What changed in this filing

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Item 1A. Risk Factors

2026-07-27 compared with 2026-04-30 · 63 added, 101 removed, 801 unchanged (17% of the section changed)

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• Anticipated changes in the U.S.

political environment, including those as a result of the current Presidential administration and Congress, potential changes in control of one or both houses of Congress due to mid-term elections to occur in November 2026, and to regulatory agencies, particularly HHS, may result in significant changes to regulatory framework, enforcements, reimbursements and our business.

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

• We are subject to various government reviews, audits and investigations that could adversely affect our business, including an obligation to refund amounts previously paid to us, potential criminal charges, loss of licensure, the imposition of fines and sanctions.

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• Future cost containment initiatives undertaken by payors may limit our revenue and profitability.

• Reductions in reimbursements for physician and non-physician services could impact reimbursement for medical professionals.

• We may be subject to increased investigation and enforcement activities related to HIPAA violations.

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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 under state law, or may affect reimbursement.

• Increased competition for, or a shortage of, nurses and other skilled personnel, including as a result of federal immigration policy, could increase our staffing and labor costs, reduce the pool of available healthcare workers, and subject us to monetary fines resulting from a failure to maintain minimum staffing requirements under state law, 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.

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• State efforts to regulate or deregulate the healthcare services industry or the construction or expansion of healthcare facilities could impair our ability to expand our operations, or could result in increased competition.

• Newly enacted legislation in the States where our independent subsidiaries are located may impact the volume and exposure in claims filed and the overall cost of those cases from a defense and indemnity standpoint.

• Newly enacted and proposed legislation in the States where our independent subsidiaries are located may affect our operations in terms of individual litigation and the broader regulatory environment.

• Changes to federal and state employment-related laws and regulations could increase our cost of doing business.

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Similarly, a change in the enforceability of arbitration provisions between SNFs and senior living facilities and residents and patients may affect the risks we face from claims and potential litigation.

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• 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.

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• 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.

• The geographic concentration of our independent subsidiaries could leave us vulnerable to economic downturn, regulatory changes or acts of nature in those areas.

• The actions of a national labor union that has pursued a negative publicity campaign criticizing our business in the past may adversely affect our revenue and our profitability.

• The risks associated with leased property where our independent subsidiaries operate could adversely affect our business, financial position or results of operations.

• Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our independent subsidiaries and cause us to lose facilities or experience foreclosures.

• A continued housing slowdown or housing downturn could decrease demand for senior living services.

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

• As we expand our presence in other relevant healthcare industries, we would become subject to risks in a market in which we have limited experience.

• If our referral sources fail to view us as an attractive skilled nursing provider, or if our referral sources otherwise refer fewer patients, our patient base may decrease.

• We may need additional capital to fund our independent subsidiaries and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our ability to grow.

• Delays in reimbursement may cause liquidity problems.

• The utilization and expansion of managed care organizations may contribute to delays or reductions in our reimbursement, including Managed Medicaid.

• Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.

• Failure to safeguard our patient trust funds may subject us to citations, fines and penalties.

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

• 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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Additionally, legislative or other actions affecting REITs could have a negative effect on Standard Bearer.

• Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.

Risks Related to Ownership of our Common Stock

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• Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our common stock.

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Risks Related to Our Business and Industry

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 24.3% and 24.7% of our service revenue from the Medicare programs for the three months ended March 31, 2026 and 2025, respectively.

We derived 23.7% and 24.0% of our service revenue from the Medicare programs for the three and six months ended June 30, 2026, respectively, and 23.8% and 24.2% for the three and six months ended June 30, 2025, respectively.

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

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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.

Although the FY 2027 PPS proposes an overall increase in SNF reimbursement rates, the proposed rule also sets forth provisions that, if finalized and implemented in future fiscal years, would expand the data that must be reported as part of the QRP, shortens the time for reporting, and require the reduction of reimbursements to SNFs participating in the VBP during FY 2027.

Although the FY 2027 PPS PR proposes an overall increase in SNF reimbursement rates, the proposed rule also sets forth provisions that, if finalized and implemented in future fiscal years, would expand the data that must be reported as part of the QRP, shortens the time for reporting, and require the reduction of reimbursements to SNFs participating in the VBP during FY 2027.

In addition, CMS may make future adjustments to reimbursement levels and underlying reimbursement formulae as it continues to monitor the impact of current payments system on patient outcomes and budget neutrality.

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Congress's passage of CAA 2026 and its signing into law also preserved certain telehealth flexibilities beneficial to our business and financial performance, and deferred sequestration of Medicare reimbursement rates.

