UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-32641

BROOKDALE SENIOR LIVING INC.

(Exact name of registrant as specified in its charter)


Delaware			20-3068069
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

111 Westwood Place,

Suite 400,

Brentwood,

Tennessee

37027

(Address of principal executive offices)

(Zip Code)

(Registrant's telephone number, including area code) (615) 221-2250

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	BKD	New York Stock Exchange
7.00% Tangible Equity Units	BKDT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 4, 2022, 186,805,515~~May 5, 2023, 188,214,462 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding restricted stock and restricted stock units).

TABLE OF CONTENTS

BROOKDALE SENIOR LIVING INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2022~~MARCH 31, 2023


		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets -
	As of ~~September~~March ~~30, 2022~~3 1 , 202 3 (Unaudited) and December 31, ~~2021~~20 22	4

	Condensed Consolidated Statements of Operations -
	Three ~~and~~ ~~nine~~m ~~months~~onths ended ~~September~~March ~~30, 2022~~3 1 , 202 3 and ~~2021~~202 2 (Unaudited)	5

	Condensed Consolidated Statements of Equity -
	Three ~~and nine~~ months ended ~~September 30, 2022~~March 3 1 , 202 3 and ~~2021~~202 2 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows -
	~~Nine~~Three months ended ~~September 30, 2022~~March 31 , 202 3 and ~~2021~~202 2 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2220

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4737

Item 4.	Controls and Procedures	4838

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	4838

Item 1A.	Risk Factors	4838

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4939

Item 6.	Exhibits	5040

Signatures		5141

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except stock amounts)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets	(Unaudited)				Assets	(Unaudited)
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	299,201	$	347,031	Cash and cash equivalents	$	362,235	$	398,850
Marketable securities	Marketable securities	89,504		182,393		Marketable securities	69,009		48,680
Restricted cash	Restricted cash	37,258		26,845		Restricted cash	29,374		27,735
Accounts receivable, net	Accounts receivable, net	51,548		51,137		Accounts receivable, net	52,618		55,761
Assets held for sale	Assets held for sale	—		3,642		Assets held for sale	23,555		—
Prepaid expenses and other current assets, net	Prepaid expenses and other current assets, net	103,923		87,946		Prepaid expenses and other current assets, net	129,640		106,067
Total current assets	Total current assets	581,434		698,994		Total current assets	666,431		637,093
Property, plant and equipment and leasehold intangibles, net	Property, plant and equipment and leasehold intangibles, net	4,801,988		4,904,292		Property, plant and equipment and leasehold intangibles, net	4,493,002		4,535,702
Operating lease right-of-use assets	Operating lease right-of-use assets	539,166		630,423		Operating lease right-of-use assets	565,641		597,130
Restricted cash	Restricted cash	58,358		64,438		Restricted cash	45,133		47,963
Investment in unconsolidated ventures	Investment in unconsolidated ventures	57,701		67,424		Investment in unconsolidated ventures	54,788		55,333
Goodwill	Goodwill	27,321		27,321		Goodwill	27,321		27,321
Deferred tax asset	Deferred tax asset	2,348		279		Deferred tax asset	1,359		1,604
Other assets, net	Other assets, net	25,637		17,296		Other assets, net	32,184		34,916
Total assets	Total assets	$	6,093,953	$	6,410,467	Total assets	$	5,885,859	$	5,937,062
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities	Current liabilities					Current liabilities
Current portion of long-term debt	Current portion of long-term debt	$	61,000	$	63,125	Current portion of long-term debt	$	87,711	$	66,043
Current portion of financing lease obligations	Current portion of financing lease obligations	23,620		22,151		Current portion of financing lease obligations	24,683		24,059
Current portion of operating lease obligations	Current portion of operating lease obligations	158,645		148,642		Current portion of operating lease obligations	177,894		176,758
Trade accounts payable	Trade accounts payable	77,706		76,125		Trade accounts payable	88,730		71,000
Liabilities held for sale						Liabilities held for sale	19,455		—
Accrued expenses	Accrued expenses	261,662		254,831		Accrued expenses	238,356		237,148
Refundable fees and deferred revenue	Refundable fees and deferred revenue	74,370		67,080		Refundable fees and deferred revenue	70,447		66,197
Total current liabilities	Total current liabilities	657,003		631,954		Total current liabilities	707,276		641,205
Long-term debt, less current portion	Long-term debt, less current portion	3,758,929		3,778,087		Long-term debt, less current portion	3,772,254		3,784,099
Financing lease obligations, less current portion	Financing lease obligations, less current portion	522,924		532,136		Financing lease obligations, less current portion	218,349		224,801
Operating lease obligations, less current portion	Operating lease obligations, less current portion	580,213		681,876		Operating lease obligations, less current portion	575,603		616,973

Other liabilities	Other liabilities	82,085		86,791		Other liabilities	71,523		85,831
Total liabilities	Total liabilities	5,601,154		5,710,844		Total liabilities	5,345,005		5,352,909
Preferred stock, $0.01 par value, 50,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding		—		—
Common stock, $0.01 par value, 400,000,000 shares authorized at September 30, 2022 and December 31, 2021; 197,783,056 and 197,485,318 shares issued and 187,255,531 and 186,957,793 shares outstanding (including 450,016 and 1,549,059 unvested restricted shares), respectively		1,978		1,975
Preferred stock, $0.01 par value, 50,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding						Preferred stock, $0.01 par value, 50,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued and outstanding	—		—
Common stock, $0.01 par value, 400,000,000 shares authorized at March 31, 2023 and December 31, 2022; 198,762,220 and 197,776,991 shares issued and 188,234,695 and 187,249,466 shares outstanding (including 20,233 and 422,542 unvested restricted shares), respectively						Common stock, $0.01 par value, 400,000,000 shares authorized at March 31, 2023 and December 31, 2022; 198,762,220 and 197,776,991 shares issued and 188,234,695 and 187,249,466 shares outstanding (including 20,233 and 422,542 unvested restricted shares), respectively	1,988		1,978
Additional paid-in-capital	Additional paid-in-capital	4,215,297		4,208,675		Additional paid-in-capital	4,333,556		4,332,302
Treasury stock, at cost; 10,527,525 shares at September 30, 2022 and December 31, 2021		(102,774)		(102,774)
Treasury stock, at cost; 10,527,525 shares at March 31, 2023 and December 31, 2022						Treasury stock, at cost; 10,527,525 shares at March 31, 2023 and December 31, 2022	(102,774)		(102,774)
Accumulated deficit	Accumulated deficit	(3,623,264)		(3,410,474)		Accumulated deficit	(3,693,450)		(3,648,901)
Total Brookdale Senior Living Inc. stockholders' equity	Total Brookdale Senior Living Inc. stockholders' equity	491,237		697,402		Total Brookdale Senior Living Inc. stockholders' equity	539,320		582,605
Noncontrolling interest	Noncontrolling interest	1,562		2,221		Noncontrolling interest	1,534		1,548
Total equity	Total equity	492,799		699,623		Total equity	540,854		584,153
Total liabilities and equity	Total liabilities and equity	$	6,093,953	$	6,410,467	Total liabilities and equity	$	5,885,859	$	5,937,062

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Revenue

Resident fees	Resident fees	$	650,248	$	600,095	$	1,927,610	$	1,938,423	Resident fees	$	713,404	$	636,974
Management fees	Management fees	2,967		3,621		9,625		17,185		Management fees	2,577		3,329
Reimbursed costs incurred on behalf of managed communities	Reimbursed costs incurred on behalf of managed communities	37,484		37,849		112,013		146,651		Reimbursed costs incurred on behalf of managed communities	34,954		37,141
Other operating income	Other operating income	66,759		89		75,546		12,132		Other operating income	2,328		376
Total revenue and other operating income	Total revenue and other operating income	757,458		641,654		2,124,794		2,114,391		Total revenue and other operating income	753,263		677,820

Expense
Facility operating expense (excluding facility depreciation and amortization of $81,405, $78,756, $242,281, and $233,951, respectively)		525,510		480,423		1,551,938		1,587,581

General and administrative expense (including non-cash stock-based compensation expense of $3,403, $3,568, $10,907, and $12,878, respectively)		41,331		43,812		128,209		146,155

Facility operating expense (excluding facility depreciation and amortization of $79,317 and $79,932, respectively)										Facility operating expense (excluding facility depreciation and amortization of $79,317 and $79,932, respectively)	530,807		512,764

General and administrative expense (including non-cash stock-based compensation expense of $3,104 and $3,885, respectively)										General and administrative expense (including non-cash stock-based compensation expense of $3,104 and $3,885, respectively)	48,619		45,126
Facility operating lease expense	Facility operating lease expense	41,317		43,226		124,419		131,508		Facility operating lease expense	46,127		41,564
Depreciation and amortization	Depreciation and amortization	86,922		84,560		259,229		252,042		Depreciation and amortization	84,934		85,684
Asset impairment	Asset impairment	5,688		639		17,362		13,394		Asset impairment	—		9,075

Costs incurred on behalf of managed communities	Costs incurred on behalf of managed communities	37,484		37,849		112,013		146,651		Costs incurred on behalf of managed communities	34,954		37,141
Total operating expense		738,252		690,509		2,193,170		2,277,331

Income (loss) from operations	Income (loss) from operations	19,206		(48,855)		(68,376)		(162,940)		Income (loss) from operations	7,822		(53,534)

Interest income	Interest income	2,192		286		3,065		1,048		Interest income	5,326		95
Interest expense:	Interest expense:									Interest expense:
Debt	Debt	(41,330)		(35,708)		(110,180)		(106,484)		Debt	(50,315)		(33,157)
Financing lease obligations	Financing lease obligations	(11,916)		(11,674)		(35,968)		(34,549)		Financing lease obligations	(6,552)		(12,058)
Amortization of deferred financing costs	Amortization of deferred financing costs	(1,528)		(1,884)		(4,590)		(5,706)		Amortization of deferred financing costs	(1,940)		(1,542)
Change in fair value of derivatives	Change in fair value of derivatives	4,901		(95)		9,277		(286)		Change in fair value of derivatives	(904)		3,403

Equity in earnings (loss) of unconsolidated ventures	Equity in earnings (loss) of unconsolidated ventures	(2,020)		(1,474)		(9,353)		11,941		Equity in earnings (loss) of unconsolidated ventures	(577)		(4,894)
Gain (loss) on sale of assets, net		(56)		288,375		611		289,408
Non-operating gain (loss) on sale of assets, net										Non-operating gain (loss) on sale of assets, net	—		(294)
Other non-operating income (loss)	Other non-operating income (loss)	1,877		571		1,739		5,163		Other non-operating income (loss)	3,149		(27)
Income (loss) before income taxes	Income (loss) before income taxes	(28,674)		189,542		(213,775)		(2,405)		Income (loss) before income taxes	(43,991)		(102,008)
Benefit (provision) for income taxes	Benefit (provision) for income taxes	300		(15,279)		1,086		(15,239)		Benefit (provision) for income taxes	(572)		1,976
Net income (loss)	Net income (loss)	(28,374)		174,263		(212,689)		(17,644)		Net income (loss)	(44,563)		(100,032)
Net (income) loss attributable to noncontrolling interest	Net (income) loss attributable to noncontrolling interest	15		19		(101)		56		Net (income) loss attributable to noncontrolling interest	14		19
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(28,359)	$	174,282	$	(212,790)	$	(17,588)	Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(44,549)	$	(100,013)

Net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders:
Basic		$	(0.15)	$	0.94	$	(1.14)	$	(0.10)
Diluted		$	(0.15)	$	0.89	$	(1.14)	$	(0.10)
Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders										Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders	$	(0.20)	$	(0.54)

Weighted average common shares outstanding:
Basic		186,790		185,317		186,493		184,841
Diluted		186,790		196,230		186,493		184,841

Weighted average shares used in computing basic and diluted net income (loss) per share										Weighted average shares used in computing basic and diluted net income (loss) per share	224,578		185,916

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Total equity, balance at beginning of period	Total equity, balance at beginning of period	$	518,567	$	616,135	$	699,623	$	802,729	Total equity, balance at beginning of period	$	584,153	$	699,623

Common stock:	Common stock:									Common stock:
Balance at beginning of period	Balance at beginning of period	$	1,978	$	1,977	$	1,975	$	1,983	Balance at beginning of period	$	1,978	$	1,975

Restricted stock and restricted stock units, net	Restricted stock and restricted stock units, net	—		(2)		9		(1)		Restricted stock and restricted stock units, net	16		9
Shares withheld for employee taxes	Shares withheld for employee taxes	—		—		(6)		(7)		Shares withheld for employee taxes	(6)		(6)

Balance at end of period	Balance at end of period	$	1,978	$	1,975	$	1,978	$	1,975	Balance at end of period	$	1,988	$	1,978
Additional paid-in-capital:	Additional paid-in-capital:									Additional paid-in-capital:
Balance at beginning of period	Balance at beginning of period	$	4,211,931	$	4,217,728	$	4,208,675	$	4,212,409	Balance at beginning of period	$	4,332,302	$	4,208,675
Non-cash stock-based compensation expense		3,403		3,568		10,907		12,878
Issuance of common stock under Associate Stock Purchase Plan		—		134		—		571
Compensation expense related to restricted stock grants										Compensation expense related to restricted stock grants	3,104		3,885

Restricted stock and restricted stock units, net	Restricted stock and restricted stock units, net	—		2		(9)		1		Restricted stock and restricted stock units, net	(16)		(9)
Shares withheld for employee taxes	Shares withheld for employee taxes	(37)		(328)		(4,276)		(4,765)		Shares withheld for employee taxes	(1,834)		(4,191)
Other, net		—		8		—		18

Balance at end of period	Balance at end of period	$	4,215,297	$	4,221,112	$	4,215,297	$	4,221,112	Balance at end of period	$	4,333,556	$	4,208,360
Treasury stock:	Treasury stock:									Treasury stock:
Balance at beginning and end of period	Balance at beginning and end of period	$	(102,774)	$	(102,774)	$	(102,774)	$	(102,774)	Balance at beginning and end of period	$	(102,774)	$	(102,774)

Accumulated deficit:	Accumulated deficit:									Accumulated deficit:
Balance at beginning of period	Balance at beginning of period	$	(3,594,905)	$	(3,503,054)	$	(3,410,474)	$	(3,311,184)	Balance at beginning of period	$	(3,648,901)	$	(3,410,474)

Net income (loss)		(28,359)		174,282		(212,790)		(17,588)
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders										Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	(44,549)		(100,013)

Balance at end of period	Balance at end of period	$	(3,623,264)	$	(3,328,772)	$	(3,623,264)	$	(3,328,772)	Balance at end of period	$	(3,693,450)	$	(3,510,487)
Noncontrolling interest:	Noncontrolling interest:									Noncontrolling interest:
Balance at beginning of period	Balance at beginning of period	$	2,337	$	2,258	$	2,221	$	2,295	Balance at beginning of period	$	1,548	$	2,221
Net income (loss) attributable to noncontrolling interest	Net income (loss) attributable to noncontrolling interest	(15)		(19)		101		(56)		Net income (loss) attributable to noncontrolling interest	(14)		(19)
Noncontrolling interest distribution		(760)		—		(760)		—

Balance at end of period	Balance at end of period	$	1,562	$	2,239	$	1,562	$	2,239	Balance at end of period	$	1,534	$	2,202
Total equity, balance at end of period	Total equity, balance at end of period	$	492,799	$	793,780	$	492,799	$	793,780	Total equity, balance at end of period	$	540,854	$	599,279

Common stock share activity	Common stock share activity									Common stock share activity
Outstanding shares of common stock:	Outstanding shares of common stock:									Outstanding shares of common stock:
Balance at beginning of period	Balance at beginning of period	187,256		187,139		186,958		187,804		Balance at beginning of period	187,249		186,958
Issuance of common stock under Associate Stock Purchase Plan		—		24		—		97

Restricted stock and restricted stock units, net	Restricted stock and restricted stock units, net	8		(161)		915		(138)		Restricted stock and restricted stock units, net	1,545		925
Shares withheld for employee taxes	Shares withheld for employee taxes	(8)		(43)		(617)		(804)		Shares withheld for employee taxes	(559)		(600)

Balance at end of period	Balance at end of period	187,256		186,959		187,256		186,959		Balance at end of period	188,235		187,283

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash Flows from Operating Activities	Cash Flows from Operating Activities					Cash Flows from Operating Activities
Net income (loss)	Net income (loss)	$	(212,689)	$	(17,644)	Net income (loss)	$	(44,563)	$	(100,032)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization, net	Depreciation and amortization, net	263,819		257,748		Depreciation and amortization, net	86,874		87,226
Asset impairment	Asset impairment	17,362		13,394		Asset impairment	—		9,075
Equity in (earnings) loss of unconsolidated ventures	Equity in (earnings) loss of unconsolidated ventures	9,353		(11,941)		Equity in (earnings) loss of unconsolidated ventures	577		4,894
Distributions from unconsolidated ventures from cumulative share of net earnings	Distributions from unconsolidated ventures from cumulative share of net earnings	561		6,191		Distributions from unconsolidated ventures from cumulative share of net earnings	—		561
Amortization of entrance fees	Amortization of entrance fees	(1,816)		(1,320)		Amortization of entrance fees	(508)		(726)
Proceeds from deferred entrance fee revenue	Proceeds from deferred entrance fee revenue	2,360		2,981		Proceeds from deferred entrance fee revenue	324		1,036
Deferred income tax (benefit) provision	Deferred income tax (benefit) provision	(2,068)		8,512		Deferred income tax (benefit) provision	244		(2,304)
Operating lease expense adjustment	Operating lease expense adjustment	(25,329)		(16,263)		Operating lease expense adjustment	(10,805)		(8,307)
Change in fair value of derivatives	Change in fair value of derivatives	(9,277)		286		Change in fair value of derivatives	904		(3,403)
Loss (gain) on sale of assets, net	Loss (gain) on sale of assets, net	(611)		(289,408)		Loss (gain) on sale of assets, net	—		294

Non-cash stock-based compensation expense	Non-cash stock-based compensation expense	10,907		12,878		Non-cash stock-based compensation expense	3,104		3,885

Other		(996)		(4,399)
Property and casualty insurance income						Property and casualty insurance income	(3,295)		(43)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(411)		(584)		Accounts receivable, net	3,143		1,185
Prepaid expenses and other assets, net	Prepaid expenses and other assets, net	(11,807)		(7,487)		Prepaid expenses and other assets, net	(7,602)		(4,734)
Prepaid insurance premiums financed with notes payable	Prepaid insurance premiums financed with notes payable	(5,552)		(4,634)		Prepaid insurance premiums financed with notes payable	(19,305)		(16,629)
Trade accounts payable and accrued expenses	Trade accounts payable and accrued expenses	1,548		21,878		Trade accounts payable and accrued expenses	(1,386)		(2,630)
Refundable fees and deferred revenue	Refundable fees and deferred revenue	7,265		(10,492)		Refundable fees and deferred revenue	14,092		5,907
Operating lease assets and liabilities for lessor capital expenditure reimbursements	Operating lease assets and liabilities for lessor capital expenditure reimbursements	9,224		27,057		Operating lease assets and liabilities for lessor capital expenditure reimbursements	2,244		1,490

