paused until October 2025 due to CMS's transition to a cloud-based system for survey data.

During this pause, CMS indicated it will validate date integrity and engage in verification of reporting information for meeting quality standards.

This impacts existing viewpoint of SNFs because there is no opportunity to provide new data to update scores.

Further it increases the chance of audit by CMS if there are potential findings of data integrity or verification issues.

Providing quality patient care is the cornerstone of our business.

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Historically, the staff at our independent subsidiaries that have been approached to unionize have uniformly rejected union organizing efforts.

We previously indicated there may be forthcoming proposed rules from CMS, based on the Biden-Harris Administration's executive orders discussed under Government Regulation in Item 2., as well as potential legislation such as the HCBS Access Act aimed toward providing more resources to those considering care-based careers, may increase the likelihood of employee unionization due to increased emphasis on care-based careers in SNF facilities.

Previous rulemaking under the Biden-Harris Administration and previously proposed legislation such as the HCBS Access Act, which increase resources for care-based jobs, may make such positions more lucrative and desirable in the future, and therefore more desirable for unions to organize these workers into their membership.

The current Presidential Administration may reverse some of these orders, may impact significant changes in HHS and CMS policy and rulemaking, and may reduce the likelihood of successful legislation that seeks to provide more resources to creating pathways to care-based careers.

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Because we lease the majority of the facilities operated by our independent subsidiaries, we are subject to risks associated with leased real property, including risks relating to lease termination, lease extensions and special charges, any of which could adversely affect our business, financial position or results of operations.

As of June 30, 2025, our independent subsidiaries operated 238 of our 347 facilities under long term lease arrangements.

As of September 30, 2025, our independent subsidiaries operated 249 of our 361 facilities under long term lease arrangements.

Most of our leases are triple-net leases, which means that, in addition to rent, we are required to pay for the costs related to the property (including property taxes, insurance, and maintenance and repair costs).

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Our Credit Facility has a borrowing capacity of up to $600.0 million in aggregate principal amount.

As of June 30, 2025 and through the filing date of this report, we had no outstanding borrowings under our Credit Facility.

As of September 30, 2025 and through the filing date of this report, we had no outstanding borrowings under our Credit Facility.

Twenty-three of our subsidiaries have mortgage loans insured with the Department of Housing and Urban Development (HUD) for an aggregate amount of $144.3 million, which subjects these subsidiaries to HUD oversight and periodic inspections.

The terms of the mortgage loans range from 25- to 35-years.

We also have one outstanding promissory note with an aggregate principal amount of approximately $1.2 million as of June 30, 2025.

We also have one outstanding promissory note with an aggregate principal amount of approximately $1.1 million as of September 30, 2025.

The term of the note is 12 years.

In addition, we had $2.9 billion of future operating lease obligations as of June 30, 2025.

In addition, we had $3.0 billion of future operating lease obligations as of September 30, 2025.

We intend to continue financing our independent subsidiaries through mortgage financing, long-term operating leases and other types of financing, including borrowings under our lines of credit and future credit facilities we may obtain.

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As we continue to acquire and lease real estate assets, we may not be successful in identifying and consummating these transactions.

As of June 30, 2025, we lease 35 of our properties to third-party operators.

As of September 30, 2025, we lease 36 of our properties to third-party operators.

In the future, we might expand our leasing property portfolio to additional tenants.

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The ability of our subsidiaries to make distributions to us will depend substantially on their respective operating results and will be subject to restrictions under, among other things, the laws of their jurisdiction of organization, which may limit the amount of funds available for distribution to investors or stockholders, agreements of those subsidiaries, the terms of our financing arrangements and the terms of any future financing arrangements of our subsidiaries.

Our implementation of a new enterprise resource planning (ERP) system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.

We are currently implementing a new ERP system designed to unify our existing processes, enhance access to real-time operational data, and ensure we are fully equipped to support future growth.

This implementation involves significant complexity, including data migration, system integration, process redesign, and requires significant resources and changes to business and financial processes.

Additionally, the implementation carries risks such as the disruption of our operations which may adversely impact our financial reporting and internal controls.

Moreover, there is no assurance that this new ERP and other aspects of this process, once implemented, will meet our current or future business needs or will operate as intended.

Certain directors who serve on our Board of Directors also serve as directors of Pennant, and ownership of shares of Pennant common stock by our directors and executive officers may create, or appear to create, conflicts of interest.

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The presence of mold, lead-based paint, underground storage tanks, contaminants in drinking water, radon and/or other substances at our independent subsidiaries may lead to the incurrence of costs for remediation, mitigation or the implementation of an operations and maintenance plan and may result in third party litigation for personal injury or property damage.

If we fail to comply with applicable environmental laws, we would face increased expenditures in terms of fines and remediation of the underlying problems, potential litigation relating to exposure to such materials, and a potential decrease in value to our business and in the value of our underlying assets.

If we fail to comply with applicable environmental laws, we will face increased expenditures in terms of fines and remediation of the underlying problems, potential litigation relating to exposure to such materials, and a potential decrease in value to our business and in the value of our underlying assets.

Risks Related to Ownership of our Common Stock

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What changed 10-Q

Item 1A. Risk Factors