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The metrics potentially affecting our revenues and expenses in future government fiscal years include the SNF healthcare-associated infections (HAI) measurement, total nursing hours per resident day measures, and discharge to community - post acute care measure.

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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 44.8% of our revenue for both the three months ended March 31, 2026 and 2025, respectively., respectively.

In fact, Medicaid is our largest source of revenue, accounting for 45.2% and 45.0% of our revenue for the three and six months ended June 30, 2026, respectively, and 46.0% and 45.4% for the three and six months ended June 30, 2025, respectively.

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

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The Medicaid program and its reimbursement rates and rules are subject to frequent change at both the federal and state level, including through changes in laws, regulations, rate adjustments (including retroactive adjustments), administrative or executive orders and government funding restrictions, all of which may materially adversely affect the rates at which our services are reimbursed by state Medicaid plans or the amount of expense we incur.

Consistent with the Administration’s focus on strengthening Medicaid program integrity and reducing waste, fraud, and abuse, regulatory activity has accelerated following the 2025 reconciliation legislation, particularly around implementation of the OBBB.

To generate funds to pay for the increasing costs of the Medicaid program, many states utilize financial arrangements commonly referred to as provider taxes.

The OBBB’s passage prohibits the imposition of new provider taxes or increase of existing provider taxes, except for intermediate care facilities and nursing homes.

Under provider tax arrangements, states collect taxes from healthcare providers and then use the revenue to pay the providers as a Medicaid expenditure, which allows the states to then claim additional federal matching funds on the additional reimbursements.

Current federal law provides for a cap on the maximum allowable provider tax as a percentage of the providers' total revenue.

There can be no assurance that federal law will continue to provide matching federal funds on state Medicaid expenditures funded through provider taxes, or that the current caps on provider taxes will not be reduced.

CMS's recent rulemaking to carry provisions of the OBBB into effect have made it more difficult for states to obtain waivers in enacting taxes on Medicaid-participating providers in order to fund that state's share of its Medicaid obligations.

To the extent the Company operates in states that restructure or reduce provider tax programs to achieve compliance, supplemental Medicaid payments to the Company's skilled nursing facilities could be reduced, which could have a material adverse effect on the Company's revenues, results of operations, and financial condition.

Under provider tax arrangements, states collect taxes from healthcare providers to generate non-federal share of Medicaid, which allows the states to then claim additional federal matching funds to help offset cost of care by providing additional reimbursements.

CMS's recently proposed Hold Harmless Provider Tax rule would not appear to directly impact nursing homes.

CMS's recent rulemaking while largely intended to carry provisions of the OBBB into effect makes it more difficult for states to obtain waivers in enacting taxes on Medicaid-participating providers in order to fund that state's share of its Medicaid obligations.

The changes to the Medicaid program enacted in the OBBB limits avenues for states to generate Medicaid funding, and may limit who may qualify for Medicaid long-term care benefits.

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During the government shutdown, certain telehealth services became non-reimbursable because they did not conform to pre-pandemic telehealth rules, requiring providers and suppliers to revert back to pre-pandemic operation models.

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Based on this treatment of telehealth flexibilities through periodic spending bills and temporary rulemaking, rather than a permanent amendment of the Medicare Act, providers, SNFs, and our independent subsidiaries face difficult decisions about how to conduct their operations so that they may be reimbursed for their services provided to Medicare beneficiaries.

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Certain states where the Company operates have implemented direct spending requirements requiring SNFs to spend a portion of their revenue, particularly including Medicaid-derived revenue, on expenses directly relating to care.

These spending requirements could affect our operational results and place the Company at higher risk of suffering non-compliance consequences, such as penalties, pay-backs, restrict admissions and/or operational/financial penalties.

These spending requirements could affect our operational results and place the Company at higher risk of suffering non-compliance consequences, such as penalties, pay-backs, restricted admissions and/or operational/financial penalties.

For example, Washington state incorporates the costs of direct care, indirect care, and capital expenditures for SNF services in computing the State’s Medicaid payments to nursing facilities.

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it is expected that Washington will continue to amend this law in the future.

For state fiscal year 2024, Texas requires all nursing facilities must show that a portion of funds paid to SNFs by Texas’s Medicaid program, including both fee-for-service and managed care reimbursement, were expended for direct care activities, including direct care staff wages and benefits.

For state fiscal year 2024, Texas requires all nursing facilities to show that a portion of funds paid to SNFs by Texas’s Medicaid program, including both fee-for-service and managed care reimbursement, were expended for direct care activities, including direct care staff wages and benefits.

For state fiscal year 2025, Texas replaced the previous spending requirement with the patient care expense ratio (PCER) which measures the proportion of a facility's Medicaid revenue that is spent on patient care expenses.