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	51,843		(13,247)		Net cash provided by (used in) operating activities	24,042		(23,255)
Cash Flows from Investing Activities	Cash Flows from Investing Activities					Cash Flows from Investing Activities
Change in lease security deposits and lease acquisition deposits, net		317		19

Purchase of marketable securities	Purchase of marketable securities	(230,106)		(247,847)		Purchase of marketable securities	(49,674)		(125,990)
Sale and maturities of marketable securities	Sale and maturities of marketable securities	323,765		262,995		Sale and maturities of marketable securities	30,000		129,000
Capital expenditures, net of related payables	Capital expenditures, net of related payables	(150,572)		(125,817)		Capital expenditures, net of related payables	(49,700)		(39,956)
Acquisition of assets		(6,004)		—

Investment in unconsolidated ventures	Investment in unconsolidated ventures	(192)		(5,359)		Investment in unconsolidated ventures	—		(82)
Distributions received from unconsolidated ventures		—		2,155

Proceeds from sale of assets, net	Proceeds from sale of assets, net	5,844		315,583		Proceeds from sale of assets, net	—		710

Property and casualty insurance proceeds						Property and casualty insurance proceeds	6,422		—
Other	Other	(545)		—		Other	933		155
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(57,493)		201,729		Net cash provided by (used in) investing activities	(62,019)		(36,163)
Cash Flows from Financing Activities	Cash Flows from Financing Activities					Cash Flows from Financing Activities
Proceeds from debt	Proceeds from debt	32,031		25,158		Proceeds from debt	25,519		25,258
Repayment of debt and financing lease obligations	Repayment of debt and financing lease obligations	(64,190)		(96,065)		Repayment of debt and financing lease obligations	(23,322)		(21,440)

Payment of financing costs, net of related payables	Payment of financing costs, net of related payables	(646)		(196)		Payment of financing costs, net of related payables	(346)		(76)
Payments of employee taxes for withheld shares	Payments of employee taxes for withheld shares	(4,282)		(4,772)		Payments of employee taxes for withheld shares	(1,680)		(4,145)
Other		(760)		144

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(37,847)		(75,731)		Net cash provided by (used in) financing activities	171		(403)
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	(43,497)		112,751		Net increase (decrease) in cash, cash equivalents, and restricted cash	(37,806)		(59,821)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	438,314		465,148		Cash, cash equivalents, and restricted cash at beginning of period	474,548		438,314
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	394,817	$	577,899	Cash, cash equivalents, and restricted cash at end of period	$	436,742	$	378,493

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Brookdale Senior Living Inc. together with its consolidated subsidiaries ("Brookdale" or the "Company") is an operator of ~~672~~673 senior living communities throughout the United States. The Company is committed to its mission of enriching the lives of the people it serves with compassion, respect, excellence, and integrity. The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). The Company's senior living communities and its comprehensive network help to provide seniors with care and services in an environment that feels like home. As of ~~September 30, 2022,~~March 31, 2023, the Company owned 346 communities, representing a majority of the Company's ~~consolidated~~ community portfolio, leased 295 communities, and managed 3132 communities.

On July 1, 2021, the Company sold 80% of its equity in its Health Care Services segment ("HCS Sale"). The accompanying unaudited condensed consolidated financial statements include the results of operations and cash flows of the Health Care Services segment through June 30, 2021. For periods beginning July 1, 2021, the results and financial position of the Health Care Services segment were deconsolidated from the Company's consolidated financial statements and its 20% equity interest in the Health Care Services venture (the "HCS Venture") is accounted for under the equity method of accounting.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, results of operations, and cash flows of the Company for all periods presented. Certain information and footnote disclosures included in annual financial statements have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the SEC on February ~~15, 2022.~~22, 2023.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying unaudited condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests. The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting.

The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board Accounting Standards Codification 810, ~~Consolidation~~ ("ASC 810"). ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity's activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE.

Use of Estimates

The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, other operating income, asset impairments, self-insurance reserves, performance-based compensation, the allowance for credit losses, depreciation and amortization, leasing transactions, income taxes, and other contingencies. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the original estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's condensed consolidated financial position or results of operations.

3. COVID-19 Pandemic

The COVID-19 pandemic has adversely impacted the Company's occupancy and resident fee revenue beginning in March 2020 and resulted in incremental direct costs to respond to the pandemic.

The Company cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on its business, results of operations, cash flow, and liquidity, and its response efforts may ~~continue to~~ delay or negatively impact its strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in the Company's markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and conditions of financial relief; restrictions on visitors and move-ins at its communities as a result of infections at a community or as necessary to comply with regulatory requirements or at the direction of authorities having jurisdiction; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and the Company's ability to adapt its sales and marketing efforts to meet that demand; the impact of COVID-19 on the Company's residents’ and their families’ ability to afford its resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of the Company's new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in the Company's communities; the duration and costs of the Company's response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health plan, and other expenses; greater use of contract labor and ~~overtime~~other premium labor due to COVID-19 and general labor market conditions; the impact of COVID-19 on the Company's ability to complete financings and refinancings of various assets or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in its debt and lease documents; increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to the Company's health plan participants; increased enforcement actions resulting from COVID-19; government action that may limit the Company's collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company's response efforts.

~~Phase 4 Provider Relief Fund Grants~~.During the three months ended September 30, 2022, the Company accepted and recognized as other operating income $61.1 million from the Phase 4 general distribution of the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S. Department of Health and Human Services. The grant has been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

Employee Retention Credit. The Company was eligible to claim the employee retention credit for certain of its associates under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act")~~. The~~ and subsequent legislation. During the years ended December 31, 2022 and 2021, the Company recognized $9.4 million and $9.9 million, ~~for the nine months ended September 30, 2021~~respectively, of employee retention credits on wages paid from March 12, 2020 to December 31, ~~2020~~2021 within other operating income, for which the Company has received ~~$4.6~~$9.9 million in cash as of ~~September 30, 2022. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December~~March 31, 2021. During the three and nine months ended September 30, 2022, the Company recognized $4.7 million and $9.4 million, respectively, of employee retention credits on wages paid in 2021 within other operating income.2023. The Company has a receivable for the remaining ~~$14.7~~$9.4 million included within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as of ~~September 30, 2022.~~March 31, 2023.

4. Fair Value Measurements

Marketable Securities

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, marketable securities of ~~$89.5~~$69.0 million and ~~$182.4~~$48.7 million, respectively, are stated at fair value based on valuations provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

~~Debt~~Interest Rate Derivatives

The Company's derivative assets include interest rate cap and swap instruments that effectively manage the risk above certain interest rates for a portion of the Company's long-term variable rate debt. The Company has not designated the interest rate cap and swap instruments as hedging instruments and as such, changes in the fair value of the instruments are recognized in earnings in the period of the change. The interest rate derivative positions are valued using models developed by the respective counterparty that use as their basis readily available observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy. The Company considers the credit risk of its counterparties when evaluating the fair value of its derivatives.

The following table summarizes the Company's London Interbank Offer Rate ("LIBOR") and Secured Overnight Financing Rate ("SOFR") interest rate cap instruments as of March 31, 2023.


($ in thousands)
Current notional balance	$	1,231,920
Weighted average fixed cap rate	4.34		%


Weighted average remaining term	1.1 years
Estimated asset fair value (included in other assets, net) at March 31, 2023	$	9,125
Estimated asset fair value (included in other assets, net) at December 31, 2022	$	10,599

The following table summarizes the Company's SOFR interest rate swap instrument as of March 31, 2023.


($ in thousands)
Current notional balance	$	220,000
Fixed interest rate	3.00		%

Remaining term	1.1 years
Estimated asset fair value (included in other assets, net) at March 31, 2023	$	3,692
Estimated asset fair value (included in other assets, net) at December 31, 2022	$	4,834

Long-term debt

The Company estimates the fair value of its debt primarily using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company estimates the fair value of its convertible senior notes based on valuations provided by third-party pricing services. The Company had outstanding long-term debt with a carrying amount of approximately ~~$3.8~~$3.9 billion as of both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Fair value of the long-term debt is approximately ~~$3.3~~$3.4 billion as of ~~September 30, 2022~~both March 31, 2023 and ~~approximates the carrying amount as of~~ December 31, ~~2021.~~2022. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.

5. Revenue

~~The~~For the three months ended March 31, 2023 and 2022, the Company ~~disaggregates~~generated 93.6% and 93.4%, respectively, of its resident fee revenue from ~~contracts with~~private pay customers ~~by payor source as~~and the ~~Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. Resident fee revenue by payor source is as follows.~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Private pay 93.6 % 93.0 % 93.5 % 84.9 %
Government reimbursement 5.1 % 5.5 % 5.1 % 11.8 %
Other third-party payor programs 1.3 % 1.5 % 1.4 % 3.3 %

~~The sale of 80% of the Company's equity in its Health Care Services segment on July 1, 2021 reduced its revenue~~remainder from government reimbursement ~~programs.~~programs and other payor sources. Refer to Note 15 for disaggregation of revenue by reportable segment.

The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source, although terms generally include payment to be made within 30 days. Resident fee revenue for recurring and routine monthly services is generally billed monthly in advance under the Company's independent living, assisted living, and memory care residency agreements. Resident fee revenue for standalone or certain healthcare services is generally billed monthly in arrears. Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements. Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied.

The Company had total deferred revenue (included within refundable fees and deferred revenue, liabilities held for sale, and other liabilities within the condensed consolidated balance sheets) of ~~$74.9~~$80.9 million and ~~$67.5~~$67.3 million, including ~~$31.9~~$35.3 million and ~~$27.5~~$25.2 million of monthly resident fees billed and received in advance, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. For the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company recognized ~~$53.1~~$36.9 million and ~~$56.2~~$40.1 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, ~~2022~~2023 and ~~2021,~~2022, respectively.

6. Property, Plant and Equipment and Leasehold Intangibles, Net

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following.


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Land	Land	$	508,110	$	502,610	Land	$	503,488	$	506,968
Buildings and improvements	Buildings and improvements	5,311,077		5,262,136		Buildings and improvements	5,309,368		5,323,736
Furniture and equipment	Furniture and equipment	1,036,181		990,006		Furniture and equipment	1,061,777		1,055,304
Resident and leasehold operating intangibles	Resident and leasehold operating intangibles	301,732		303,737		Resident and leasehold operating intangibles	283,232		286,122
Construction in progress	Construction in progress	51,665		51,037		Construction in progress	54,315		41,778
Assets under financing leases and leasehold improvements	Assets under financing leases and leasehold improvements	1,655,718		1,609,217		Assets under financing leases and leasehold improvements	1,395,000		1,375,521
Property, plant and equipment and leasehold intangibles	Property, plant and equipment and leasehold intangibles	8,864,483		8,718,743		Property, plant and equipment and leasehold intangibles	8,607,180		8,589,429
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(4,062,495)		(3,814,451)		Accumulated depreciation and amortization	(4,114,178)		(4,053,727)
Property, plant and equipment and leasehold intangibles, net	Property, plant and equipment and leasehold intangibles, net	$	4,801,988	$	4,904,292	Property, plant and equipment and leasehold intangibles, net	$	4,493,002	$	4,535,702

Assets under financing leases and leasehold improvements includes ~~$307.8~~$93.2 million and ~~$332.3~~$98.4 million of financing lease right-of-use assets, net of accumulated amortization, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Refer to Note 8 for further information on the Company's financing leases.

Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of potential impairment arise. ~~The~~For the three months ended March 31, 2023 and 2022, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of ~~$86.9~~$84.9 million and ~~$84.6~~$85.7 million, ~~for the three months ended September 30, 2022 and 2021, respectively, and $259.2 million and $252.0 million for the nine months ended September 30, 2022 and 2021,~~ respectively. The Company recognized $3.8 million and $0.6 million for the three months ended September 30, 2022 and 2021, respectively, and $5.9 million and $2.9 million for the nine months ended September 30, 2022 and 2021, respectively, of non-cash impairment charges in its operating results for its property, plant and equipment and leasehold intangibles assets, primarily due to property damage at certain communities and decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic.

7. Debt

Long-term debt consists of the following.


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Fixed rate mortgage notes payable due 2023 through 2047; weighted average interest rate of 4.14% as of both September 30, 2022 and December 31, 2021		$	2,148,850	$	2,164,115
Variable rate mortgage notes payable due 2023 through 2030; weighted average interest rate of 5.40% and 2.44% as of September 30, 2022 and December 31, 2021, respectively		1,463,868		1,476,943
Convertible notes payable due October 2026; interest rate of 2.00% as of both September 30, 2022 and December 31, 2021		230,000		230,000
Other notes payable due 2022, interest rate of 2.10% as of September 30, 2022		3,083		—
Fixed rate mortgage notes payable due 2024 through 2047; weighted average interest rate of 4.14% as of both March 31, 2023 and December 31, 2022						Fixed rate mortgage notes payable due 2024 through 2047; weighted average interest rate of 4.14% as of both March 31, 2023 and December 31, 2022	$	2,050,914	$	2,055,867
Variable rate mortgage notes payable due 2023 through 2030; weighted average interest rate of 7.15% and 6.68% as of March 31, 2023 and December 31, 2022, respectively						Variable rate mortgage notes payable due 2023 through 2030; weighted average interest rate of 7.15% and 6.68% as of March 31, 2023 and December 31, 2022, respectively	1,565,259		1,568,555
Convertible notes payable due October 2026; interest rate of 2.00% as of both March 31, 2023 and December 31, 2022						Convertible notes payable due October 2026; interest rate of 2.00% as of both March 31, 2023 and December 31, 2022	230,000		230,000
Tangible equity units senior amortizing notes due November 2025; interest rate of 10.25% as of both March 31, 2023 and December 31, 2022						Tangible equity units senior amortizing notes due November 2025; interest rate of 10.25% as of both March 31, 2023 and December 31, 2022	23,850		25,586
Other notes payable due 2023; interest rate of 5.90% as of March 31, 2023						Other notes payable due 2023; interest rate of 5.90% as of March 31, 2023	18,033		—
Deferred financing costs, net	Deferred financing costs, net	(25,872)		(29,846)		Deferred financing costs, net	(28,091)		(29,866)
Total long-term debt	Total long-term debt	3,819,929		3,841,212		Total long-term debt	3,859,965		3,850,142
Current portion	Current portion	61,000		63,125		Current portion	87,711		66,043
Total long-term debt, less current portion	Total long-term debt, less current portion	$	3,758,929	$	3,778,087	Total long-term debt, less current portion	$	3,772,254	$	3,784,099

As of ~~September 30, 2022, 93.9%~~March 31, 2023, 91.6%, or ~~$3.6~~$3.5 billion, of the Company's total debt obligations represented non-recourse property-level mortgage financings.

As of ~~September 30, 2022,~~March 31, 2023, $72.6 million of letters of credit and no cash borrowings were outstanding under the Company's $80.0 million secured credit facility maturing January 2024. The Company also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of ~~September 30, 2022~~March 31, 2023 under which $13.9 million had been issued as of that date.

~~2022 Financing~~

On October 13, 2022, the Company obtained $220.0 million of debt secured by first priority mortgages on 24 communities. The loan bears interest at a variable rate equal to the one-month Secured Overnight Financing Rate ("SOFR") plus a margin of 245 basis points, and is interest only for the first three years. The debt matures in October 2025 with two one-year renewal options, exercisable subject to certain performance criteria. The debt documents contain a requirement for the Company to maintain liquidity of at least $130.0 million and 25% of the loan amount is subject to a guaranty by the Company. The proceeds from the financing were primarily utilized to repay $199.6 million of outstanding mortgage debt maturing in 2023 (which is included within long-term debt, less current portion on the condensed consolidated balance sheet as of September 30, 2022) and to purchase a SOFR interest rate swap instrument for $6.1 million. The interest rate swap instrument has a $220.0 million notional amount, a fixed interest rate of 3.0%, and a term of eighteen months.11

Financial Covenants

Certain of the Company's debt documents contain restrictions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service ratios, and requiring the Company not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. In addition, the Company's debt documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

The Company's failure to comply with applicable covenants could constitute an event of default under the applicable debt documents. Many of the Company's debt documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, the Company's debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of ~~September 30, 2022,~~March 31, 2023, the Company is in compliance with the financial covenants of its debt agreements.

8. Leases

As of ~~September 30, 2022,~~March 31, 2023, the Company operated 295 communities under long-term leases ~~(230~~(246 operating leases and 6549 financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees the performance and lease payment obligations of its subsidiary lessees under the master leases. An event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs, including repairs, property taxes, and insurance. The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants, such as those requiring the Company to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

The Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and

lessors). Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of ~~September 30, 2022,~~March 31, 2023, the Company is in compliance with the financial covenants of its long-term leases.

Lease right-of-use assets are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognized ~~$1.9 million and $11.5~~$8.6 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 ~~respectively,~~ of non-cash impairment charges in its operating results for its operating lease right-of-use assets, primarily ~~due to~~for certain leased communities with decreased ~~occupancy and~~ future cash flow estimates ~~at certain communities~~ as a result of the ~~continuing impacts of the~~ COVID-19 ~~pandemic and property damage sustained at certain communities.~~pandemic. The Company ~~recognized $10.5 million for the nine months ended September 30, 2021, of non-cash~~did not recognize any impairment charges ~~in its operating results for its operating lease right-of-use assets, of which none were recognized~~ for the three months ended ~~September 30, 2021, primarily due to decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic.~~March 31, 2023.