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These legislative changes, and the effects of the current Presidential Administration’s executive orders, are not yet fully realized in terms of their effects on our business.

For example, on June 1, 2026, CMS issued an interim final rule setting forth the framework for states to follow in ensuring certain adults participating in Medicaid satisfy a requirement to spend at least 80 hours per month in prescribed forms of community engagement, which include education, employment, work programs, or community service, as a condition of eligibility for benefits under that state plan.

Under this interim final rule, each State must generally implement this requirement by January 1, 2027.

The efficacy of the ACA is the subject of much debate among members of Congress and the public and it has been the subject of extensive litigation before numerous courts, including the United States Supreme Court, with varying outcomes — some expanding and others limiting the ACA.

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Thus, the future impact of the ACA on our business is difficult to predict and its continued uncertain future may negatively impact our business.

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While it is not possible to predict whether and when any such changes will occur, proposals discussed by the current Presidential Administration, including a repeal or material amendment of the ACA, could harm our business, operating results and financial condition.

We may not be able to predict whether and when any such changes will occur, and proposals discussed by the current Presidential Administration, including a repeal or material amendment of the ACA, could harm our business, operating results and financial condition.

The ACA continues to be a salient political topic and proposed changes to it may become the subject of campaign promises, litigation, administrative action, or legislation under the current Presidential Administration, and the Senate, where the Republican party now holds a majority of seats.

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

As it pertains to our independent subsidiaries, tariffs on medical supplies may lead to higher costs to providers and the federal government through the Medicare and Medicaid programs and may impact the formulas used to calculate federal reimbursements.

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As it pertains to our independent subsidiaries, tariffs on medical supplies, pharmaceuticals, and medical equipment may lead to higher costs to providers and the federal government through the Medicare and Medicaid programs and may impact the formulas used to calculate federal reimbursements.

To the extent that tariff-driven cost increases are not reflected in corresponding adjustments to Medicare and Medicaid reimbursement rates, our operating margins could be adversely affected.

Additionally, supply chain disruptions arising from trade policy, foreign conflicts, and materials shortages uncertainty could impair our ability to obtain necessary medical supplies and equipment in a timely and cost-effective manner.

The tariff levels described above are subject to legal challenge, and judicial decisions regarding the scope of executive tariff authority, including challenges to tariffs imposed under the International Emergency Economic Powers Act, could result in modifications, suspensions, or invalidations of existing tariffs, creating additional uncertainty regarding the cost and availability of imported medical supplies and equipment on which our independent subsidiaries depend.

Changes to existing policies and rules regarding nursing facilities, including those recently instituted, in addition to anticipated new rule proposals, may result in significant regulatory changes, increased survey frequency and scope, and increased penalties for non-compliance.

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We continually monitor these developments in order to respond to the changing regulatory environment impacting our business.

While it is not possible to predict whether and when any such changes will occur, specific proposals made by the current Administration or others in anticipation of mid-term elections in the U.S., including a repeal or material amendment of the ACA, potential cuts to the Medicare or Medicaid programs by Congress through the budget reconciliation process, or other laws affecting the provision of healthcare services, could harm our business, operating results and financial condition.

We don't know whether and when any such changes will occur, and specific proposals made by the current Administration or others in anticipation of mid-term elections in the U.S., including a repeal or material amendment of the ACA, potential cuts to the Medicare or Medicaid programs by Congress through the budget reconciliation process, or other laws affecting the provision of healthcare services, could harm our business, operating results and financial condition.

If we are slow or unable to adapt to any such changes, our business, operating results and financial condition could be adversely affected.

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• damage to our reputation in the geographies served by our independent subsidiaries.

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Although we have always been subject to post-payment audits and reviews, more intensive “probe reviews” performed by Medicare administrative contractors in recent years appear to be a regular procedure with our fiscal intermediaries.

We have and will continue to be subject to post-payment audits and reviews, and may be subject to more intensive “probe reviews” performed by Medicare administrative contractors, which in recent years appear to be a regular procedure with our fiscal intermediaries.

All findings of overpayment from CMS contractors are eligible for appeal.

With the exception of rare findings of overpayment related to objective errors in Medicare payment methodology or claims processing, we utilize all defenses reasonably available to us to demonstrate that the services provided meet all clinical and regulatory requirements for reimbursement.

Excepting rare findings of overpayment related to objective errors in Medicare payment methodology or claims processing, we utilize all defenses reasonably available to us to demonstrate that the services provided meet all clinical and regulatory requirements for reimbursement.

In cases where claim and documentation review by a CMS contractor yields repeated unsatisfactory results, an operation can be subjected to protracted regulatory oversight.

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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 March 31, 2026 and through the filing date of this report, 22 of our independent subsidiaries had multi-claim reviews scheduled or in process, either pre- or post-payment.

As of June 30, 2026 and through the filing date of this report, 18 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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• constraints on protective contractual provisions with patients and third-party payors;

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• operating policies and procedures;

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These anti-fraud and abuse laws and regulations are complex, and we do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations.

While we do not believe we are in violation of these prohibitions, we cannot assure you that governmental officials charged with the responsibility for enforcing these prohibitions will not assert that we are violating the provisions of such laws and regulations.

While we do not believe we are in violation of these prohibitions, it may be asserted that we are violating the provisions of such laws and regulations.

We are unable to predict the future course of federal, state and local regulation or legislation, including as it pertains to Medicare, Medicaid, or fraud and abuse laws, and how they are enforced.

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These policies may prove to be popular, effective, or otherwise desirable and might not change with a new Presidential Administration, including under new leadership of HHS and CMS.

These enhanced penalties and enforcement activities precedes greater focus by CMS in obtaining oversight over SFFs, and continuing that oversight even after those SFFs improve as recommended by the OIG in its October 24, 2025 report and recommendations regarding the SFF program, and subjecting them to more exacting and routine oversight.

These enhanced penalties and enforcement activities precede greater focus by CMS in obtaining oversight over SFFs, and continuing that oversight even after those SFFs improve as recommended by the OIG in its October 24, 2025 report and recommendations regarding the SFF program, and subjecting them to more exacting and routine oversight.

The likely result may be more frequent surveys of our independent subsidiaries, with more substantial penalties, fines and other consequences if they do not perform well.

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For low-performing facilities in the SFF program, the standards for successfully emerging from that program and not being subject to ongoing and enhanced government oversight will be higher and measured over a longer period of time, prolonging the risks of monetary penalties, fines and potential suspension or exclusion from the Medicare and Medicaid programs.

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We have had independent subsidiaries placed on SFF status in the past and other independent subsidiaries may be identified for such status in the future.

We currently have one facility placed on SFF status.

We currently have no facilities placed on SFF status.

CMS’s changes to the SFF program and its look-back period may create greater risk of our facilities being subject to this program and subject to potential fines and sanctions, even after graduating from the SFF program.

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Among the measures implemented to avoid this issue of “yo-yo” noncompliance was a three-year look-back period for facilities that graduate from the SFF program to ensure that the quality and compliance improvements achieved through the SFF program were sustained.

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On January 28, 2026, CMS updated its guidance for the SFF program to place greater emphasis on the prevalence of resident falls when selecting facilities for inclusion in the program.

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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 March 31, 2026 and through the filing date of this report, 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.

As of June 30, 2026, and through the filing date of this report, we have two facilities 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, graduation from the program is not guaranteed and the SNF may not be able to continue its operations.

Even one survey with a significant compliance deficiency, such as actual harm or an immediate jeopardy deficiency, may result in CMS—acting solely within its discretion—terminating the SNF’s Medicare or Medicaid participation, likely triggering the termination of other payor contracts and rendering the facility economically unviable.

Second, for SNFs that have graduated from the SFF program, they are subject to a three-year period of enhanced scrutiny where adverse findings by a SA and a single survey’s finding of poor compliance may result in CMS discretionally terminating that facility’s Medicare and/or Medicaid participation, which would likely cause other payors to terminate their agreements with the facility as well.

As a result, the financial and manpower resources needed for graduation from the SFF program may be for nothing if, in the three years following graduation from the SFF program, a SNF receives a poor survey result and CMS imposes fines and penalties up to the termination of the facility’s Medicare and Medicaid participation.

As a result, the resources needed for graduation from the SFF program may be for nothing if, in the three years following graduation from the SFF program, a SNF receives a poor survey result and CMS imposes fines and penalties up to the termination of the facility’s Medicare and Medicaid participation.

As discussed above, Medicare and Medicaid represent significant sources of payment for our independent subsidiaries.

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We are continuing our efforts to develop our non-Medicare and non-Medicaid sources of revenue and any changes in payment levels from current or future third-party payors could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.

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Reductions in Medicare reimbursements for physician and non-physician services could impact reimbursement for medical professionals.

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Our business is dependent on the proper functioning and availability of our computer systems and networks.

We cannot assure you that our safety and security measures and disaster recovery plan will prevent damage, interruption or breach of our information systems and operations.

Our safety and security measures and disaster recovery plan may not prevent damage, interruption or breach of our information systems and operations.

Additionally, we cannot control the safety and security of our information held by third-party vendors with whom we contract.

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Unauthorized parties may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud or other forms of deception.