A summary of operating and financing lease expense (including the respective presentation on the condensed consolidated statements of operations) and net cash outflows from leases is as follows.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Operating Leases (in thousands)	Operating Leases (in thousands)	2022		2021		2022		2021		Operating Leases (in thousands)	2023		2022
Facility operating expense	Facility operating expense	$	1,621	$	1,634	$	4,705	$	10,996	Facility operating expense	$	1,626	$	1,523
Facility lease expense	Facility lease expense	41,317		43,226		124,419		131,508		Facility lease expense	46,127		41,564
Operating lease expense	Operating lease expense	42,938		44,860		129,124		142,504		Operating lease expense	47,753		43,087
Operating lease expense adjustment (1)	Operating lease expense adjustment (1)	8,714		6,273		25,329		16,263		Operating lease expense adjustment (1)	10,805		8,307
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(4,367)		(11,551)		(9,224)		(27,057)		Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(2,244)		(1,490)
Operating net cash outflows from operating leases	Operating net cash outflows from operating leases	$	47,285	$	39,582	$	145,229	$	131,710	Operating net cash outflows from operating leases	$	56,314	$	49,904

(1)Represents the difference between the amount of cash operating lease payments and the amount of operating lease expense.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Financing Leases (in thousands)	Financing Leases (in thousands)	2022		2021		2022		2021		Financing Leases (in thousands)	2023		2022
Depreciation and amortization	Depreciation and amortization	$	7,405	$	7,677	$	22,678	$	22,901	Depreciation and amortization	$	5,228	$	7,665
Interest expense: financing lease obligations	Interest expense: financing lease obligations	11,916		11,674		35,968		34,549		Interest expense: financing lease obligations	6,552		12,058
Financing lease expense	Financing lease expense	$	19,321	$	19,351	$	58,646	$	57,450	Financing lease expense	$	11,780	$	19,723

Operating cash outflows from financing leases	Operating cash outflows from financing leases	$	11,916	$	11,674	$	35,968	$	34,549	Operating cash outflows from financing leases	$	6,552	$	12,058
Financing cash outflows from financing leases	Financing cash outflows from financing leases	5,506		5,039		16,606		14,692		Financing cash outflows from financing leases	5,852		5,490
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	(2,727)		(4,136)		(9,704)		(7,583)		Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement	—		(3,207)
Total net cash outflows from financing leases	Total net cash outflows from financing leases	$	14,695	$	12,577	$	42,870	$	41,658	Total net cash outflows from financing leases	$	12,404	$	14,341

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of ~~September 30, 2022~~March 31, 2023 are as follows (in thousands).


Year Ending December 31,	Year Ending December 31,	Operating Leases		Financing Leases		Year Ending December 31,	Operating Leases		Financing Leases
2022 (three months)		$	51,658	$	17,168
2023		210,831		69,739
2023 (nine months)						2023 (nine months)	$	174,844	$	36,463
2024	2024	196,311		70,957		2024	218,481		49,309
2025	2025	194,019		60,340		2025	216,638		37,189
2026	2026	78,660		61,600		2026	101,785		37,894
2027						2027	98,606		5,861
Thereafter	Thereafter	210,253		54,305		Thereafter	135,448		24,174
Total lease payments	Total lease payments	941,732		334,109		Total lease payments	945,802		190,890
Purchase option liability and non-cash gain on future sale of property	Purchase option liability and non-cash gain on future sale of property	—		426,656		Purchase option liability and non-cash gain on future sale of property	—		135,751
Imputed interest and variable lease payments	Imputed interest and variable lease payments	(202,874)		(214,221)		Imputed interest and variable lease payments	(192,305)		(83,609)
Total lease obligations	Total lease obligations	$	738,858	$	546,544	Total lease obligations	$	753,497	$	243,032

~~In October 2022,~~13

Subsequent to the three months ended March 31, 2023, the Company and ~~a lessor~~Welltower Inc. ("Welltower") entered into ~~an amendment~~amendments to the ~~Company's~~Company’s existing ~~master~~ lease arrangements pursuant to which the Company continues to lease 2474 communities. In connection with the amendments, the Company extended the maturity of one lease involving 39 communities from December 31, 2026 until June 30, 2032. As a result, the Company's amended lease arrangements provide that the current term for 69 of the communities will expire on June 30, 2032 and the current term for five of the communities will expire on December 31, 2024. The ~~amendment removed certain asset repurchase clauses and adjusted the extension option provisions. The amendment~~amendments did not change the amount of required lease payments orover the ~~initial~~previous term of the leases or the annual lease escalators. In addition, Welltower agreed to make available a pool in the aggregate amount of up to $17.0 million to fund costs associated with certain capital expenditure projects for 69 of the communities. Upon reimbursement of such expenditures, the annual minimum rent under the lease will prospectively increase by the amount of the reimbursement multiplied by the sum of the then current SOFR (subject to a floor of 3.0%) and a margin of 4.0%, and such amount will escalate annually consistent with the minimum rent escalation provisions of the 39 community lease. The ~~leases~~Company preliminarily estimates that the amendment to the lease arrangements will increase the right-of-use assets and lease obligations recognized on its condensed consolidated balance sheet each by approximately $125.0 million.

The amendments replaced the net worth covenant provisions requiring the Company to maintain at least $400.0 million of stockholders' equity with a consolidated tangible net worth covenant requiring the Company to maintain at least $2.0 billion of tangible net worth, generally calculated as stockholders' equity plus accumulated depreciation and amortization less intangible assets and further adjusted for certain ~~communities are accounted for~~other items. Such calculation is generally similar to the tangible net worth covenants within certain of the Company’s long-term debt documents. So long as ~~failed sale-leaseback transactions~~it maintains tangible net worth as defined in the leases of ~~September 30, 2022 and~~at least $1.5 billion, the Company ~~expects the amended leases~~will also be able to result in sale accounting for such communities and a non-cash gain on sale of assets recognized in the three months ended December 31, 2022. In addition, the Company expects the amended leases for such communities to be prospectively classified as operating leases subsequent to December 31, 2022, the effective date of the amendment.cure any breach by posting collateral with Welltower.

9. Investment in Unconsolidated Ventures

As of ~~September 30, 2022,~~March 31, 2023, the Company ~~holds~~owns a 20% equity interest, and affiliates of HCA Healthcare Inc. ~~("HCA Healthcare")~~ own an 80% interest, in ~~the HCS Venture, and the Company has determined the HCS Venture is~~ a ~~VIE. The HCS Venture~~health care services venture (the "HCS Venture"), which operates home health and hospice agencies in the United States. ~~The Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance.~~ The Company's interest in the HCS Venture is accounted for under the equity method of accounting. The carrying amount of the Company's investment in the unconsolidated venture and maximum exposure to loss as a result of the Company's ownership interest in the HCS Venture ~~was $52.3~~is $49.1 million, which is included in investment in unconsolidated ventures on the accompanying unaudited condensed consolidated balance sheet as of ~~September 30, 2022.~~March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to the HCS Venture.

10. Litigation

The Company has been and is currently involved in litigation and claims incidental to the conduct of its business, which it believes are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at the Company's communities and compliance with consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, the Company maintains general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are appropriate, based on the nature and risks of its business, historical experience, availability, and industry standards. The Company's current policies provide for deductibles for each claim and contain various exclusions from coverage. The Company uses its wholly-owned captive insurance company for the purpose of insuring certain portions of its risk retention under its general and professional liability insurance programs. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of the Company's wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits.

The senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement actions, or litigation related to regulatory compliance matters. In addition, the Company is subject to various government reviews, audits, and investigations to verify compliance with Medicare and Medicaid programs and other applicable laws and regulations. The Centers for Medicare & Medicaid Services ~~("CMS")~~ has engaged third-party firms to review claims data to evaluate appropriateness of billings. In addition to identifying overpayments, audit contractors can refer suspected violations to government authorities. In addition, states' Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. An adverse outcome of government scrutiny may

result in citations, sanctions, other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and damage to the Company's business reputation. The Company's costs to respond to and defend any such audits, reviews, and investigations may be significant.

In June 2020, the Company and several current and former executive officers were named as defendants in a putative class action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee.

The lawsuit asserted that the defendants made material misstatements and omissions concerning the Company's business, operational and compliance policies, compliance with applicable regulations and statutes, and staffing practices that caused the Company's stock price to be artificially inflated between August 2016 and April 2020. The district court dismissed the lawsuit and entered judgment in favor of the defendants in September 2021, and the plaintiffs did not file an appeal. Between October 2020 and June 2021, alleged stockholders of the Company filed several stockholder derivative lawsuits in the federal courts for the Middle District of Tennessee and the District of Delaware, which were subsequently transferred to the Middle District of Tennessee. The derivative lawsuits are currently pending and assert claims on behalf of the Company against certain current and former officers and directors for alleged breaches of duties owed to the Company. The complaints incorporate substantively similar allegations to the securities lawsuit ~~described above.~~previously described.

11. Stock-Based Compensation

Grants of restricted stock units and stock awards under the Company's 2014 Omnibus Incentive Plan were as follows.

(in thousands, except weighted average amounts) Restricted Stock Unit and Stock Award Grants Weighted Average Grant Date Fair Value Total Grant Date Fair Value
Three months ended March 31, 2022 2,862 $ 5.50 $ 15,743
Three months ended June 30, 2022 26 $ 6.40 $ 166
Three months ended September 30, 2022 7 $ 4.86 $ 33


(in thousands, except weighted average amounts)	Restricted Stock Unit and Stock Award Grants	Weighted Average Grant Date Fair Value		Total Grant Date Fair Value
Three months ended March 31, 2023	3,959	$	2.97	$	11,778

12. Earnings Per Share

~~The following table summarizes~~Potentially dilutive common stock equivalents for the ~~computation of basic~~Company include convertible senior notes, warrants, unvested restricted stock, restricted stock units, and ~~diluted earnings (loss) per share amounts presented in the condensed consolidated statements of operations:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except for per share amounts) 2022 2021 2022 2021
Income attributable to common stockholders:
Net income (loss) $ (28,359) $ 174,282 $ (212,790) $ (17,588)
Weighted average shares outstanding - basic 186,790 185,317 186,493 184,841
Effect of dilutive securities:
Warrants — 9,451 — —
Restricted stock and restricted stock units — 1,462 — —
Weighted average shares outstanding - diluted 186,790 196,230 186,493 184,841
Net income (loss) per share attributable to common stockholders - basic $ (0.15) $ 0.94 $ (1.14) $ (0.10)
Net income (loss) per share attributable to common stockholders - diluted $ (0.15) $ 0.89 $ (1.14) $ (0.10)
prepaid stock purchase contracts.

~~For~~On October 1, 2021, the ~~purposes~~Company issued $230.0 million principal amount of ~~computing diluted earnings per share, weighted average~~2.00% convertible senior notes due 2026 (the "Notes"). As of March 31, 2023, the maximum number of shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are included based on the attainmentissuable upon settlement of the ~~applicable performance metrics as~~Notes is 38.3 million (after giving effect to additional shares that would be issuable upon conversion in connection with the occurrence of the end of the reporting period. The Company has the following potentially outstanding shares of common stock, which were excluded from the computation of diluted net income (loss) per share attributable to common stockholders in periods in which including them would have been antidilutive.

As of September 30,
(in millions) 2022 2021
Restricted stock and restricted stock units 5.4 5.2
Warrants 16.3 16.3
Convertible senior notes 38.3 —
Total 60.0 21.5
certain corporate or other events).

On July 26, 2020, the Company issued to Ventas, Inc. ("Ventas") a warrant (the "Warrant") to purchase 16.3 million shares of the Company’s common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas' option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock, and business combination transactions.

During the three months ended December 31, 2022, the Company issued 2,875,000 of its 7.00% tangible equity units (the “Units”) at a public offering price of $50.00 per Unit for an aggregate offering of $143.8 million. The Company received proceeds of $139.4 million after the deduction of the underwriters’ discount. Each Unit is comprised of a prepaid stock purchase contract and a senior amortizing note with an initial principal amount of $8.8996. Unless settled early in accordance with the terms of the instruments, under each purchase contract, the Company is obligated to deliver to the holder on November 15, 2025 a minimum of 12.9341, and a maximum of 15.1976, shares of the Company’s common stock depending on the daily volume-weighted average price ("VWAPs") of its common stock for the 20 trading days preceding the settlement date. As of ~~September 30, 2022,~~March 31, 2023, the maximum number of shares issuable upon ~~conversion~~settlement of ~~convertible senior notes~~the Units' prepaid stock purchase contracts is ~~38.3 million (after~~43.7 million.

Basic earnings per share ("EPS") is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding, after giving effect to ~~additional~~the minimum number of shares ~~that would be~~ issuable upon ~~conversion~~settlement of the prepaid stock purchase contract component of the Units. For the three months ended March 31, 2023, 37.2 million shares are included in ~~connection with~~weighted average basic shares outstanding for the ~~occurrence~~minimum number of ~~certain corporate or other events).~~shares issuable upon settlement of the Units' prepaid stock purchase contracts.


	Three Months Ended March 31,
	2023	2022


Weighted average common shares outstanding	187,392	185,916
Weighted average minimum shares issuable under purchase contracts	37,186	—
Weighted average shares outstanding - basic	224,578	185,916

Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. Diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. For the purposes of computing diluted EPS, weighted average shares outstanding do not include potentially dilutive securities that are anti-dilutive under the treasury stock method or if-converted method, and performance-based equity awards are included based on the attainment of the applicable performance metrics as of the end of the reporting period. The Company has the following potentially outstanding shares of common stock, which were excluded from the computation of diluted net income (loss) per share attributable to common stockholders in both periods as a result of the net loss.


	As of March 31,
(in millions)		2023	2022


Convertible senior notes		38.3	38.3
Warrants		16.3	16.3
Restricted stock and restricted stock units		6.6	5.7
Incremental shares issuable under purchase contracts		6.5	—

Total		67.7	60.3

13. Income Taxes

The difference between the Company's effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was primarily due to an increase in the ~~HCS Sale in~~valuation allowance recorded during the three months ended ~~September 30, 2021.~~March 31, 2023, as well as a decrease in the tax benefit on the vesting of restricted stock units and restricted stock awards due to a lower market price for the Company’s stock for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The Company recorded an aggregate deferred federal, state, and local tax benefit of ~~$7.3~~$9.4 million for the three months ended ~~September 30, 2022,~~March 31, 2023, which was ~~partially~~ offset by an increase to the valuation allowance of $6.7 million. The Company recorded an aggregate deferred federal, state, and local tax benefit of $52.8 million for the nine months ended September 30, 2022, which was partially offset by an increase to the valuation allowance of $50.7$9.7 million. The Company recorded an aggregate deferred federal, state, and local tax expense of ~~$81.0~~$24.9 million for the three months ended ~~September 30, 2021,~~March 31, 2022, which was partially offset by a reduction to the valuation allowance of ~~$71.8~~$22.6 million. The Company recorded an aggregate deferred federal, state, and local tax expense of $35.0 million for the nine months ended September 30, 2021, which was partially offset by a reduction to the valuation allowance of $26.5 million. The deferred income tax expense for the nine months ended September 30, 2021 included $104.3 million as a result of the gain on the HCS Sale, partially offset by a benefit of $69.3 million as a result of operating losses (exclusive of the HCS Sale).

The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company's valuation allowance as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$418.7~~$434.7 million and ~~$368.0~~$425.0 million, respectively.

The increase in the valuation allowance for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 is the result of current operating losses during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 and by the anticipated reversal of future tax liabilities offset by future tax deductions. The decrease in the valuation allowance for the nine months ended September 30, 2021 is primarily the result of a $95.2 million reduction recorded as a result of the HCS Sale, partially offset by an increase in the valuation allowance of $68.6 million established against current operating losses during the nine months ended September 30, 2021.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ which are included in income tax expense or benefit for the period. As of ~~September 30, 2022,~~March 31, 2023, tax returns for years 2018 through ~~2020~~2021 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

14. Supplemental Disclosure of Cash Flow Information

During the period from January 1, ~~2021~~2022 through ~~September 30, 2022,~~March 31, 2023, the Company disposed of ~~five~~two owned communities and the Company's triple-net lease obligations on ~~six~~four communities were terminated (including through the acquisition of one formerly leased community). During the nine months ended September 30, 2022, the Company completed the sale of two owned communities for cash proceeds of $4.4 million, net of transaction costs, and recognized a net gain on sale of assets of $0.7 million for these sales. During the nine months ended September 30, 2021, the Company completed the sale of two owned

~~communities for cash proceeds of $8.5 million, net of transaction costs, and recognized a net gain on sale of assets of $0.5 million for these sales.~~

~~On July 1, 2021, the~~The Company completed the sale of ~~80% of~~ its ~~equity in its Health Care Services segment to affiliates of HCA~~

Healthcare for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for theone remaining ~~outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the HCS Sale.~~entrance fee community on May 1, 2023. The Company received ~~net~~ cash proceeds of ~~$312.6~~$12.3 million, ~~including $305.8~~net of $29.6 million in mortgage debt repaid and transaction costs, at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021. The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser.closing. As of ~~July 1, 2021,~~March 31, 2023, the ~~Company recognized a $100.0~~community was classified as held for sale in the CCRCs segment, resulting in $23.6 million ~~asset~~being recorded as assets held for sale and $19.5 million, representing primarily refundable fees and deferred revenue from entrance fee residency agreements, recorded as liabilities held for sale within ~~investment in unconsolidated ventures on its~~the condensed consolidated balance sheet for the estimated fair value of its retained 20% noncontrolling interest in the HCS Venture. Refer to Note 15 for selected financial data for the Health Care Services segment through June 30, 2021.sheets.


		Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Supplemental Disclosure of Cash Flow Information:	Supplemental Disclosure of Cash Flow Information:					Supplemental Disclosure of Cash Flow Information:
Interest paid	Interest paid	$	142,242	$	142,268	Interest paid	$	55,110	$	43,927
Income taxes paid, net of refunds	Income taxes paid, net of refunds	$	581	$	6,447	Income taxes paid, net of refunds	$	(1,346)	$	341

Capital expenditures, net of related payables:	Capital expenditures, net of related payables:					Capital expenditures, net of related payables:
Capital expenditures - non-development, net	Capital expenditures - non-development, net	$	128,831	$	91,438	Capital expenditures - non-development, net	$	62,912	$	39,326
Capital expenditures - development, net	Capital expenditures - development, net	4,357		2,726		Capital expenditures - development, net	519		861
Capital expenditures - non-development - reimbursable	Capital expenditures - non-development - reimbursable	18,927		34,640		Capital expenditures - non-development - reimbursable	2,244		4,697
Trade accounts payable	Trade accounts payable	(1,543)		(2,987)		Trade accounts payable	(15,975)		(4,928)
Net cash paid	Net cash paid	$	150,572	$	125,817	Net cash paid	$	49,700	$	39,956
Proceeds from HCS Sale, net:
Accounts receivable, net		$	—	$	(57,582)
Property, plant and equipment and leasehold intangibles, net		—		(1,806)
Operating lease right-of-use assets		—		(8,145)
Investment in unconsolidated ventures		—		100,000
Goodwill		—		(126,810)
Prepaid expenses and other assets, net		—		(26,409)
Trade accounts payable		—		1,387
Accrued expenses		—		25,226
Refundable fees and deferred revenue		—		57,314
Operating lease obligations		—		8,145
Other liabilities		—		11,135
Loss (gain) on sale of assets, net		—		(288,233)
Net cash received		$	—	$	(305,778)

Proceeds from sale of assets, net (excluding HCS Sale):
Prepaid expenses and other assets, net		$	(1,301)	$	—
Assets held for sale		(3,668)		(8,040)
Property, plant and equipment and leasehold intangibles, net		(100)		(568)

Other liabilities		(164)		(22)
Loss (gain) on sale of assets, net		(611)		(1,175)
Net cash received		$	(5,844)	$	(9,805)

Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:	Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:					Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:
Assets designated as held for sale:	Assets designated as held for sale:					Assets designated as held for sale:

Assets held for sale	Assets held for sale	$	—	$	3,612	Assets held for sale	$	23,555	$	—
Property, plant and equipment and leasehold intangibles, net		—		(3,612)

Net		$	—	$	—
Non-cash lease transactions, net:

Property, plant and equipment and leasehold intangibles, net	Property, plant and equipment and leasehold intangibles, net	$	11,067	$	3,521	Property, plant and equipment and leasehold intangibles, net	(23,555)		—
Liabilities held for sale						Liabilities held for sale	(19,455)		—
Refundable fees and deferred revenue						Refundable fees and deferred revenue	9,362		—

Operating lease right-of-use assets		11,219		17,013
Financing lease obligations		(6,307)		(3,521)
Operating lease obligations		(15,979)		(17,013)
Other liabilities						Other liabilities	10,093		—
Net						Net	$	—	$	—

Net		$	—	$	—

Restricted cash consists principally of deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs, escrow deposits for real estate taxes, property insurance, and capital expenditures, and debt service reserve accounts required by certain lenders under mortgage debt agreements. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Reconciliation of cash, cash equivalents, and restricted cash:	Reconciliation of cash, cash equivalents, and restricted cash:					Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	299,201	$	347,031	Cash and cash equivalents	$	362,235	$	398,850
Restricted cash	Restricted cash	37,258		26,845		Restricted cash	29,374		27,735
Long-term restricted cash	Long-term restricted cash	58,358		64,438		Long-term restricted cash	45,133		47,963
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	$	394,817	$	438,314	Total cash, cash equivalents, and restricted cash	$	436,742	$	474,548

15. Segment Information

As of ~~September 30, 2022,~~March 31, 2023, the Company has three reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment. Prior to July 1, 2021, the Company had an additional reportable segment, Health Care Services. On July 1, 2021, the Company sold 80% of its equity in its Health Care Services segment. For periods beginning July 1, 2021, the results and financial position of its Health Care Services segment were deconsolidated from the Company's consolidated financial statements and its 20% equity interest in the HCS Venture is accounted for under the equity method of accounting as of that date.

Independent Living. The Company's Independent Living segment includes owned or leased communities that are primarily designed for middle to upper income seniors who desire to live in a residential setting that feels like home, without the efforts of ownership. The majority of the Company's independent living communities consist of both independent and assisted living units in a single community, which allows residents to age-in-place by providing them with a broad continuum of senior independent and assisted living services to accommodate their changing needs.

Assisted Living and Memory Care. The Company's Assisted Living and Memory Care segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily living for the Company's residents. The Company's assisted living and memory care communities include both freestanding, multi-story communities, as well as smaller, freestanding, single story communities. The Company also provides memory care services at freestanding memory care communities that are specially designed for residents with Alzheimer's disease and other dementias.

CCRCs. The Company's CCRCs segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate a broad spectrum of physical ability and healthcare needs. Most of the Company's CCRCs have independent living, assisted living, memory care, and skilled nursing available on one campus.

All Other. All Other includes communities operated by the Company pursuant to management agreements. Under the management agreements for these communities, the Company receives management fees as well as reimbursement of expenses it incurs on behalf of the owners.

~~Health Care Services~~. The Company's former Health Care Services segment included the home health, hospice, and outpatient therapy services provided to residents of many of its communities and to seniors living outside its communities. The Health Care Services segment did not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

The following tables set forth selected segment financial data.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Revenue and other operating income:	Revenue and other operating income:									Revenue and other operating income:
Independent Living~~(2)~~(1)	Independent Living~~(2)~~(1)	$	137,626	$	119,593	$	388,769	$	357,855	Independent Living~~(2)~~(1)	$	140,656	$	124,406
Assisted Living and Memory Care~~(2)~~(1)	Assisted Living and Memory Care~~(2)~~(1)	491,818		402,696		1,365,172		1,187,085		Assisted Living and Memory Care~~(2)~~(1)	488,804		432,488
CCRCs~~(2)~~(1)	CCRCs~~(2)~~(1)	87,563		77,895		249,215		228,346		CCRCs~~(2)~~(1)	86,272		80,456
All Other	All Other	40,451		41,470		121,638		163,836		All Other	37,531		40,470
Health Care Services(1)(2)		—		—		—		177,269
Total revenue and other operating income	Total revenue and other operating income	$	757,458	$	641,654	$	2,124,794	$	2,114,391	Total revenue and other operating income	$	753,263	$	677,820

											Three Months Ended March 31,
(in thousands)										(in thousands)	2022		2021
Segment operating income:~~(3)~~(2)	Segment operating income:~~(3)~~(2)									Segment operating income:~~(3)~~(2)
Independent Living	Independent Living	$	46,395	$	36,733	$	122,788	$	109,354	Independent Living	$	46,833	$	37,684
Assisted Living and Memory Care	Assisted Living and Memory Care	130,039		75,324		294,490		223,819		Assisted Living and Memory Care	124,593		76,863
CCRCs	CCRCs	15,063		7,704		33,940		23,985		CCRCs	13,499		10,039
All Other	All Other	2,967		3,621		9,625		17,185		All Other	2,577		3,329
Health Care Services		—		—		—		5,816
Total segment operating income	Total segment operating income	194,464		123,382		460,843		380,159		Total segment operating income	187,502		127,915
General and administrative expense (including non-cash stock-based compensation expense)	General and administrative expense (including non-cash stock-based compensation expense)	41,331		43,812		128,209		146,155		General and administrative expense (including non-cash stock-based compensation expense)	48,619		45,126
Facility operating lease expense	Facility operating lease expense	41,317		43,226		124,419		131,508		Facility operating lease expense	46,127		41,564
Depreciation and amortization	Depreciation and amortization	86,922		84,560		259,229		252,042		Depreciation and amortization	84,934		85,684
Asset impairment	Asset impairment	5,688		639		17,362		13,394		Asset impairment	—		9,075

Income (loss) from operations	Income (loss) from operations	$	19,206	$	(48,855)	$	(68,376)	$	(162,940)	Income (loss) from operations	$	7,822	$	(53,534)

2018


		As of					As of
(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Total assets:	Total assets:					Total assets:
Independent Living~~(4)~~(3)	Independent Living~~(4)~~(3)	$	1,297,172	$	1,349,341	Independent Living~~(4)~~(3)	$	1,253,570	$	1,267,825
Assisted Living and Memory Care	Assisted Living and Memory Care	3,527,339		3,601,144		Assisted Living and Memory Care	3,288,702		3,329,516
CCRCs	CCRCs	674,449		693,386		CCRCs	666,102		664,502
Corporate and All Other	Corporate and All Other	594,993		766,596		Corporate and All Other	677,485		675,219
Total assets	Total assets	$	6,093,953	$	6,410,467	Total assets	$	5,885,859	$	5,937,062

(1)All revenue and other operating income is earned from external third parties in the United States.

~~(2)~~Includes other operating income recognized for the credits or grants pursuant to the Provider Relief Fund, employee retention credit, and other government sources as described in Note 3. Allocations to the applicable segment generally reflect the credits earned by the segment, the segment's receipt and acceptance of the grant, or the segment's proportional utilization of the grant. Other operating income by segment is as follows.

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2022 2021 2022 2021
Other operating income:
Independent Living $ 9,520 $ 9 $ 10,681 $ 1,484
Assisted Living and Memory Care 49,721 75 56,489 5,808
CCRCs 7,518 5 8,376 1,735
Health Care Services — — — 3,105
Total other operating income $ 66,759 $ 89 $ 75,546 $ 12,132

~~(3)~~(2)Segment operating income is defined as segment revenues and other operating income less segment facility operating expenses (excluding facility depreciation and amortization) and costs incurred on behalf of managed communities.

~~(4)~~(3)The Company's Independent Living segment had a carrying amount of goodwill of $27.3 million as of both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

2119

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," "target," or other similar words or expressions. These forward-looking statements are based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our assumptions or expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals, and us on our business, results of operations, cash flow, revenue, expenses, liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease, the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets, the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief, perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand, the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19, changes in the acuity levels of our new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health plan, and other expenses, greater use of contract labor, overtime, and ~~overtime~~other premium labor due to COVID-19 and general labor market conditions, the impact of COVID-19 on our ability to complete financings and refinancings of various assets, or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents, increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to our health plan participants, increased enforcement actions resulting from COVID-19, government action that may limit our collection or discharge efforts for delinquent accounts, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts; events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing market, consumer confidence, or the equity markets and unemployment among resident family members; changes in reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid programs; the effects of senior housing construction and development, lower industry occupancy (including due to the pandemic), and increased competition; conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where we are concentrated; terminations of our resident agreements and vacancies in the living spaces we lease, including due to the pandemic; failure to maintain the security and functionality of our information systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; our ability to complete our capital expenditures in accordance with our plans; our ability to identify and pursue development, investment, and acquisition opportunities and our ability to successfully integrate acquisitions; competition for the acquisition of assets; our ability to complete pending or expected disposition, acquisition, or other transactions on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our ability to identify and pursue any such opportunities in the future; risks related to the implementation of our strategy, including initiatives undertaken to execute on our strategic priorities and their effect on our results; limits on our ability to use net operating loss carryovers to reduce future tax payments; delays in obtaining regulatory approvals; disruptions in the financial markets or decreases in the appraised values or performance of our communities that affect our ability to obtain financing or extend or refinance debt as it matures and our financing costs; our ability to generate sufficient cash flow to cover required interest, principal, and long-term lease payments and to fund our planned capital projects; the effect of ~~our~~any non-compliance with any of our debt or lease agreements (including the financial or other covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of our non-compliance with any such agreements and the risk of loss of our property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of our indebtedness and long-term leases on our liquidity and our ability to operate our business; increases in market interest rates that

increase the costs of our debt obligations; our ability to obtain

additional capital on terms acceptable to us; departures of key officers and potential disruption caused by changes in management; increased competition for, or a shortage of, associates (including due to the pandemic or general labor market conditions), wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; environmental contamination at any of our communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us, including putative class action complaints; ~~the cost and difficulty of complying with increasing and evolving regulation;~~ costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations; the cost and difficulty of complying with increasing and evolving regulation; changes in, or our failure to comply with, employment-related laws and regulations; unanticipated costs to comply with legislative or regulatory developments; the risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, competition in the labor market, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate; actions of activist stockholders, including a proxy contest; as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, including those set forth under "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this Quarterly Report on Form 10-Q. We cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.

2321

Unless otherwise specified, references to "Brookdale," "we," "us," "our," or "the Company" in this Quarterly Report on Form 10-Q mean Brookdale Senior Living Inc. together with its consolidated subsidiaries.

Overview

We are the nation's premier operator of senior living communities, operating and managing ~~672~~673 communities in 41 states as of ~~September 30, 2022,~~March 31, 2023, with the ability to serve more than 60,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs").

~~Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer.~~ Our senior living communities and our comprehensive network help to provide seniors with care and services in an environment that feels like home. Our expertise in healthcare, hospitality, and real estate provides residents with opportunities to improve wellness, pursue passions, and stay connected with friends and loved ones. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to age-in-place, which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents' families who are concerned with care decisions for their elderly relatives.

Resident Fee Increases

The rates we charge our residents are highly dependent on local market conditions and the competitive environment in which the communities operate. As the senior living industry rebuilds occupancy lost due to the pandemic, we continue to experience a highly competitive environment for new residents. Generally, we have increased our monthly rates, including rates for care and other services, for private pay residents on an annual basis beginning January 1 each year.

We have recently made the annual rate adjustment effective January 1, 2023 for our in-place private pay residents. The increase was again higher than our typical annual rate adjustment in order to help offset our recent increased costs as a result of labor pressures, high inflation, and increased interest rates, as described below. As a result of rate and occupancy increases, consolidated RevPAR for the three months ended March 31, 2023 increased 12.9% compared to the prior year period. Due to the competitive environment for new residents in our recovering industry, the higher rate adjustment could slow our occupancy recovery progress or result in a decrease in occupancy in our communities. Any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR results. In addition, the rate adjustment may not be sufficient to offset our increased costs in the event that labor expenses, inflation, or interest rates grow at rates higher than we anticipated.

Macroeconomic Conditions

A confluence of macroeconomic conditions, including an intensely competitive labor environment and higher inflation and interest rates, has continued to affect our operations during 2023.

Labor Pressures

Labor costs comprise approximately two-thirds of our total facility operating expense. We began to experience pressures associated with the intensely competitive labor environment during 2021, which have continued into 2023. Labor pressures have resulted in higher-than-typical associate turnover and wage growth, and we have experienced difficulty in filling open positions timely. We have increased our recruiting efforts to fill existing open positions, resulting in increasing the size of our workforce during 2022. We continue to review wage rates in our markets and make competitive adjustments. Beginning in 2021, to cover existing open positions, we needed to rely on more expensive premium labor, primarily contract labor and overtime. From its peak in December 2021 to March 2023, we have decreased our monthly contract labor expense by approximately 87%, while maintaining focus on resident satisfaction and high-quality care. We continue to work to reduce our reliance on premium labor.

The labor component of our facility operating expense in our same community portfolio increased $3.9 million, or 1.2%, during the three months ended March 31, 2023 compared to the prior year period. The increase primarily resulted from wage rate adjustments, more hours worked with higher occupancy during the period, partially offset by a decrease in the use of premium labor, primarily contract labor. We expect to continue to experience labor cost pressure as a result of merit wage rate adjustments made in March 2023, an anticipated increase in hours worked as our occupancy levels grow, and the labor environment conditions described above. Continued increased competition for, or a shortage of, nurses or other associates and general inflationary pressures have required and may require that we enhance our pay and benefits package to compete effectively for such associates.

Inflation

Our non-labor facility operating expense comprises approximately one-third of our total facility operating expense and is subject to inflationary pressures. The United States consumer price index increased more than 8% since December 2021. We mitigated a portion of an increase in food costs with the scale benefit of a higher number of residents, along with appropriate product substitution. We mitigated a portion of rising utility costs through sustainability investments we made in 2022 and recent years, such as lighting retrofits and water consumption projects. Despite our mitigation efforts and with higher occupancy, for the three months ended March 31, 2023 our non-labor facility operating expense in our same community portfolio increased $15.7 million, or 9.7%, compared to the prior year period. For the remainder of 2023, we expect to continue to experience inflationary pressures.

Interest Rates

As of March 31, 2023, we had approximately $1.6 billion of long-term variable rate debt outstanding which is indexed to the London Interbank Offer Rate ("LIBOR") or Secured Overnight Financing Rate ("SOFR"), plus a weighted average margin of approximately 230 basis points. Accordingly, our annual interest expense related to long-term variable rate debt is directly affected by movements in LIBOR or SOFR. The LIBOR and SOFR steadily increased throughout 2022, ending the year more than 400 basis points higher than year-end 2021. Approximately 92% of our long-term variable rate debt is subject to interest rate cap or swap agreements, which had a weighted average fixed interest rate of 4.14% and a weighted average remaining term of 1.1 years as of March 31, 2023. Many of our long-term variable rate debt instruments include provisions that obligate us to obtain additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements. The costs of obtaining additional interest rate cap agreements may offset the benefits of our existing interest rate cap agreements. For the three months ended March 31, 2023, our debt interest expense increased $17.2 million, or 51.7%, compared to the prior year, substantially all due to an increase in our interest expense associated with our long-term variable rate debt. Interest earned on our cash, cash equivalents, and marketable securities partially offset such increased interest expense.

COVID-19 Pandemic Update

The COVID-19 pandemic ~~significantly disrupted the senior living industry~~has adversely impacted our occupancy and ~~our business~~resident fee revenue beginning in March 2020. ~~We expect the impact of this disruption to continue into 2023 as we continue to make progress to rebuild occupancy lost due to the pandemic.~~ The health and wellbeing of our residents and associates has been and continues to be our highest priority.

~~Rebuilding Occupancy.~~ We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic while maintaining rate discipline. From March 2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy. From February 2021 through October 2022, we increased our weighted average consolidated senior housing occupancy by 780 basis points to 77.2%. Sequentially from the second quarter of 2022, our weighted average consolidated senior housing occupancy increased by 180 basis points to 76.4% for the third quarter of 2022. The table below sets forth our recent consolidated occupancy trend.

Q1
2021 Q2
2021 Q3
2021 Q4
2021 Q1
2022 Q2
2022 Q3
2022
Weighted average 69.6 % 70.5 % 72.5 % 73.5 % 73.4 % 74.6 % 76.4 %
Quarter end 70.6 % 72.6 % 74.2 % 74.5 % 75.0 % 76.6 % 78.4 %

Jan
2022 Feb
2022 Mar
2022 Apr
2022 May
2022 Jun
2022 Jul
2022 Aug
2022 Sep
2022 Oct
2022
Weighted average 73.4 % 73.3 % 73.6 % 73.9 % 74.6 % 75.2 % 75.9 % 76.4 % 76.9 % 77.2 %
Month end 74.2 % 74.4 % 75.0 % 75.3 % 76.2 % 76.6 % 77.1 % 77.9 % 78.4 % 78.2 %

During the three and nine months ended September 30, 2022, various communities experienced restrictions on new resident move-ins due to the pandemic, and as of October 31, 2022, all of our communities were open for new resident move-ins. We may revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of authorities having jurisdiction. We cannot predict with reasonable certainty when our occupancy will return to pre-COVID-19 pandemic levels.

~~Pandemic Expenses.~~ For the three and nine months ended September 30, 2022, we recognized $3.6 million and $15.9 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic. For the three and nine months ended September 30, 2021, we recognized $7.2 million and $44.3 million, respectively, of facility operating expense for incremental direct costs to respond to the pandemic. The direct costs include those for: acquisition of additional personal protective equipment, medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers' compensation, and health plan expense; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. On a cumulative basis since the beginning of fiscal 2020 through September 30, 2022, we have incurred $189.2 million

~~of pandemic related facility operating expense. Refer to "Results of Operations" below for information on non-cash impairment charges recognized as a result of the impacts of the COVID-19 pandemic.~~

~~Phase 4 Provider Relief Fund Grants~~.During the three months ended September 30, 2022, we accepted and recognized as other operating income $61.1 million from the Phase 4 general distribution of the Public Health and Social Services Emergency Fund ("Provider Relief Fund") administered by the U.S. Department of Health and Human Services. The grant has been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

~~Employee Retention Credit.~~ We were eligible to claim the employee retention credit for certain of our associates under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"). We recognized $9.9 million for the nine months ended September 30, 2021 of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for which we have received $4.6 million in cash as of September 30, 2022. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021. During the three and nine months ended September 30, 2022, we recognized $4.7 million and $9.4 million, respectively, of employee retention credits on wages paid in 2021 within other operating income. We have a receivable for the remaining $14.7 million included within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as of September 30, 2022.

We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may ~~continue to~~ delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease; the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in our markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; restrictions on visitors and move-ins at our communities as a result of infections at a community or as necessary to comply with regulatory requirements or at the direction of authorities having jurisdiction; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents' and their families' ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health plan, and other expenses; greater use of contract labor and ~~overtime~~other premium labor due to COVID-19 and general labor market conditions; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to our health plan participants; increased enforcement actions resulting from COVID-19; government action that may limit our collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.