Additionally, the rapid ongoing evolution and increased adoption of emerging technologies such as artificial intelligence and machine learning may make it more difficult to anticipate and implement protective measures to recognize, detect and prevent the occurrence of data breaches, including but not limited to cybersecurity breaches.

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Additionally, the rapid ongoing evolution and increased adoption of emerging technologies such as artificial intelligence (AI) and machine learning may intensify cybersecurity threats, as threat actors increasingly leverage these tools to craft more sophisticated attacks, while also creating new challenges related to the use of AI in our own operations, including risks related to algorithmic accuracy, data integrity, regulatory compliance with evolving AI governance frameworks, and potential liability arising from AI-assisted clinical or operational decision-making.

On occasion, we have acquired additional information systems through our business acquisitions, and these acquired systems may expose us to risk.

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If a facility is determined to be out of compliance with these requirements, it may be subject to a notice of deficiency, a citation, or a significant fine or litigation risk, with penalties including the suspension of patient admissions and the termination of Medicaid participation, or the suspension, revocation or non-renewal of the SNF's license.

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Nonetheless, for the federal government or any state government to materially change the way compliance with the minimum staffing standard is calculated or enforced, our labor costs could increase and the current shortage of healthcare workers could impact us more significantly.

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Proposed legislation, such as the Nurses Belong in Nursing Homes Act and Safe Staffing Saves Lives 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 the likelihood of the enactment of such legislation is unclear and the current administration's abandonment of implementation of any minimum staffing requirements, future presidential administrations may revive this concept and seek to restore that rule or impose new staffing rules that are equally or more stringent.

Despite the current administration's abandonment of implementation of any minimum staffing requirements, the likelihood of the enactment of such legislation remains unclear.

The current or 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.

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Recent changes in federal immigration policy have exacerbated these issues at all levels of the wage and skill spectrum.

For example, the cost of a H-1B visa can be up to $0.1 million which has changed the economic viability of a visa commonly used for skilled care providers to work in the United States and increasing the cost of engaging skilled labor from outside of the United States.

For example, the cost of an H-1B visa can be up to $0.1 million which has changed the economic viability of a visa commonly used for skilled care providers to work in the United States and increasing the cost of engaging skilled labor from outside of the United States.

This indirectly increases the wage pressure for skilled workers such as physicians and NPs eligible to work in the United States.

Increased scrutiny of other visa types, such as H-4 visas and reviews of applicants' presence and activities on their social media accounts, has also affected the availability and ability to participate in the workforce by other workers who have provided care in other less-skilled positions.

This, too, increases the cost of delivering care, reduces the pool of skilled and eligible workers, and like the issues posed by H-1B visa costs and competitiveness, may affect or our operations, financial performance, and profitability.

This, too, increases the cost of delivering care, reduces the pool of skilled and eligible workers, and like the issues posed by H-1B visa costs and competitiveness, may affect our operations, financial performance, and profitability.

Turnover rates and the magnitude of the shortage of nurses or other trained personnel vary substantially from operation to operation and may adversely affect those operations' quality ratings based on data reported to CMS.

In addition, state laws regarding minimum wage increases, such as California’s minimum wage increases for both healthcare and fast-food workers, may intensify competition for unskilled labor in both skilled and unskilled settings.

For skilled workers within the skilled care market where we operate, the costs of skilled labor, which are already greater than unskilled labor, could increase further.

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Any future cost-containment measures and ongoing payment changes will likely have an effect on our revenue, whether positively or negatively depending on the trend of rulemakings going forward.

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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.

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The OIG continued to identify SNF compliance as an issue of concern in its 2025 semi-annual reports to Congress.

The OIG's November 2025 report to Congress indicated that quality of resident care in nursing facilities was an enforcement concern for that office, and also identified SNFs that had failed to properly repay to HHS provider relief funds they had received during the COVID-19 PHE.

The OIG's November 2025 report to Congress indicated that quality of resident care in nursing facilities was an enforcement concern for that office, and also identified SNFs that had failed to properly repay HHS provider relief funds they had received during the COVID-19 PHE.

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.

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If overbuilding in the skilled nursing industry in the markets in which we operate were to occur, it could reduce the occupancy rates of existing facilities and, in some cases, might reduce the private rates that we charge for our services.

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Newly enacted and proposed legislation in the States where our independent subsidiaries are located may affect our operations in terms of individual litigation and the broader regulatory environment.

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While there may be additional claims and litigation that arise from the Supreme Court's decision that have an adverse impact on our cash flow, it is not expected that the decision will have a significant impact on our business.

Another example, California’s adoption of the Skilled Nursing Facility Ownership and Management Reform Act of 2022, discussed in Item 2., under Government Regulation , imposes new requirements for obtaining licenses to operate SNFs.

To provide another example, California’s adoption of the Skilled Nursing Facility Ownership and Management Reform Act of 2022, discussed in Item 2., under Government Regulation , imposes new requirements for obtaining licenses to operate SNFs.

These new requirements may delay or limit the ability to obtain new SNF licenses within that state, whether through acquisition of existing facilities or opening a new facility.

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Our independent subsidiaries are subject to a variety of federal and state employment-related laws and regulations, including, but not limited to, the U.S.

Fair Labor Standards Act that governs such matters as minimum wages, overtime and other working conditions and similar state laws such as the California Private Attorneys General Act (PAGA), the ADA and similar state laws that provide civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, the National Labor Relations Act, regulations of the EEOC, regulations of the Office of Civil Rights, regulations of state attorney generals, family leave mandates and a variety of similar laws enacted by the federal and state governments that govern these and other employment law matters.

Fair Labor Standards Act that governs such matters as minimum wages, overtime and other working conditions and similar state laws such as the California Private Attorneys General Act (PAGA), the ADA and similar state laws that provide civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, the National Labor Relations Act, regulations of the EEOC, regulations of the Office for Civil Rights, regulations of state attorneys general, family leave mandates and a variety of similar laws enacted by the federal and state governments that govern these and other employment law matters.

Changes to federal and state regulations and laws are discussed in more detail in Item 2., under Government Regulation.

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Rising operating costs due to labor shortages, greater compensation and incentives required to attract and retain qualified personnel and higher-than-usual inflation on items including energy, utilities, food and other goods used in our facilities and the costs for transporting these items could increase our operating cost and decrease our profits.

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The compliance costs associated with these laws and evolving regulations could be substantial.

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

For the three months ended March 31, 2026 and 2025, 69.1% and 69.5% of our revenue was provided by government payors that reimburse us at predetermined rates, respectively.

For the three and six months ended June 30, 2026, 68.9% and 69.0% of our revenue, respectively, 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.

Accordingly, if we fail to maintain our proportion of high acuity patients or if there is any significant increase in the percentage of the patients of our independent subsidiaries for whom we receive Medicaid reimbursement, our results of operations may be adversely affected.

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Initiatives undertaken by major insurers and managed care companies to contain healthcare costs may adversely affect our business.

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Due to these whistleblower incentives, qui tam lawsuits have become more frequent.

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Beyond our skilled nursing business, we engage in numerous ancillary businesses through one or more of our subsidiaries.

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Our ancillary businesses also are susceptible to general liability claims based on facts and circumstances that are specific to their activities and operations , such as claims for automobile-involved accidents against our non-emergent ground transportation business.

The defense of claims and lawsuits relating to our ancillary businesses in the past, and may in the future, result in significant legal costs, regardless of the outcome.

The defense of claims and lawsuits relating to our ancillary businesses has resulted in the past, and may result in the future, in significant legal costs, regardless of the outcome.

As our ancillary businesses grow, the independent subsidiaries may be subject to increased frequency and/or severity of losses from such claims and suits which may result in increased liability insurance premiums and decline in available coverage as described above, which could materially and adversely affect our business, financial condition and results of operations.

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

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.

Our independent subsidiaries have used arbitration agreements where permissible by law, which historically have been favored by the courts in the absence of legal authority limiting or curtailing their use, 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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Unexpected outcomes in such legal proceedings, or changes in management’s evaluation or predictions of the likely outcomes of such proceedings (possibly resulting in changes in established reserves) could have a material adverse effect on our business, financial condition, and results of operations.

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We conduct regular internal investigations into the care delivery, recordkeeping and billing processes of our independent subsidiaries.

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We have requested that OHCA be ordered to withdraw the subpoena and close the inquiry, so the underlying transaction can be completed.

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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 three months ended March 31, 2026, we expanded our operations through a combination of a long-term lease and real estate purchases, with the addition of five stand-alone skilled nursing operations.

During the six months ended June 30, 2026, we expanded our operations through a combination of a long-term lease and real estate purchases, with the addition of 21 stand-alone skilled nursing operations and two campus operations.

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

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These may include, without limitation, payment recoupment related to our predecessors' prior noncompliance, the imposition of fines, penalties, operational restrictions or special regulatory status.

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Further, we may incur post-acquisition compliance risk due to the difficulty or impossibility of immediately or quickly bringing non-compliant operations into full compliance.

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

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In July 2023, CMS revised the nursing-home level exclusion criteria used on the administrator turnover measure, adding information regarding its calculation of the staff turnover measure and publishing an updated ratings table, which identifies the points needed for each nursing facility to obtain certain star ratings within its state.

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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.