~~Community Labor~~

We continue to experience pressures associated with the intensely competitive labor environment. During 2021 and the nine months ended September 30, 2022, the pressures included increased associate turnover, difficulty in timely filling open positions, and increasing wages. Continued increased competition for, or a shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low levels of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits package to compete effectively for such associates. We have increased our recruiting efforts to fill open positions and have increased our workforce since December 31, 2021. We have reviewed wage rates in all of our markets and made adjustments, and we will monitor to remain competitive. We seek to ensure that our communities are staffed with full and part-time associates. To cover open positions, we have increased our use of more expensive contract labor and overtime. Third-party staffing agencies from which we source contract labor have increased the rates they charge which has resulted in increases in the cost of contract labor. We expect to continue to experience labor cost pressure as a result of an anticipated increase in hours worked as our occupancy levels grow and the labor conditions described above. We are working to reduce the use of premium labor.

Our labor expense in our same community portfolio for the three and nine months ended September 30, 2022 increased 11.0% and 12.7% from the three and nine months ended September 30, 2021, respectively. The year-over-year increase in our same community labor expense for the nine months ended September 30, 2022 primarily resulted from our increased use of contract labor and overtime as well as merit and market wage rate adjustments. The year-over-year increase in our same community labor expense for the three months ended September 30, 2022 primarily resulted from our merit and market wage rate

2523

~~adjustments, an increase~~Community Transactions

We completed the sale of our one remaining entrance fee community (306 units) on May 1, 2023. We received cash proceeds of $12.3 million, net of $29.6 million in ~~hours worked due to increased occupancy during~~mortgage debt repaid and transaction costs, at closing. As of March 31, 2023, the ~~period, and an increase~~community was classified as held for sale in the ~~use~~CCRCs segment, resulting in $23.6 million being recorded as assets held for sale and $19.5 million, representing primarily refundable fees and deferred revenue from entrance fee residency agreements, recorded as liabilities held for sale within the condensed consolidated balance sheets.

We elected not to exercise our lease renewal option under the current terms for a master lease which expires on December 31, 2023. Pursuant to the master lease, we currently continue to lease 35 communities (1,468 units, or 2.8% of ~~overtime, partially offset by a decrease in~~our consolidated units) and we will be required to make approximately $15.4 million of cash lease payments for the ~~use of contract labor. Our labor expense in our same community portfolio for~~twelve months ending December 31, 2023.

Subsequent to the three months ended September 30, 2022 increased 1.1% sequentially from the three months ended June 30, 2022 primarily due to an increase in hours worked by associates and an additional day, which was a holiday, partially offset by decreased use of contract labor.

~~Resident Fee Rates~~

The rates charged at communities are highly dependent on local market conditions and the competitive environment in which the communities operate. Substantially all of our private pay senior housing residency agreements allow for adjustments to the monthly rate on 90 or fewer days' notice which enables us to seek increases in monthly rates due to inflation or other factors. Increases for level of care changes or additional services are typically allowed immediately upon notice of the change. Generally,March 31, 2023, we have increased our monthly rates, including rates for care and other services, for private pay residents on an annual basis beginning January 1 each year. We made the annual rate adjustment effective January 1, 2022 for our in-place private pay residents, which was higher than our typical annual rate adjustment and resulted in a 4.5% net increase in same community RevPOR for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The rate adjustment was higher due to increased costs associated with additional efforts to serve and care for our residents during the pandemic, the current inflationary environment, and the intensely competitive labor environment. We expect our pricing actions in 2023 to incorporate labor and inflationary cost increases resulting in an annual rate increase effective January 1, 2023 that will be higher than our typical annual rate adjustment and the adjustment effective January 1, 2022.

~~Impacts of Hurricane Ian~~

On September 28, 2022, Hurricane Ian made landfall in Florida. We operate 77 communities that were within the path of the storm. Under our emergency evacuation plans, we evacuated nine communities prior to landfall. All of the impacted communities returned to operation. Several communities will experience some continuing disruption as storm damage is remediated. During the three months ended September 30, 2022, we incurred $0.3 million of facility operating expenses related to hurricane response and evacuation. In addition, during the three months ended September 30, 2022, we recognized $3.8 million of impairment expense for property, plant, and equipment casualty losses sustained at communities as a result of Hurricane Ian.

Based on our preliminary assessments, we expect additional facility operating expense related to the hurricane response and remediation of storm damage of approximately $8.0 million, net of expected reimbursement from our property and casualty and business interruption insurance policies, for the three months ended December 31, 2022. We estimate that we will incur an additional approximately $10.0 million of capital expenditures for property remediation, primarily during the three months ended December 31, 2022, for which we expect approximately $3.0 million of reimbursement from our property and casualty insurance policies subsequent to 2022. The foregoing estimates are preliminary estimates derived by management from the information available at this time. The actual amounts and timing of amounts may differ.

~~Lease Amendment~~

~~In October 2022, we and a lessor~~ entered into ~~an amendment~~amendments to our existing ~~master~~ lease arrangements with Welltower Inc. ("Welltower") pursuant to which we continue to lease 2474 communities. In connection with the amendments, we extended the maturity of one lease involving 39 communities from December 31, 2026 until June 30, 2032. As a result, our amended lease arrangements provide that the current term for 69 of the communities will expire on June 30, 2032 and the current term for five of the communities will expire on December 31, 2024. The ~~amendment removed certain asset repurchase clauses and adjusted the extension option provisions. The amendment~~amendments did not change the amount of required lease payments orover the ~~initial~~previous term of the ~~lease. The~~ leases or the annual lease escalators. In addition, Welltower agreed to make available a pool in the aggregate amount of up to $17.0 million to fund costs associated with certain capital expenditure projects for ~~certain communities are accounted for as failed sale-leaseback transactions as~~69 of ~~September 30, 2022 and we expect~~ the ~~amended leases~~communities. Upon reimbursement of such expenditures, the annual minimum rent under the lease will prospectively increase by the amount of the reimbursement multiplied by the sum of the then current SOFR (subject to ~~result in sale accounting for such communities~~a floor of 3.0%) and a ~~non-cash gain on sale~~margin of ~~assets recognized in~~4.0%, and such amount will escalate annually consistent with the ~~three months ended December 31, 2022. In addition, we~~minimum rent escalation provisions of the 39 community lease.

We expect the amended leases for 35 of such communities to be prospectively ~~classified~~reclassified as operating leases subsequent to ~~December 31, 2022, the effective date of~~ the amendment. We expect the reclassification of such lease costs to operating lease ~~expense~~classification will result in an approximately ~~$22.0~~$19.0 million increase in cash paid for operating leases for the ~~full year~~remainder of 2023 and an offsetting decrease in cash paid for financing leases. Based upon our preliminary estimates, we expect the amendment to the lease arrangements will increase the right-of-use assets and lease obligations recognized on our condensed consolidated balance sheet each by approximately $125.0 million.

~~Sale~~The amendments replaced the net worth covenant provisions requiring us to maintain at least $400.0 million of ~~Health Care Services~~stockholders' equity with a consolidated tangible net worth covenant requiring us to maintain at least $2.0 billion of tangible net worth, generally calculated as stockholders' equity plus accumulated depreciation and amortization less intangible assets and further adjusted for certain other items. Such calculation is generally similar to the tangible net worth covenants within certain of our long-term debt documents. So long as we maintain tangible net worth as defined in the leases of at least $1.5 billion, we will also be able to cure any breach by posting collateral with Welltower. As of March 31, 2023, we had tangible net worth of approximately $4.4 billion using the definition in the leases.

On July 1, 2021, we completed the sale of 80% of our equity in our Health Care Services segment to affiliates of HCA Healthcare, Inc. ("HCA Healthcare") for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment (the "HCS Sale"). We received net cash proceeds of $312.6 million, including $305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021.

The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser. The results and financial position of the Health Care Services segment were deconsolidated from our consolidated financial statements as of July 1, 2021 and our retained 20% equity interest in the venture with HCA Healthcare ("HCS Venture") is accounted for under the equity method of accounting subsequent to that date. As of July 1, 2021, we recognized a $100.0 million asset within investment in unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling interest in the HCS Venture. We recognized a $286.5 million gain on sale, net of transaction costs, within our consolidated statement of operations for the year ended December 31, 2021 for the HCS Sale. Refer to Note 15 to the condensed consolidated financial statements contained in "Item 1. Financial Statements” for selected financial data for the Health Care Services segment through June 30, 2021.

On November 1, 2021, the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare to LHC Group Inc. Upon the completion of the sale, we received $35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which decreased our investment in unconsolidated ventures. We continue to own a 20% equity interest in the remaining HCS Venture, which continues to operate home health and hospice agencies in areas served by HCA Healthcare.

Results of Operations

As of ~~September 30, 2022,~~March 31, 2023, our total operations included ~~672~~673 communities with a capacity to serve over 60,000 residents. As of that date, we owned 346 communities ~~(31,588~~(31,598 units), leased 295 communities ~~(20,570~~(20,584 units), and managed 3132 communities ~~(4,605~~(4,725 units). The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The results of operations for any particular period are not necessarily indicative of results for any future period. ~~Transactions completed during the period of January 1, 2021 to September 30, 2022 affect the comparability of our results of operations.~~

We use the operating measures described below in connection with operating and managing our business and reporting our results of operations.

•Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management

uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects.

•RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding ~~revenue from our former Health Care Services segment,~~ revenue for private duty services provided to seniors living outside of our communities and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.

•RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding revenue ~~from our former Health Care Services segment, revenue~~ for private duty services provided to seniors living outside of our communities and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average

amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance.

•Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance.

This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable measure in accordance with generally accepted accounting principles in the United States ("GAAP").

Comparison of Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Summary Operating Results

The following table summarizes our overall operating results for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


		Three Months Ended September 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
(in thousands)	(in thousands)	2022		2021		Amount		Percent		(in thousands)	2023		2022		Amount		Percent
Total resident fees and management fees revenue	Total resident fees and management fees revenue	$	653,215	$	603,716	$	49,499	8.2	%	Total resident fees and management fees revenue	$	715,981	$	640,303	$	75,678	11.8	%
Other operating income	Other operating income	66,759		89		66,670		NM		Other operating income	2,328		376		1,952		NM
Facility operating expense	Facility operating expense	525,510		480,423		45,087		9.4	%	Facility operating expense	530,807		512,764		18,043		3.5	%
Net income (loss)	Net income (loss)	(28,374)		174,263		(202,637)		NM		Net income (loss)	(44,563)		(100,032)		(55,469)		(55.5)	%
Adjusted EBITDA	Adjusted EBITDA	106,851		34,582		72,269		NM		Adjusted EBITDA	88,623		37,176		51,447		138.4	%

The increase in total resident fees and management fees revenue was primarily attributable to a ~~9.9%~~13.1% increase in same community RevPAR, comprised of an 8.5% increase in same community RevPOR and a ~~400~~310 basis point increase in same community weighted average ~~occupancy and a 4.2% increase in same community RevPOR.~~occupancy.

During the three months ended September 30, 2022 and 2021, we recognized $66.8 million and $0.1 million, respectively, of government grants and employee retention credits as other operating income based on our estimates of our satisfaction of the conditions of the grants and credits during the period, including for the three months ended September 30, 2022, $61.1 million of grants from the Phase 4 general distribution from the Provider Relief Fund.

The increase in facility operating expense was primarily attributable to ~~an 11.1%~~a 4.0% increase in same community facility operating expense ~~including a $33.2 million, or 11.0%, increase in our same community labor expense~~ primarily resulting from ~~merit and market wage rate adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime,~~broad inflationary pressure, partially offset by a decrease in the use of premium labor, primarily contract labor. Additionally, broad inflationary pressure, higher repairs and maintenance volume, and an increase in food costs due to increased occupancy during the period contributed to the increase in our same community facility operating expense. Facility operating expense for the three months ended September 30, 2022 and 2021 includes $3.6 million and $7.2 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The ~~change~~decrease in net ~~income (loss)~~loss was primarily attributable to ~~a net gain on sale of $288.2 million for the HCS Sale in the prior year period partially offset by an increase in other operating income compared to the prior year period and~~ the net impact of the revenue and facility operating expense factors previously ~~discussed.~~discussed and a decrease in asset impairment expense compared to the prior year. These changes were partially offset by an increase in debt interest expense compared to the prior year.

The increase in Adjusted EBITDA was primarily attributable to ~~an increase in other operating income compared to the prior year period, as well as~~ the net impact of the revenue and facility operating expense factors previously ~~discussed.~~discussed, partially offset by an increase in cash facility operating lease payments primarily due to the reclassification of lease costs for 16 communities from financing leases to operating leases as a result of a lease amendment subsequent to the prior year period.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.


		Three Months Ended September 30,						Increase (Decrease)						Three Months Ended March 31,						Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2022			2021			Amount			Percent		(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2023			2022			Amount			Percent
Resident fees	Resident fees	$	650,248		$	600,095		$	50,153		8.4	%	Resident fees	$	713,404		$	636,974		$	76,430		12.0	%
Other operating income	Other operating income	$	66,759		$	89		$	66,670		NM		Other operating income	$	2,328		$	376		$	1,952		NM
Facility operating expense	Facility operating expense	$	525,510		$	480,423		$	45,087		9.4	%	Facility operating expense	$	530,807		$	512,764		$	18,043		3.5	%

Number of communities (period end)	Number of communities (period end)	641			648			(7)			(1.1)	%	Number of communities (period end)	641			645			(4)			(0.6)	%

Total average units	Total average units	52,158			52,811			(653)			(1.2)	%	Total average units	52,177			52,586			(409)			(0.8)	%
RevPAR	RevPAR	$	4,150		$	3,784		$	366		9.7	%	RevPAR	$	4,551		$	4,032		$	519		12.9	%
Occupancy rate (weighted average)	Occupancy rate (weighted average)	76.4		%	72.5		%	390		bps	n/a		Occupancy rate (weighted average)	76.3		%	73.4		%	290		bps	n/a

RevPOR	RevPOR	$	5,432		$	5,219		$	213		4.1	%	RevPOR	$	5,963		$	5,493		$	470		8.6	%

Same Community Operating Results and Data	Same Community Operating Results and Data												Same Community Operating Results and Data
Resident fees	Resident fees	$	629,491		$	573,015		$	56,476		9.9	%	Resident fees	$	698,556		$	617,848		$	80,708		13.1	%
Other operating income	Other operating income	$	64,522		$	88		$	64,434		NM		Other operating income	$	2,289		$	358		$	1,931		NM
Facility operating expense	Facility operating expense	$	505,143		$	454,813		$	50,330		11.1	%	Facility operating expense	$	516,048		$	496,427		$	19,621		4.0	%

Number of communities	Number of communities	632			632			—			—	%	Number of communities	635			635			—			—	%
Total average units	Total average units	50,547			50,554			(7)			—	%	Total average units	51,165			51,173			(8)			—	%
RevPAR	RevPAR	$	4,151		$	3,778		$	373		9.9	%	RevPAR	$	4,551		$	4,025		$	526		13.1	%
Occupancy rate (weighted average)	Occupancy rate (weighted average)	76.5		%	72.5		%	400		bps	n/a		Occupancy rate (weighted average)	76.5		%	73.4		%	310		bps	n/a
RevPOR	RevPOR	$	5,429		$	5,211		$	218		4.2	%	RevPOR	$	5,949		$	5,481		$	468		8.5	%

2926

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021, including operating results and data on a~~2022. All 68 of the communities in our Independent Living segment are included within our same community ~~basis.~~portfolio.


		Three Months Ended September 30,						Increase (Decrease)						Three Months Ended March 31,						Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2022			2021			Amount			Percent		(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2023			2022			Amount			Percent
Resident fees	Resident fees	$	128,106		$	119,584		$	8,522		7.1	%	Resident fees	$	140,602		$	124,404		$	16,198		13.0	%

Other operating income	Other operating income	$	9,520		$	9		$	9,511		NM		Other operating income	$	54		$	2		$	52		NM
Facility operating expense	Facility operating expense	$	91,231		$	82,860		$	8,371		10.1	%	Facility operating expense	$	93,823		$	86,722		$	7,101		8.2	%

Number of communities (period end)	Number of communities (period end)	68			68			—			—	%	Number of communities (period end)	68			68			—			—	%

Total average units	Total average units	12,569			12,567			2			—	%	Total average units	12,571			12,568			3			—	%
RevPAR	RevPAR	$	3,397		$	3,172		$	225		7.1	%	RevPAR	$	3,728		$	3,299		$	429		13.0	%
Occupancy rate (weighted average)	Occupancy rate (weighted average)	78.3		%	74.7		%	360		bps	n/a		Occupancy rate (weighted average)	78.6		%	74.6		%	400		bps	n/a

RevPOR	RevPOR	$	4,337		$	4,244		$	93		2.2	%	RevPOR	$	4,741		$	4,423		$	318		7.2	%

Same Community Operating Results and Data
Resident fees		$	126,389		$	118,100		$	8,289		7.0	%
Other operating income		$	9,276		$	8		$	9,268		NM
Facility operating expense		$	89,948		$	81,676		$	8,272		10.1	%

Number of communities		67			67			—			—	%
Total average units		12,379			12,377			2			—	%
RevPAR		$	3,403		$	3,181		$	222		7.0	%
Occupancy rate (weighted average)		78.2		%	74.7		%	350		bps	n/a
RevPOR		$	4,352		$	4,259		$	93		2.2	%

The increase in the segment's resident fees was primarily attributable to an increase in the segment's ~~same community~~ RevPAR, comprised of a ~~350~~7.2% increase in RevPOR and a 400 basis point increase in ~~same community~~ weighted average ~~occupancy and a 2.2% increase in same community RevPOR.~~occupancy. The increase in the segment's ~~same community~~RevPOR was primarily the result of in-place rate increases. The increase in the segment's weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. ~~The increase in the segment's same community RevPOR was primarily the result of in-place rate increases.~~

The increase in the segment's facility operating expense was primarily attributable to ~~an increase in the segment's same community facility operating expense, including~~ a ~~$4.7~~$3.1 million, or ~~9.8%~~6.1%, increase in the segment's ~~same community~~ labor expense primarily resulting from ~~merit and market~~ wage rate adjustments and ~~an increase~~more hours worked with higher occupancy during the period, partially offset by a decrease in the use of ~~overtime.~~premium labor, primarily contract labor. Additionally, broad inflationary pressure ~~higher repairs and maintenance volume, an increase in food costs due to increased occupancy during the period, and an increase in utilities costs due to higher usage~~ contributed to the increase in the segment's ~~same community~~ facility operating expense. The segment's facility operating expense for the three months ended September 30, 2022 and 2021 includes $0.4 million and $0.9 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

3027

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ including operating results and data on a same community basis.