As of July 30, 2025, the Nursing Home Compare updates were 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 data integrity and engage in verification of reporting information for meeting quality standards.

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Beginning in January 2026, CMS's change to the reporting of its long-stay antipsychotic medication quality measure reflecting both Medicare and Medicaid claims data, as well as Medicare Advantage data.

The consequences of this measurement is expected by industry observers to cause an upward shift in reported rates of antipsychotic medication usage, with CMS applying more scrutiny to data within the MDS excluded from this specific measure.

The FY 2027 PPS proposes further changes that may affect our independent subsidiaries' abilities to be more competitive in these rankings in the future.

First, the FY 2027 PPS proposes removing two rankings in the FY 2028 SNF QRP;

The consequences of this measurement are expected by industry observers to cause an upward shift in reported rates of antipsychotic medication usage, with CMS applying more scrutiny to data within the MDS excluded from this specific measure.

The FY 2027 PPS PR proposes further changes that may affect our independent subsidiaries' abilities to be more competitive in these rankings in the future.

First, the FY 2027 PPS PR proposes removing two rankings in the FY 2028 SNF QRP;

if finalized, such a removal may adversely affect our SNFs that ranked highly and performed well in those categories.

Second, the FY 2027 PPS proposes accelerating the timeframe for data submission from 4.5 months to approximately 45 days following the end of a reportable calendar quarter.

If this proposal is finalized and implemented, if may increase the costs and administrative requirements to collect, authenticate, and submit such data to CMS, and may make it more difficult, or impose more expense, for our SNFs to maintain high star ratings while complying with these deadlines.

If this proposal is finalized and implemented, its implementation may increase the costs and administrative requirements to collect, authenticate, and submit such data to CMS, and may make it more difficult, or impose more expense, for our SNFs to maintain high star ratings while complying with these deadlines.

Finally, the FY 2027 PPS proposes that SNFs submit MDS data for all SNF residents and patients, and not just those receiving skilled services within the SNF, regardless of payor.

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If we should fail to achieve our internal rating goals or fail to exceed the national average rating on the Five-Star Quality Rating System, including due to nursing and administrative staffing and turnover, or have facilities displaying a consumer alert icon for incidents of abuse, neglect, or exploitation, it may affect our ability to generate referrals, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.

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If we are unable to obtain insurance, or if insurance becomes more costly for us to obtain, our business may be adversely affected.

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If a successful claim is made against us and it is not covered by our insurance or exceeds the insurance policy limits, our business may be negatively and materially impacted.

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Further, because our self-insurance reimbursements under our general and professional liability and workers compensation programs applies on a per claim basis, there is no limit to the maximum number of claims or the total amount for which we could incur liability in any policy period.

Further, because our self-insurance reimbursements under our general and professional liability and workers compensation programs apply on a per claim basis, there is no limit to the maximum number of claims or the total amount for which we could incur liability in any policy period.

We also self-insure our employee health benefits.

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As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental rules, presence and participation of insurers, regulations and reimbursement rates or criteria, changes in demographics, state funding, natural disasters and acts of nature (such as fires, flooding, hurricanes and tornadoes), and other factors that may result in a decrease in demand and/or reimbursement for skilled nursing services in these states could have a disproportionately adverse effect on our revenue, costs and results of operations.

Moreover, since over 22% of our independent subsidiaries are located in California, we are particularly susceptible to revenue loss, cost increase or damage caused by natural disasters such as electrical power shortages, fires, earthquakes or mudslides, or increased liabilities that may arise from regulations as discussed within Item 2., under Government Regulation .

In addition, our independent subsidiaries in certain states are more susceptible to revenue loss, cost increases or damage caused by natural disasters including hurricanes, fires, tornadoes and flooding.

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If employees successfully decide to unionize, our cost of doing business could increase, and we could experience contract delays, difficulty in adapting to a changing regulatory and economic environment, cultural conflicts between unionized and non-unionized employees, strikes and work stoppages, and we may conclude that affected facilities or operations would be uneconomical to continue operating.

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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 March 31, 2026, our independent subsidiaries operated 254 of our 378 facilities under long term lease arrangements.

As of June 30, 2026, our independent subsidiaries operated 254 of our 396 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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Termination of a lease could result in a default under our debt agreements and could adversely affect our business, financial position or results of operations.

There can be no assurance that we will be able to comply with all of our obligations under the leases in the future.

We may not be able to comply with all of our obligations under the leases in the future.

Failure to generate sufficient cash flow to cover required payments or meet operating covenants under our long-term debt, mortgages and long-term operating leases could result in defaults under such agreements and cross-defaults under other debt, mortgage or operating lease arrangements, which could harm our independent subsidiaries and cause us to lose facilities or experience foreclosures.

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

As of March 31, 2026 and through the filing date of this report, we had no outstanding borrowings under our Credit Facility.

As of June 30, 2026 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 $141.7 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 $0.7 million as of March 31, 2026.

We also have one outstanding promissory note with an aggregate principal amount of approximately $0.6 million as of June 30, 2026.

The term of the note is 12 years.

In addition, we had $3.1 billion of future operating lease obligations as of March 31, 2026.

In addition, we had $3.1 billion of future operating lease obligations as of June 30, 2026.

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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Further, because our mortgages and operating leases generally contain cross-default and cross-collateralization provisions, a default by us related to one facility could affect a significant number of other facilities and their corresponding financing arrangements and operating leases.

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Because our term loans, promissory note, bonds, mortgages and lease obligations are fixed expenses and secured by specific assets, and because our revolving loan obligations are secured by virtually all of our assets, if reimbursement rates, patient acuity mix or occupancy levels decline, or if for any reason we are unable to meet our loan or lease obligations, we may not be able to cover our costs and some or all of our assets may become at risk.

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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 March 31, 2026, we lease 36 of our properties to third-party operators.

As of June 30, 2026, we lease 39 of our properties to third-party operators.

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

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Furthermore, healthcare properties are often highly customized, and the development or redevelopment of such properties may require costly tenant-specific improvements.

As a result, we cannot assure you that we will achieve the economic benefit we expect from acquisition or investment opportunities.

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As a result, we may not achieve the economic benefit we expect from acquisition or investment opportunities.

As we expand our presence in other relevant healthcare industries, we would become subject to risks in a market in which we have limited experience.

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Unanticipated delays in receiving reimbursement from state programs or commercial payors due to changes in their policies or billing or audit procedures may adversely impact our liquidity and working capital.

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The continued use and growth of managed care organizations (MCOs) may contribute to delays or reductions in our reimbursement, including Managed Medicaid.

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The additional steps created by the use of MCOs in disbursement of funds creates more risk of delayed, reduced, or recouped payments for our independent subsidiaries, and additional avenues for risks that include fines and other sanctions, including suspension or exclusion from participation in various governmental programs.

The Medicaid State-Directed Payment (SDP) Proposed Rule, if finalized and adopted in its present form, will implement the OBBB’s statutory requirements and additional restrictions on SDPs.

The proposed rule will affect the primary mechanism by which states have required MCOs to pay at rates above the Medicaid reimbursement rates otherwise negotiated with providers, including SNFs.

The limitation on directed payments within the proposal is described as a cap to better align Medicaid payments with Medicare standards which, in nursing homes, is already below Medicare.

After the phase down in January 2028, results may have implications to overall reimbursement programs that states will need to navigate but complete impact is still being assessed.

Compliance with the regulations of the Department of Housing and Urban Development may require us to make unanticipated expenditures which could increase our costs.

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Any of these consequences could have a material adverse effect on our results of operations and financial condition.

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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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No prediction can be made regarding whether new legislation or regulation (including new tax measures) will be enacted by legislative bodies or governmental agencies, nor can we predict what consequences would result from this legislation or regulation.

Accordingly, no assurance can be given that the currently anticipated tax treatment of an investment will not be modified by legislative, judicial or administrative changes, possibly with retroactive effect.

Accordingly, in the future, the currently anticipated tax treatment of an investment may be modified by legislative, judicial or administrative changes, possibly with retroactive effect.

Even if Standard Bearer remains qualified as a REIT, it may face other tax liabilities that reduce its cash flow.

Even if Standard Bearer remain qualified for taxation as a REIT, it may be subject to certain U.S.

Even if Standard Bearer remains qualified for taxation as a REIT, it may be subject to certain U.S.

federal, state, and local taxes on its income and assets, including taxes on any undistributed income and state or local income, property and transfer taxes.

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Any of these taxes would decrease cash available for distribution to its stockholders.

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Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value.

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• advance notice requirements for stockholders to nominate individuals to serve on our Board of Directors or to submit proposals that can be acted upon at stockholder meetings;

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• our Board of Directors is classified so not all members of our board are elected at one time, which may make it more difficult for a person who acquires control of a majority of our outstanding voting stock to replace our directors;

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Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third-party from making a takeover offer and could delay or prevent a change of control.

For purposes of Section 203, “interested stockholder” means, generally, someone owning more than 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203.

For purposes of Section 203, “interested stockholder” means, generally, someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in Section 203.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could discourage acquisition proposals and make it more difficult or expensive for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including delaying or impeding a merger, tender offer or proxy contest involving us.

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

What changed 10-Q

Item 1A. Risk Factors