		Three Months Ended September 30,						Increase (Decrease)						Three Months Ended March 31,						Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2022			2021			Amount			Percent		(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2023			2022			Amount			Percent
Resident fees	Resident fees	$	442,097		$	402,621		$	39,476		9.8	%	Resident fees	$	486,777		$	432,132		$	54,645		12.6	%
Other operating income	Other operating income	$	49,721		$	75		$	49,646		NM		Other operating income	$	2,027		$	356		$	1,671		NM
Facility operating expense	Facility operating expense	$	361,779		$	327,372		$	34,407		10.5	%	Facility operating expense	$	364,211		$	355,625		$	8,586		2.4	%

Number of communities (period end)	Number of communities (period end)	554			560			(6)			(1.1)	%	Number of communities (period end)	554			558			(4)			(0.7)	%

Total average units	Total average units	34,398			34,893			(495)			(1.4)	%	Total average units	34,414			34,817			(403)			(1.2)	%
RevPAR	RevPAR	$	4,281		$	3,845		$	436		11.3	%	RevPAR	$	4,710		$	4,136		$	574		13.9	%
Occupancy rate (weighted average)	Occupancy rate (weighted average)	76.2		%	71.9		%	430		bps	n/a		Occupancy rate (weighted average)	75.9		%	73.0		%	290		bps	n/a

RevPOR	RevPOR	$	5,621		$	5,347		$	274		5.1	%	RevPOR	$	6,204		$	5,665		$	539		9.5	%

Same Community Operating Results and Data	Same Community Operating Results and Data												Same Community Operating Results and Data
Resident fees	Resident fees	$	439,395		$	395,339		$	44,056		11.1	%	Resident fees	$	484,271		$	425,903		$	58,368		13.7	%
Other operating income	Other operating income	$	49,465		$	76		$	49,389		NM		Other operating income	$	2,026		$	356		$	1,670		NM
Facility operating expense	Facility operating expense	$	358,576		$	320,988		$	37,588		11.7	%	Facility operating expense	$	361,305		$	350,395		$	10,910		3.1	%

Number of communities	Number of communities	550			550			—			—	%	Number of communities	551			551			—			—	%
Total average units	Total average units	34,203			34,202			1			—	%	Total average units	34,280			34,281			(1)			—	%
RevPAR	RevPAR	$	4,282		$	3,853		$	429		11.1	%	RevPAR	$	4,709		$	4,141		$	568		13.7	%
Occupancy rate (weighted average)	Occupancy rate (weighted average)	76.1		%	71.9		%	420		bps	n/a		Occupancy rate (weighted average)	76.0		%	73.0		%	300		bps	n/a
RevPOR	RevPOR	$	5,624		$	5,362		$	262		4.9	%	RevPOR	$	6,199		$	5,676		$	523		9.2	%

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 420 basis point increase in same community weighted average occupancy and a 4.9% increase in same community RevPOR. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's same community RevPOR was primarily the result of in-place rate increases, partially offset by lower care revenue as new resident acuity returned to pre-pandemic levels. The increase in the segment's resident fees was partially offset by the disposition of six communities (478 units) since the beginning of the prior year period, which resulted in $4.9 million less in resident fees during the three months ended September 30, 2022 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $25.0 million, or 11.5%, increase in the segment's same community labor expense primarily resulting from merit and market wage rate adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime, partially offset by a decrease in the use of contract labor. Additionally, broad inflationary pressure, higher repairs and maintenance volume, and an increase in food costs due to increased occupancy during the period contributed to the increase in the segment's same community facility operating expense. The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $4.1 million less in facility operating expense during the three months ended September 30, 2022 compared to the prior year period. The segment's facility operating expense for the three months ended September 30, 2022 and 2021 includes $2.5 million and $4.8 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

~~CCRCs Segment~~

The following table summarizes the operating results and data for our CCRCs segment for the three months ended September 30, 2022 and 2021, including operating results and data on a same community basis.

Three Months Ended
September 30, Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 80,045 $ 77,890 $ 2,155 2.8 %
Other operating income $ 7,518 $ 5 $ 7,513 NM
Facility operating expense $ 72,500 $ 70,191 $ 2,309 3.3 %
Number of communities (period end) 19 20 (1) (5.0) %
Total average units 5,191 5,351 (160) (3.0) %
RevPAR $ 5,105 $ 4,824 $ 281 5.8 %
Occupancy rate (weighted average) 73.3 % 71.2 % 210 bps n/a
RevPOR $ 6,966 $ 6,777 $ 189 2.8 %
Same Community Operating Results and Data
Resident fees $ 63,707 $ 59,576 $ 4,131 6.9 %
Other operating income $ 5,781 $ 4 $ 5,777 NM
Facility operating expense $ 56,619 $ 52,149 $ 4,470 8.6 %
Number of communities 15 15 — — %
Total average units 3,965 3,975 (10) (0.3) %
RevPAR $ 5,356 $ 4,996 $ 360 7.2 %
Occupancy rate (weighted average) 73.9 % 71.3 % 260 bps n/a
RevPOR $ 7,252 $ 7,005 $ 247 3.5 %

~~The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 3.5%~~9.2% increase in same community RevPOR and a ~~260~~300 basis point increase in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of in-place rate increases. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's resident fees was partially offset by the disposition of ~~one community (120~~five communities (402 units) since the beginning of ~~the prior year period, which resulted in $2.3 million less in resident fees during the three months ended September 30, 2022 compared to~~ the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense ~~including a $3.5 million, or 9.7%, increase in the segment's same community labor expense~~ primarily resulting from ~~merit and market wage rate adjustments, an increase in hours worked due to increased occupancy during the period, and an increase in the use of overtime,~~broad inflationary pressure, partially offset by a decrease in the use of premium labor, primarily contract labor. The increase in the segment's facility operating expense was partially offset by the disposition of ~~one community~~communities since the beginning of the prior year ~~period, which resulted in $2.5 million less in facility~~period.

CCRCs Segment

The following table summarizes the operating ~~expense during the three months ended September 30, 2022 compared to the prior year period. The segment's facility operating expense~~results and data for our CCRCs segment for the three months ended ~~September 30,~~March 31, 2023 and 2022, including operating results and ~~2021 includes $0.7~~data on a same community basis.


	Three Months Ended March 31,						Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	2023			2022			Amount			Percent
Resident fees	$	86,025		$	80,438		$	5,587		6.9	%
Other operating income	$	247		$	18		$	229		NM
Facility operating expense	$	72,773		$	70,417		$	2,356		3.3	%

Number of communities (period end)	19			19			—			—	%

Total average units	5,192			5,201			(9)			(0.2)	%
RevPAR	$	5,490		$	5,109		$	381		7.5	%
Occupancy rate (weighted average)	73.4		%	73.2		%	20		bps	n/a

RevPOR	$	7,482		$	6,976		$	506		7.3	%

Same Community Operating Results and Data
Resident fees	$	73,683		$	67,541		$	6,142		9.1	%
Other operating income	$	209		$	—		$	209		NM
Facility operating expense	$	61,119		$	59,230		$	1,889		3.2	%

Number of communities	16			16			—			—	%
Total average units	4,314			4,324			(10)			(0.2)	%
RevPAR	$	5,693		$	5,207		$	486		9.3	%
Occupancy rate (weighted average)	74.5		%	73.7		%	80		bps	n/a
RevPOR	$	7,638		$	7,063		$	575		8.1	%

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of an 8.1% increase in same community RevPOR and an 80 basis point increase in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of in-place rate increases.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $0.9 million, ~~and $1.5 million, respectively,~~or 2.2%, increase in the segment's same community labor expense primarily resulting from wage rate adjustments, partially offset by a decrease in the use of ~~incremental direct costs to respond~~premium labor, primarily contract labor. Additionally, broad inflationary pressure contributed to the ~~COVID-19 pandemic.~~increase in the segment's same community facility operating expense.

3229

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

Three Months Ended
September 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Management fees $ 2,967 $ 3,621 $ (654) (18.1) %
Reimbursed costs incurred on behalf of managed communities 37,484 37,849 (365) (1.0) %
Costs incurred on behalf of managed communities 37,484 37,849 (365) (1.0) %
General and administrative expense 41,331 43,812 (2,481) (5.7) %
Facility operating lease expense 41,317 43,226 (1,909) (4.4) %
Depreciation and amortization 86,922 84,560 2,362 2.8 %
Asset impairment 5,688 639 5,049 NM
Interest income 2,192 286 1,906 NM
Interest expense 49,873 49,361 512 1.0 %
Equity in earnings (loss) of unconsolidated ventures (2,020) (1,474) (546) (37.0) %
Gain (loss) on sale of assets, net (56) 288,375 (288,431) NM
Other non-operating income (loss) 1,877 571 1,306 NM
Benefit (provision) for income taxes 300 (15,279) 15,579 NM

~~Management Fees.~~ The decrease in management fees was primarily attributable to the transition of management arrangements on six net communities since the beginning of the prior year period, generally for management arrangements on interim management arrangements on formerly leased communities and certain former unconsolidated ventures in which we sold our interest.


	Three Months Ended March 31,				Increase (Decrease)
(in thousands)	2023		2022		Amount		Percent
Management fees	$	2,577	$	3,329	$	(752)	(22.6)	%
Reimbursed costs incurred on behalf of managed communities	34,954		37,141		(2,187)		(5.9)	%
Costs incurred on behalf of managed communities	34,954		37,141		(2,187)		(5.9)	%
General and administrative expense	48,619		45,126		3,493		7.7	%
Facility operating lease expense	46,127		41,564		4,563		11.0	%
Depreciation and amortization	84,934		85,684		(750)		(0.9)	%
Asset impairment	—		9,075		(9,075)		NM

Interest income	5,326		95		5,231		NM
Interest expense	59,711		43,354		16,357		37.7	%

Equity in earnings (loss) of unconsolidated ventures	(577)		(4,894)		4,317		88.2	%
Gain (loss) on sale of assets, net	—		(294)		294		NM
Other non-operating income (loss)	3,149		(27)		3,176		NM
Benefit (provision) for income taxes	(572)		1,976		(2,548)		NM

Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on Behalf of Managed Communities. The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period, partially offset by an increase in ~~reimbursed~~ community ~~labor~~ costs incurred as a result of broad inflationary pressure for communities managed in both periods.

General and Administrative Expense. The ~~decrease~~increase in general and administrative expense was primarily attributable to ~~decreases~~an increase in ~~estimated incentive compensation costs and transaction and~~ organizational restructuring ~~costs.~~costs compared to the prior year period, primarily for severance costs for our senior leadership changes. General and administrative expense includes transaction and organizational restructuring costs of ~~$0.3~~$3.6 million and ~~$0.9~~$0.4 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.

Facility Operating Lease Expense. The ~~decrease~~increase in facility operating lease expense was primarily due to ~~expense reductions~~the reclassification of lease costs for 16 communities from financing leases to operating leases as a result of a lease ~~incentives received for capital expenditures since the beginning of the prior year period, expense reductions~~amendment subsequent to ~~the recognition of impairment of operating lease right-of-use assets since the beginning of the prior year period, and lease termination activity since the beginning of~~ the prior year period.

Depreciation and Amortization. The ~~increase~~decrease in depreciation and amortization expense was primarily due to the reclassification of lease costs for 16 communities from financing leases to operating leases as a result of a lease amendment subsequent to the prior year period, partially offset by the completion of community renovations, apartment upgrades, and other major building infrastructure projects for leased communities since the beginning of the prior year period.

Asset Impairment. During the three months ended ~~September 30,~~March 31, 2022, we recorded ~~$5.7~~$9.1 million of non-cash impairment charges, primarily for ~~property damage sustained at~~right-of-use assets for certain leased communities ~~including property damage sustained from Hurricane Ian in September 2022.~~with decreased future cash flow estimates as a result of the COVID-19 pandemic. We did not record any impairment charges during the three months ended March 31, 2023.

Interest Expense. The increase in interest expense was primarily due to an increase in interest expense on long-term debt primarily as a result of increases in variable interest rates, partially offset by ~~increases~~a decrease in ~~the fair value of interest rate derivatives, reflecting the impact of increases in forward interest rates. Based upon our estimates of variable interest rates we expect debt~~ interest expense on financing lease obligations primarily due to ~~increase approximately $17.0 million~~the reclassification of lease costs for 16 communities from financing leases to operating leases as a result of a lease amendment subsequent to the ~~full~~prior year ~~2022 compared to 2021, which we expect will be partially offset by an approximately $4.0 million increase in interest income earned on our cash, cash equivalents, and marketable securities.~~period.

~~Gain~~

Equity in Earnings (Loss) ~~on Sale~~ of ~~Assets, net~~Unconsolidated Ventures. The decrease in ~~gain on sale~~equity in loss of ~~assets is~~unconsolidated ventures was primarily due to ~~the $288.2 million gain recognized~~improved operating results for ~~the HCS Sale in the prior year period.~~our health care services venture.

Benefit (Provision) for Income Taxes.The difference between our effective tax rate for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was primarily due to an increase in the ~~HCS Sale in~~valuation allowance recorded during the three months ended ~~September 30, 2021.~~March 31, 2023, as well as a decrease in the tax benefit on the vesting of restricted stock units and restricted stock awards due to a lower market price for our stock for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

We recorded an aggregate deferred federal, state, and local tax benefit of ~~$7.3~~$9.4 million, which was partially offset by an increase in the valuation allowance of ~~$6.7~~$9.7 million in the three months ended ~~September 30, 2022.~~March 31, 2023. We recorded an aggregate deferred federal, state, and local tax expense of ~~$81.0~~$24.9 million for the three months ended ~~September 30, 2021,~~March 31, 2022, which was partially offset by a reduction to the valuation allowance of ~~$71.8~~$22.6 million.

We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. Our valuation allowance as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$418.7~~$434.7 million and ~~$368.0~~$425.0 million, respectively.

~~Comparison of Nine Months Ended September 30, 2022 and 2021~~

~~Summary Operating Results~~

~~The following table summarizes our overall operating results for the nine months ended September 30, 2022 and 2021.~~

Nine Months Ended
September 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Total resident fees and management fees revenue $ 1,937,235 $ 1,955,608 $ (18,373) (0.9) %
Other operating income 75,546 12,132 63,414 NM
Facility operating expense 1,551,938 1,587,581 (35,643) (2.2) %
Net income (loss) (212,689) (17,644) (195,045) NM
Adjusted EBITDA 194,741 102,627 92,114 89.8 %

The decrease in total resident fees and management fees revenue was primarily attributable to deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in a decrease of $174.2 million of resident fees compared to the prior year period. The decrease in resident fees was partially offset by a 10.4% increase in same community RevPAR, comprised of a 400 basis point increase in same community weighted average occupancy and a 4.5% increase in same community RevPOR. Management fee revenue decreased $7.6 million primarily due to the transition of management agreements on 44 net communities since the beginning of the prior year period.

During the nine months ended September 30, 2022 and 2021, we recognized $75.5 million and $12.1 million, respectively, of government grants and employee retention credits as other operating income based on our estimates of our satisfaction of the conditions of the grants and credits during the period, including for the nine months ended September 30, 2022, $61.1 million of grants from the Phase 4 general distribution from the Provider Relief Fund.

The decrease in facility operating expense was primarily attributable to deconsolidation of results of the Health Care Services segment effective July 1, 2021, which resulted in a $171.5 million decrease in facility operating expenses. The decrease in facility operating expense was partially offset by an 11.2% increase in same community facility operating expense, including a $112.4 million, or 12.7%, increase in our same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic. Additionally, broad inflationary pressure, higher repairs and maintenance volume, and an increase in food costs due to increased occupancy during the period contributed to the increase in

our same community facility operating expense. Facility operating expense for the nine months ended September 30, 2022 and 2021 includes $15.9 million and $44.3 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The increase in net loss was primarily attributable to the a net gain on sale of $288.2 million for the HCS Sale in the prior year period and a decrease in equity in earnings of unconsolidated ventures compared to the prior year period. These changes were partially offset by an increase in other operating income compared to the prior year period, the net impact of the revenue and facility operating expense factors previously discussed, and a decrease in general and administrative expense compared to the prior year period.

The increase in Adjusted EBITDA was primarily attributable to an increase in other operating income compared to the prior year period, the net impact of the revenue and facility operating expense factors previously discussed, and a decrease in general and administrative expense compared to the prior year period as a result of the HCS Sale and a decrease in estimated incentive compensation costs.

~~Operating Results - Senior Housing Segments~~

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the nine months ended September 30, 2022 and 2021 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.

Nine Months Ended
September 30, Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 1,927,610 $ 1,764,259 $ 163,351 9.3 %
Other operating income $ 75,546 $ 9,027 $ 66,519 NM
Facility operating expense $ 1,551,938 $ 1,416,128 $ 135,810 9.6 %
Number of communities (period end) 641 648 (7) (1.1) %
Total average units 52,371 52,898 (527) (1.0) %
RevPAR $ 4,084 $ 3,702 $ 382 10.3 %
Occupancy rate (weighted average) 74.8 % 70.9 % 390 bps n/a
RevPOR $ 5,461 $ 5,225 $ 236 4.5 %
Same Community Operating Results and Data
Resident fees $ 1,858,440 $ 1,683,690 $ 174,750 10.4 %
Other operating income $ 72,892 $ 8,187 $ 64,705 NM
Facility operating expense $ 1,488,359 $ 1,338,448 $ 149,911 11.2 %
Number of communities 632 632 — — %
Total average units 50,555 50,554 1 — %
RevPAR $ 4,085 $ 3,701 $ 384 10.4 %
Occupancy rate (weighted average) 74.8 % 70.8 % 400 bps n/a
RevPOR $ 5,458 $ 5,224 $ 234 4.5 %

~~Independent Living Segment~~

The following table summarizes the operating results and data for our Independent Living segment for the nine months ended September 30, 2022 and 2021, including operating results and data on a same community basis.

Nine Months Ended
September 30, Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 378,088 $ 356,371 $ 21,717 6.1 %
Other operating income $ 10,681 $ 1,484 $ 9,197 NM
Facility operating expense $ 265,981 $ 248,501 $ 17,480 7.0 %
Number of communities (period end) 68 68 — — %
Total average units 12,569 12,553 16 0.1 %
RevPAR $ 3,342 $ 3,154 $ 188 6.0 %
Occupancy rate (weighted average) 76.3 % 73.9 % 240 bps n/a
RevPOR $ 4,379 $ 4,266 $ 113 2.6 %
Same Community Operating Results and Data
Resident fees $ 373,125 $ 352,387 $ 20,738 5.9 %
Other operating income $ 10,424 $ 1,464 $ 8,960 NM
Facility operating expense $ 262,512 $ 245,316 $ 17,196 7.0 %
Number of communities 67 67 — — %
Total average units 12,379 12,375 4 — %
RevPAR $ 3,349 $ 3,164 $ 185 5.8 %
Occupancy rate (weighted average) 76.3 % 73.8 % 250 bps n/a
RevPOR $ 4,392 $ 4,285 $ 107 2.5 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 250 basis point increase in same community weighted average occupancy and a 2.5% increase in same community RevPOR. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $9.6 million, or 6.5%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic. Additionally, broad inflationary pressure, higher repairs and maintenance volume, an increase in food costs due to increased occupancy during the period, and an increase in utilities costs due to higher usage contributed to the increase in the segment's same community facility operating expense. The segment's facility operating expense for the nine months ended September 30, 2022 and 2021 includes $2.0 million and $5.4 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

~~Assisted Living and Memory Care Segment~~

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the nine months ended September 30, 2022 and 2021, including operating results and data on a same community basis.

Nine Months Ended
September 30, Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 1,308,683 $ 1,181,277 $ 127,406 10.8 %
Other operating income $ 56,489 $ 5,808 $ 50,681 NM
Facility operating expense $ 1,070,682 $ 963,266 $ 107,416 11.2 %
Number of communities (period end) 554 560 (6) (1.1) %
Total average units 34,604 35,007 (403) (1.2) %
RevPAR $ 4,200 $ 3,748 $ 452 12.1 %
Occupancy rate (weighted average) 74.5 % 69.9 % 460 bps n/a
RevPOR $ 5,640 $ 5,363 $ 277 5.2 %
Same Community Operating Results and Data
Resident fees $ 1,293,876 $ 1,157,606 $ 136,270 11.8 %
Other operating income $ 56,109 $ 5,596 $ 50,513 NM
Facility operating expense $ 1,057,330 $ 939,911 $ 117,419 12.5 %
Number of communities 550 550 — — %
Total average units 34,204 34,204 — — %
RevPAR $ 4,203 $ 3,760 $ 443 11.8 %
Occupancy rate (weighted average) 74.4 % 69.9 % 450 bps n/a
RevPOR $ 5,647 $ 5,382 $ 265 4.9 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 450 basis point increase in same community weighted average occupancy and a 4.9% increase in same community RevPOR. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases, partially offset by lower care revenue as new resident acuity returned to pre-pandemic levels. The increase in the segment's resident fees was partially offset by the disposition of nine communities (695 units) since the beginning of the prior year period, which resulted in $10.3 million less in resident fees during the nine months ended September 30, 2022 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $90.4 million, or 14.3%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic. Additionally, broad inflationary pressure, higher repairs and maintenance volume, and an increase in food costs due to increased occupancy during the period contributed to the increase in the segment's same community facility operating expense. The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in $9.7 million less in facility operating expense during the nine months ended September 30, 2022 compared to the prior year period. The segment's facility operating expense for the nine months ended September 30, 2022 and 2021 includes $11.4 million and $29.8 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

~~CCRCs Segment~~

The following table summarizes the operating results and data for our CCRCs segment for the nine months ended September 30, 2022 and 2021, including operating results and data on a same community basis.

Nine Months Ended
September 30, Increase (Decrease)
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 240,839 $ 226,611 $ 14,228 6.3 %
Other operating income $ 8,376 $ 1,735 $ 6,641 NM
Facility operating expense $ 215,275 $ 204,361 $ 10,914 5.3 %
Number of communities (period end) 19 20 (1) (5.0) %
Total average units 5,198 5,338 (140) (2.6) %
RevPAR $ 5,109 $ 4,689 $ 420 9.0 %
Occupancy rate (weighted average) 73.3 % 70.0 % 330 bps n/a
RevPOR $ 6,971 $ 6,702 $ 269 4.0 %
Same Community Operating Results and Data
Resident fees $ 191,439 $ 173,697 $ 17,742 10.2 %
Other operating income $ 6,359 $ 1,127 $ 5,232 NM
Facility operating expense $ 168,517 $ 153,221 $ 15,296 10.0 %
Number of communities 15 15 — — %
Total average units 3,972 3,975 (3) (0.1) %
RevPAR $ 5,356 $ 4,855 $ 501 10.3 %
Occupancy rate (weighted average) 73.8 % 69.8 % 400 bps n/a
RevPOR $ 7,255 $ 6,955 $ 300 4.3 %

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 400 basis point increase in same community weighted average occupancy and a 4.3% increase in same community RevPOR. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases and an occupancy mix shift to more skilled nursing services within the segment. The increase in the segment's resident fees was partially offset by the disposition of one community (120 units) since the beginning of the prior year period, which resulted in $6.5 million less in resident fees during the nine months ended September 30, 2022 compared to the prior year period.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a $12.4 million, or 11.9%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments. The increase in the segment's facility operating expense was partially offset by the disposition of one community since the beginning of the prior year period, which resulted in $7.1 million less in facility operating expense during the nine months ended September 30, 2022 compared to the prior year period. The segment's facility operating expense for the nine months ended September 30, 2022 and 2021 includes $2.5 million and $6.9 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

~~Operating Results - Other Income and Expense Items~~

~~The following table summarizes other income and expense items in our operating results for the nine months ended September 30, 2022 and 2021.~~

Nine Months Ended
September 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Management fees $ 9,625 $ 17,185 $ (7,560) (44.0) %
Reimbursed costs incurred on behalf of managed communities 112,013 146,651 (34,638) (23.6) %
Costs incurred on behalf of managed communities 112,013 146,651 (34,638) (23.6) %
General and administrative expense 128,209 146,155 (17,946) (12.3) %
Facility operating lease expense 124,419 131,508 (7,089) (5.4) %
Depreciation and amortization 259,229 252,042 7,187 2.9 %
Asset impairment 17,362 13,394 3,968 29.6 %
Interest income 3,065 1,048 2,017 192.5 %
Interest expense 141,461 147,025 (5,564) (3.8) %
Equity in earnings (loss) of unconsolidated ventures (9,353) 11,941 (21,294) NM
Gain (loss) on sale of assets, net 611 289,408 (288,797) (99.8) %
Other non-operating income (loss) 1,739 5,163 (3,424) (66.3) %
Benefit (provision) for income taxes 1,086 (15,239) 16,325 NM

~~Management Fees.~~ The decrease in management fees was primarily attributable to the transition of management arrangements on 44 net communities since the beginning of the prior year period, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities.

~~Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on Behalf of Managed Communities.~~ The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period, partially offset by an increase in reimbursed community labor costs for communities managed in both periods.

~~General and Administrative Expense.~~ The decrease in general and administrative expense was primarily attributable to decreases in compensation costs as a result of reductions in our corporate headcount related to the HCS Sale, estimated incentive compensation costs, transaction and organizational restructuring costs, and non-cash stock-based compensation expense. General and administrative expense includes transaction and organizational restructuring costs of $0.9 million and $3.5 million for the nine months ended September 30, 2022 and 2021, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.

~~Facility Operating Lease Expense.~~ The decrease in facility operating lease expense was primarily due to expense reductions for lease incentives received for capital expenditures since the beginning of the prior year period, expense reductions subsequent to the recognition of impairment of operating lease right-of-use assets since the beginning of the prior year period, and lease termination activity since the beginning of the prior year period.

~~Depreciation and Amortization~~. The increase in depreciation and amortization expense was primarily due to the completion of community renovations, apartment upgrades, and other major building infrastructure projects for leased communities since the beginning of the prior year period.

~~Asset Impairment.~~ During the nine months ended September 30, 2022 and 2021, we recorded $17.4 million and $13.4 million, respectively, of non-cash impairment charges, primarily for certain leased communities with decreased occupancy and future cash flow estimates as a result of the continuing impacts of the COVID-19 pandemic.

~~Interest Expense.~~ The decrease in interest expense was primarily due to increases in the fair value of interest rate derivatives, reflecting the impact of increases in forward interest rates, partially offset by an increase in interest expense on long-term debt as a result of increases in variable interest rates. Based upon our estimates of variable interest rates we expect debt interest expense to increase approximately $17.0 million for the full year 2022 compared to 2021, which we expect will be partially offset by an approximately $4.0 million increase in interest income earned on our cash, cash equivalents, and marketable securities.

~~Equity in Earnings (Loss) of Unconsolidated Ventures.~~ The change in equity in earnings (loss) of unconsolidated ventures was primarily due to the gain on sale of assets recognized by our unconsolidated entrance fee venture for the sale of the two remaining entry fee CCRCs during the prior year period. The equity in loss of unconsolidated ventures for the current year period was primarily for our share of the operating results of the new HCS Venture, including the impact of organizational restructuring costs for adjustments to its operational structure.

~~Gain (Loss) on Sale of Assets, net. The decrease in gain on sale of assets is due to the $288.2 million gain recognized for the HCS Sale in the prior year period.~~

~~Benefit (Provision) for Income Taxes.~~ ~~The difference between our effective tax rate for the nine months ended September 30, 2022 and 2021 was due to the HCS Sale in the nine months ended September 30, 2021.~~

We recorded an aggregate deferred federal, state, and local tax benefit of $52.8 million, which was partially offset by an increase in the valuation allowance of $50.7 million in the nine months ended September 30, 2022. We recorded an aggregate deferred federal, state, and local tax expense of $35.0 million for the nine months ended September 30, 2021, which was partially offset by a reduction to the valuation allowance of $26.5 million. The deferred income tax expense for the nine months ended September 30, 2021 included $104.3 million as a result of the gain on the HCS Sale, offset by a benefit of $69.3 million as a result of operating losses (exclusive of the HCS Sale).

Liquidity and Capital Resources

This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.

Liquidity

The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow.


		Nine Months Ended September 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
(in thousands)	(in thousands)	2022		2021		Amount		Percent		(in thousands)	2023		2022		Amount		Percent
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	51,843	$	(13,247)	$	65,090	NM		Net cash provided by (used in) operating activities	$	24,042	$	(23,255)	$	47,297	NM
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(57,493)		201,729		(259,222)		NM		Net cash provided by (used in) investing activities	(62,019)		(36,163)		25,856		71.5	%
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(37,847)		(75,731)		(37,884)		(50.0)	%	Net cash provided by (used in) financing activities	171		(403)		574		NM
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	(43,497)		112,751		(156,248)		NM		Net increase (decrease) in cash, cash equivalents, and restricted cash	(37,806)		(59,821)		(22,015)		(36.8)	%
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	438,314		465,148		(26,834)		(5.8)	%	Cash, cash equivalents, and restricted cash at beginning of period	474,548		438,314		36,234		8.3	%
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	394,817	$	577,899	$	(183,082)	(31.7)	%	Cash, cash equivalents, and restricted cash at end of period	$	436,742	$	378,493	$	58,249	15.4	%
Adjusted Free Cash Flow	Adjusted Free Cash Flow	$	(97,827)	$	(147,991)	$	50,164	33.9	%	Adjusted Free Cash Flow	$	(21,239)	$	(53,493)	$	32,254	60.3	%

The change in net cash provided by (used in) operating activities was attributable primarily to ~~a $64.8 million increase in government grants and credits received,~~ an increase in ~~same community~~resident fee revenue ~~and a decrease in general and administrative expense~~ compared to the prior year ~~period. These changes were~~period, partially offset by an increase in ~~same community~~ facility operating expense and ~~a decrease~~an increase in ~~lessor reimbursements for capital expenditures for operating leases~~debt interest expense compared to the prior year period.

The ~~change~~increase in net cash ~~provided by (used in)~~used in investing activities was primarily attributable to ~~$305.8~~a $99.0 million ~~of net~~decrease in proceeds from ~~the HCS Sale received in the prior year period,~~sales and maturities of marketable securities and a ~~$24.8~~$9.7 million increase in cash paid for capital expenditures compared to the prior year ~~period, and $6.0 million of cash paid for the acquisition of a previously leased community in the current year~~ period. These changes were partially offset by a ~~$60.8 million increase in proceeds from sales and maturities of marketable securities and a $17.7~~$76.3 million decrease in purchases of marketable securities ~~compared to the prior year period.~~

~~The decrease in net cash used in financing activities was primarily attributable to a $31.9 million decrease in repayment of debt and financing lease obligations~~ and a ~~$6.9~~$6.4 million increase in ~~debt proceeds~~reimbursement from our property and casualty insurance policies compared to the prior year period.

The change in Adjusted Free Cash Flow was primarily attributable to ~~a $64.8 million increase~~the change in ~~government grants and credits received, an increase in same community revenue, and a decrease in general and administrative expense compared to the prior year period. These changes were~~net cash provided by (used in) operating activities, partially offset by ~~an increase in same community facility operating expense compared to the prior year period and~~ a ~~$37.4~~$23.6 million increase in non-development capital expenditures, net.

Our principal sources of liquidity have historically been from:

•cash balances on hand, cash equivalents, and marketable securities;

•cash flows from operations;

•proceeds from our credit facilities;

•funds generated through unconsolidated venture arrangements;

•proceeds from mortgage financing or refinancing of various assets;

•funds raised in the debt or equity markets; and

•proceeds from the disposition of assets.

Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. We also have received pandemic-related government relief, ~~in the form of~~including cash ~~grants and employee retention credits, and we have elected to utilize the pandemic-related payroll tax deferral program.~~grants.

Our liquidity requirements have historically arisen from:

•working capital;

•operating costs such as labor costs, severance costs, general and administrative expense, and supply costs;

•debt, interest, and lease payments;

•acquisition consideration, lease termination and restructuring costs, and transaction and integration costs;

•capital expenditures and improvements, including the renovation, expansion, ~~repositioning, redeveloping,~~redevelopment, and ~~major renovation~~repositioning of our current communities and the development of new communities;

•cash collateral required to be posted in connection with our financial instruments and insurance programs;

•purchases of common stock under our share repurchase authorizations;

•other corporate initiatives (including integration, information systems, branding, and other strategic projects); and

•prior to 2009, dividend payments.

Over the near-term, we expect that our liquidity requirements will primarily arise from:

•working capital;

•operating costs such as labor costs, severance costs, general and administrative expense, and supply ~~costs, including those related to Hurricane Ian;~~costs;

•debt, interest, and lease payments;

•~~payment of deferred payroll taxes under the CARES Act;~~

•~~acquisition consideration;~~

•transaction costs and investment in our healthcare and wellness initiatives;

•capital expenditures and improvements, including the ~~expansion,~~ renovation ~~redevelopment, and repositioning~~ of our ~~existing~~current communities and ~~the~~ remediation or replacement of assets as a result of casualty losses;

•cash collateral required to be posted in connection with our financial instruments and insurance programs; and

•other corporate initiatives (including information systems and other strategic projects).

We are highly leveraged and have significant debt and lease obligations. As of ~~September 30, 2022, we have three principal corporate-level debt obligations and credit facilities:~~

•~~$230.0 million principal amount of 2.00% convertible senior notes due 2026.~~

•~~$80.0 million secured credit facility maturing January 2024, under which $72.6 million of letters of credit and no cash borrowings have been issued as of September 30, 2022.~~

•~~Separate secured letter of credit facility providing for up to $15.0 million of letters of credit as of September 30, 2022, under which $13.9 million had been issued as of that date.~~

~~As of September 30, 2022,~~March 31, 2023, we had ~~$3.8~~$3.9 billion of debt outstanding at a weighted average interest rate of ~~4.49%~~5.27%. As of such date, ~~93.9%~~91.6%, or ~~$3.6~~$3.5 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of September 30, 2022, 61.9%, or $2.4 billion, of our long-term debt had a weighted average fixed interest rate of 3.94%. We are subject to market risks from changes in interest rates charged on our credit facilities and other variable rate indebtedness. As of September 30, 2022, 91% of our $1.5 billion of outstanding variable rate debt is indexed to the one-month London Interbank Offer Rate ("LIBOR") plus a weighted average margin of 233 basis points and 9% of our outstanding variable rate debt is indexed to the one-month Secured Overnight Financing Rate ("SOFR") plus a weighted average margin of 223 basis points. As of September 30, 2022, $1.3 billion, or 91%, of our variable rate debt is subject to interest rate cap agreements, and $128.7 million of our variable rate debt is not subject to any interest rate cap agreements. For our LIBOR and SOFR interest rate cap agreements as of September 30, 2022, the weighted average fixed cap rate is 4.39%, and the weighted average remaining term is 1.4 years. Many of our variable rate debt instruments include provisions that obligate us to acquire additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements. The costs of acquiring additional interest rate cap agreements may offset the benefits of our existing interest rate cap agreements.

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$1.3~~$1.0 billion of operating and financing lease obligations. For the twelve months ending ~~September 30, 2023,~~March 31, 2024, we will be required to make ~~approximately $279.1~~approximately $279.0 million of cash lease payments in connection with our existing operating and financing leases.

Total liquidity of ~~$395.6~~$438.6 million as of ~~September 30, 2022~~March 31, 2023 included ~~$299.2~~$362.2 million of unrestricted cash and cash equivalents (excluding restricted cash of ~~$95.6~~$74.5 million), ~~$89.5~~$69.0 million of marketable securities, and ~~$6.9~~$7.4 million of availability on our secured credit facility. Total liquidity as of ~~September 30, 2022~~March 31, 2023 decreased ~~$141.3~~$14.0 million from total liquidity of ~~$536.8~~$452.6 million as of December 31, ~~2021.~~2022. The decrease was primarily attributable to negative ~~$97.8~~$21.2 million of Adjusted Free Cash ~~Flow and $28.3 million of payments of mortgage debt.~~

On October 13, 2022, we obtained $220.0 million of debt secured by first priority mortgages on 24 communities. The loan bears interest at a variable rate equal to the one-month SOFR plus a margin of 245 basis points, and is interest only for the first three years. The debt matures in October 2025 with two one-year renewal options, exercisable subject to certain performance criteria. The debt documents contain a requirement for us to maintain liquidity of at least $130.0 million and 25% of the loan amount is subject to a guaranty by us. The proceeds from the financing were primarily utilized to repay $199.6 million of outstanding mortgage debt maturing in 2023 and to purchase a SOFR interest rate swap instrument for $6.1 million. The interest rate swap instrument has a $220.0 million notional amount, a fixed interest rate of 3.0%, and a term of eighteen months.Flow.

As of ~~September 30, 2022,~~March 31, 2023, our current liabilities exceeded current assets by ~~$75.6~~$40.8 million. Included in our current liabilities is ~~$182.3~~$202.6 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets. We currently estimate our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining expense discipline, continuing to refinance maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets. There is no assurance that financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in monetizing certain assets.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item

1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the ~~SEC~~Securities and Exchange Commission ("SEC") on February ~~15, 2022.~~22, 2023. The amount of mortgage financing available for our communities is generally dependent on their appraised values and performance. In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac. Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 and 2022 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness. We have completed the refinancing of ~~substantially~~ all of our mortgage debt maturities due in ~~2022 and~~ 2023. Our inability to obtain refinancing proceeds sufficient to cover 2024 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned

capital expenditures, or to pursue any ~~acquisition, investment, development, or~~ potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.

Capital Expenditures

Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include ~~recurring~~maintenance expenditures ~~(routine~~(including routine maintenance of communities over $1,500 per ~~occurrence and for~~occurrence), community renovations, unit upgrades (including unit turnovers over $500 per unit) ~~and community renovations, apartment upgrades,~~, and other major building infrastructure ~~projects.~~projects (including replacements of major building systems). Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities.

With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications.

The following table summarizes our capital expenditures for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 for our consolidated business.


(in millions)
Community-level capital expenditures, net(1)	$	~~109.6~~41.9
Corporate capital expenditures, net(2)	~~19.2~~21.0
Non-development capital expenditures, net~~(2)~~(3)	~~128.8~~62.9
Development capital expenditures, net	~~4.4~~0.5
Total capital expenditures, net	$	~~133.2~~63.4

(1)Reflects the amount invested, net of lessor reimbursements of ~~$18.9~~$2.2 million.

(2)Includes $16.3 million of remediation costs at our communities resulting from natural disasters, including $15.3 million of capital expenditures resulting from the impact of Winter Storm Elliott.

(3)Amount is included in Adjusted Free Cash Flow.

In the aggregate, we expect our full-year ~~2022~~2023 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately ~~$170.0~~$220.0 million, including ~~approximately $10.0 million of capital expenditures for property~~ remediation costs at our communities resulting from ~~the impact of~~Winter Storm Elliott and Hurricane Ian based on our preliminary assessments. The foregoing amounts exclude expected reimbursement subsequent to 2022 from our property and casualty insurance policies of capital expenditures resulting from the impact of Hurricane Ian. In addition, we expect our full-year 2022 development capital expenditures to be approximately $10.0 million, net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our ~~2022~~2023 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, ~~and~~ reimbursements from ~~lessors.~~lessors, and approximately $20.0 million of reimbursement from our property and casualty insurance policies. We received $6.4 million of insurance reimbursements in the three months ended March 31, 2023.

Funding our planned capital expenditures, ~~pursuing~~ any ~~acquisition, investment, development, or~~ potential lease restructuring opportunities that we identify, or ~~funding~~ investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.

4333

Credit Facilities

On December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of up to $80.0 million which can be drawn in cash or as letters of credit. The ~~agreement~~credit facility matures on January 15, ~~2024.~~2024 and we have the option to extend the facility for two additional terms of one year each subject to the satisfaction of certain conditions. Amounts drawn under the facility will bear interest at ~~30-day LIBOR~~SOFR plus an applicable margin which was 2.75% as of ~~September 30, 2022.~~March 31, 2023. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of ~~September 30, 2022.~~March 31, 2023. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the variable interest rate of the credit facility.

As of ~~September 30, 2022,~~March 31, 2023, $72.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility and the facility had ~~$6.9~~$7.4 million of availability. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of ~~September 30, 2022~~March 31, 2023 under which $13.9 million had been issued as of that date.

Long-Term Leases

As of ~~September 30, 2022,~~March 31, 2023, we operated 295 communities under long-term leases ~~(230~~(246 operating leases and 6549 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. ~~Approximatel~~yApproximately 89% of our community lease payments are subject to a weighted average maximum annual increase of 2.7% for community leases subject to fixed annual escalators or variable annual escalators based on the consumer price index subject to a cap. The remaining community lease payments are subject to variable annual escalators primarily based upon the change in the consumer price index. An additional 1% increase in the consumer price index would have resulted in additional cash lease payments of approximately ~~$0.2~~$0.2 million for the twelve months ended ~~September 30, 2022.~~March 31, 2023. We are responsible for all operating costs, including repairs, property taxes, and insurance. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. Our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.

Certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, our cash lease payments for our operating leases were ~~$51.7~~$58.6 million ~~and $154.5 million, respectively,~~ and for our financing leases were ~~$17.4 million and $52.6 million, respectively.~~$12.4 million. For the twelve months ending ~~September 30, 2023,~~March 31, 2024, we will be required to make ~~$279.1~~$279.0 million of cash lease payments in connection with our existing operating and financing leases.

Debt and Lease Covenants

Certain of our long-term debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from ~~sale-~~

~~leaseback~~sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. These covenants include a requirement contained in certain of our long-term debt documents for us to maintain liquidity of at least $130.0 million at each quarter-end determination date. As of March 31, 2023, our liquidity was $438.6 million.

In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).

Furthermore, our long-term debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.

As of ~~September 30, 2022,~~March 31, 2023, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with GAAP. Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility operating lease termination, operating lease expense adjustment, non-cash stock-based compensation expense, gain/loss on sale of communities, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance.

We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that

management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry.

Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets

and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

The table below reconciles Adjusted EBITDA from net income (loss).


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Net income (loss)	Net income (loss)	$	(28,374)	$	174,263	$	(212,689)	$	(17,644)	Net income (loss)	$	(44,563)	$	(100,032)
Provision (benefit) for income taxes	Provision (benefit) for income taxes	(300)		15,279		(1,086)		15,239		Provision (benefit) for income taxes	572		(1,976)
Equity in (earnings) loss of unconsolidated ventures	Equity in (earnings) loss of unconsolidated ventures	2,020		1,474		9,353		(11,941)		Equity in (earnings) loss of unconsolidated ventures	577		4,894

Loss (gain) on sale of assets, net		56		(288,375)		(611)		(289,408)
Non-operating loss (gain) on sale of assets, net										Non-operating loss (gain) on sale of assets, net	—		294
Other non-operating (income) loss	Other non-operating (income) loss	(1,877)		(571)		(1,739)		(5,163)		Other non-operating (income) loss	(3,149)		27
Interest expense	Interest expense	49,873		49,361		141,461		147,025		Interest expense	59,711		43,354
Interest income	Interest income	(2,192)		(286)		(3,065)		(1,048)		Interest income	(5,326)		(95)
Income (loss) from operations	Income (loss) from operations	19,206		(48,855)		(68,376)		(162,940)		Income (loss) from operations	7,822		(53,534)
Depreciation and amortization	Depreciation and amortization	86,922		84,560		259,229		252,042		Depreciation and amortization	84,934		85,684
Asset impairment	Asset impairment	5,688		639		17,362		13,394		Asset impairment	—		9,075

Operating lease expense adjustment	Operating lease expense adjustment	(8,714)		(6,273)		(25,329)		(16,263)		Operating lease expense adjustment	(10,805)		(8,307)
Non-cash stock-based compensation expense	Non-cash stock-based compensation expense	3,403		3,568		10,907		12,878		Non-cash stock-based compensation expense	3,104		3,885
Transaction and organizational restructuring costs	Transaction and organizational restructuring costs	346		943		948		3,516		Transaction and organizational restructuring costs	3,568		373
Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	106,851	$	34,582	$	194,741	$	102,627	Adjusted EBITDA(1)	$	88,623	$	37,176

(1) Adjusted EBITDA includes a ~~$66.8~~$2.3 million and ~~$75.5~~$0.4 million benefit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and a $0.1 million and $12.1 million benefit for the three and nine months ended September 30, 2021,~~ respectively, of government grants and credits recognized in other operating income.

Adjusted Free Cash Flow

Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease assets and liabilities for lease termination, cash paid/received for gain/loss on facility operating lease termination, and lessor capital expenditure reimbursements under operating leases; plus: property and casualty insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures for: community expansions, major community redevelopment and repositioning projects, and the development of new communities.

We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.

Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure

for short-term comparisons. Additionally, Adjusted Free Cash Flow excludes cash used to purchase interest rate cap instruments, as well as any cash provided by settlements of interest rate cap instruments.

The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	63,521	$	7,200	$	51,843	$	(13,247)	Net cash provided by (used in) operating activities	$	24,042	$	(23,255)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	22,508		203,974		(57,493)		201,729		Net cash provided by (used in) investing activities	(62,019)		(36,163)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(19,754)		(19,177)		(37,847)		(75,731)		Net cash provided by (used in) financing activities	171		(403)
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	66,275	$	191,997	$	(43,497)	$	112,751	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(37,806)	$	(59,821)

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	63,521	$	7,200	$	51,843	$	(13,247)	Net cash provided by (used in) operating activities	$	24,042	$	(23,255)
Distributions from unconsolidated ventures from cumulative share of net earnings	Distributions from unconsolidated ventures from cumulative share of net earnings	—		(836)		(561)		(6,191)		Distributions from unconsolidated ventures from cumulative share of net earnings	—		(561)
Changes in prepaid insurance premiums financed with notes payable	Changes in prepaid insurance premiums financed with notes payable	(5,700)		(4,151)		5,552		4,634		Changes in prepaid insurance premiums financed with notes payable	19,305		16,629
Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases	Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases	(4,367)		(11,551)		(9,224)		(27,057)		Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases	(2,244)		(1,490)
Non-development capital expenditures, net	Non-development capital expenditures, net	(43,819)		(28,193)		(128,831)		(91,438)		Non-development capital expenditures, net	(62,912)		(39,326)
Property and casualty insurance proceeds										Property and casualty insurance proceeds	6,422		—
Payment of financing lease obligations	Payment of financing lease obligations	(5,506)		(5,039)		(16,606)		(14,692)		Payment of financing lease obligations	(5,852)		(5,490)
Adjusted Free Cash Flow(1)	Adjusted Free Cash Flow(1)	$	4,129	$	(42,570)	$	(97,827)	$	(147,991)	Adjusted Free Cash Flow(1)	$	(21,239)	$	(53,493)

(1) Adjusted Free Cash Flow includes:

•$~~62.8~~13.4 million and ~~$68.1~~$0.8 million benefit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $1.1 million and $3.3 million benefit for the three and nine months ended September 30, 2021,~~ respectively, from government grants and credits received.

•$3.1 million recoupment for the nine months ended September 30, 2022, of accelerated/advanced Medicare payments, of which none were recouped during the three months ended September 30, 2022, and $3.5 million and $17.81.8 million recoupment for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022 of accelerated/advanced Medicare payments.

•$~~0.3~~3.6 million and ~~$0.9~~$0.4 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively, and $0.9 million and $3.5 million for the three and nine months ended September 30, 2021,~~ respectively, for transaction and organizational restructuring costs.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks from changes in interest rates charged on our credit facilities and other variable rate indebtedness. The impact on earnings and the value of our long-term debt are subject to change as a result of movements in market rates and prices. As of ~~September 30, 2022, 61.9%~~March 31, 2023, 59.8%, or ~~$2.4~~$2.3 billion, of our long-term debt had a weighted average fixed interest rate of ~~3.94%~~4.00%. As of ~~September 30, 2022,~~March 31, 2023, we had ~~$1.5~~$1.6 billion of long-term variable rate debt, at a weighted average interest rate of ~~5.40%~~7.15%.

In the normal course of business, we enter into certain interest rate cap and swap agreements with major financial institutions to manage our risk above certain interest rates on variable rate debt. As of ~~September 30, 2022, 91%~~March 31, 2023, 76% of our ~~$1.5~~$1.6 billion of outstanding long-term variable rate debt is indexed to ~~the one-month~~ LIBOR plus a weighted average margin of ~~233~~228 basis points and 9%24% of our outstanding long-term variable rate debt is indexed to ~~the one-month~~ SOFR plus a weighted average margin of ~~223~~238 basis points. Accordingly, our annual interest expense related to long-term variable rate debt is directly affected by movements in LIBOR or SOFR. As of ~~September 30, 2022, $1.3~~March 31, 2023, $1.4 billion, or ~~91%~~92%, of our long-term variable rate debt is subject to interest rate cap or swap agreements and ~~$128.7~~$128.8 million of our variable rate debt is not subject to any interest rate cap or swap agreements. For our LIBOR and SOFR interest rate cap and swap agreements as of ~~September 30, 2022,~~March 31, 2023, the weighted average fixed ~~cap~~interest rate is ~~4.39%~~4.14%, and the weighted average remaining term is ~~1.4~~1.1 years. Many of our long-term variable rate debt instruments include provisions that obligate us to ~~acquire~~obtain additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements. The costs of ~~acquiring~~obtaining additional interest rate cap agreements may offset the benefits of our existing interest rate cap agreements.

4737

The table below reflects the additional annual debt interest expense that would have resulted for the respective basis point increases in LIBOR and SOFR as of ~~September 30, 2022.~~March 31, 2023.

Increase in Index
(in basis points)
Annual Interest Expense Increase (1)
(in millions)
100 $ 11.8
200 18.4
500 24.0
1,000 30.6


Increase in Index (in basis points)	Annual Interest Expense Increase (1) (in millions)
100	$	2.5
200	4.2
500	8.8
1,000	15.4

(1)Amounts are after consideration of interest rate cap and swap agreements in place as of ~~September 30, 2022.~~March 31, 2023, for which the weighted average remaining term is 1.1 years.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of ~~September 30, 2022,~~March 31, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2022~~March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information contained in Note 10 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by this reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information regarding purchases of our common stock made during the quarter ended ~~September 30, 2022~~March 31, 2023 by or on behalf of the Company or any ''affiliated purchaser,'' as defined by Rule 10b-18(a)(3) of the Exchange Act.

Period
Total
Number of
Shares
Purchased (1)
Average
Price Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs ($ in thousands) (2)
7/1/2022 - 7/31/2022 — $ — — $ 44,026
8/1/2022 - 8/31/2022 8,071 4.64 — 44,026
9/1/2022 - 9/30/2022 — — — 44,026
Total 8,071 $ 4.64 —


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in thousands) (2)
1/1/2023 - 1/31/2023	24,967	$	2.80	—	$	44,026
2/1/2023 - 2/28/2023	531,563	3.32		—	44,026
3/1/2023 - 3/31/2023	2,181	3.20		—	44,026
Total	558,711	$	3.29	—

(1)Consists entirely of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock and restricted stock units. The average price paid per share for such share withholding is based on the closing price per share on the vesting date of the restricted stock and restricted stock units or, if such date is not a trading day, the trading day immediately prior to such vesting date.

(2)On November 1, 2016, we announced that our Board of Directors had approved a share repurchase program that authorizes us to purchase up to $100.0 million in the aggregate of our common stock. The share repurchase program is intended to be implemented through purchases made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements, and capital availability. The repurchase program does not obligate us to acquire any particular amount of common stock and the program may be suspended, modified or discontinued at any time at our discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. As of ~~September 30, 2022,~~March 31, 2023, $44.0 million remained available under the repurchase program.

4939

Item 6. Exhibits


Exhibit No.						Description

~~2.1~~						Securities Purchase Agreement dated as of February 24, 2021, by and among the Company and certain of its subsidiaries and certain subsidiaries of HCA Healthcare, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 24, 2021 (File No. 001-32641)).*
3.1						Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on November 5, 2019 (File No. 001-32641)).
3.2						Amended and Restated Bylaws of the Company dated October 29, 2019 (incorporated by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K filed on October 29, 2019 (File No. 001-32641)).
4.1						Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Amendment No. 3) filed on November 7, 2005 (File No. 333-127372)).
4.2						Description of the Company's ~~common stock (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K filed on February 19, 2020 (File No. 001-32641)).~~securities.
4.3						Indenture, dated as of October 1, 2021, by and among the Company and American Stock Transfer & Trust Company, LLC, as trustee, governing the 2.00% Convertible Senior Notes due 2026 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 1, 2021 (File No. 001-32641)).
4.4						Form of 2.00% Convertible Senior Notes due 2026 (included in Exhibit 4.3).
4.5						Indenture, dated as of November 21, 2022, between the Company and American Stock Transfer & Trust Company, LLC, as trustee (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on November 22, 2022 (File No. 001-32641)).
4.6						First Supplemental Indenture, dated as of November 21, 2022, between the Company and American Stock Transfer & Trust Company, LLC, as trustee (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on November 22, 2022 (File No. 001-32641)).
4.7						Form of 10.25% Senior Amortizing Notes due 2025 (included in Exhibit 4.6).
4.8						Purchase Contract Agreement dated as of November 21, 2022, between the Company and American Stock Transfer & Trust Company, LLC, as purchase contract agent, as attorney-in-fact for holders of the purchase contracts referred to therein and as trustee under the indenture referred to therein (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 22, 2022 (File No. 001-32641)).
4.9						Form of 7.00% Tangible Equity Units (included in Exhibit 4.8).
4.10						Form of Purchase Contracts (included in Exhibit 4.8).
10.1						~~Amendment No. 3 dated effective July 15, 2022 to~~ Restricted Stock Unit Agreement under the Amended and ~~Restated Master Lease and Security Agreement~~ Res tated Brookdale Senior Living Inc. 2014 Omnibus Incentive Plan (the "Omnibus Incentive Plan ") dated as of February 15, 2023, by and between ~~certain affiliates of~~ the Company ~~as Tenant~~ and ~~certain subsidiaries~~Lucinda M. Baier.
10.2						Form of Ventas as Landlord.*Restricted Stock Unit Agreement under the Omnibus Incentive Plan (2023 Time-Based Form for Executive Officers other than CEO).
10.3						Performance-Based Restricted Stock Unit Agreement under the Omnibus Incentive Plan dated as of February 15, 2023, by and between the Company and Lucinda M. Baier.
10.4						Form of Restricted Stock Unit Agreement under the Omnibus Incentive Plan (202 3 Performance-Based Form for Executive Officers other than CEO ).
10.5						Per formance -Based Cash A ward A greement dated as of February 15, 2023, by and between the Company and Lucinda M . Baier .
10.6
						Offer Letter Agreement dated as of January 1 2 , 202 3 by and between the Company and Dawn L. Kussow.
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022,~~March 31, 2023, formatted in Inline XBRL (included in Exhibit 101).
*						Schedules and exhibits have been omitted pursuant to Item 601 of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.

5040

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			BROOKDALE SENIOR LIVING INC.
			(Registrant)

			By:			/s/ ~~Steven E. Swain~~Dawn L. Kussow
			Name:			~~Steven E. Swain~~Dawn L. Kussow
			Title:			Executive Vice President and Chief Financial Officer (Principal Financial Officer)
			Date:			~~November 8, 2022~~May 9, 2023

5141


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Private pay	93.6	%	93.0	%	93.5	%	84.9	%
Government reimbursement	5.1	%	5.5	%	5.1	%	11.8	%
Other third-party payor programs	1.3	%	1.5	%	1.4	%	3.3	%


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except for per share amounts)	2022		2021		2022		2021
Income attributable to common stockholders:
Net income (loss)	$	(28,359)	$	174,282	$	(212,790)	$	(17,588)

Weighted average shares outstanding - basic	186,790		185,317		186,493		184,841
Effect of dilutive securities:
Warrants	—		9,451		—		—
Restricted stock and restricted stock units	—		1,462		—		—
Weighted average shares outstanding - diluted	186,790		196,230		186,493		184,841

Net income (loss) per share attributable to common stockholders - basic	$	(0.15)	$	0.94	$	(1.14)	$	(0.10)
Net income (loss) per share attributable to common stockholders - diluted	$	(0.15)	$	0.89	$	(1.14)	$	(0.10)


	As of September 30,
(in millions)		2022	2021


Restricted stock and restricted stock units		5.4	5.2
Warrants		16.3	16.3
Convertible senior notes		38.3	—

Total		60.0	21.5


	Q1 2021		Q2 2021		Q3 2021		Q4 2021		Q1 2022		Q2 2022		Q3 2022
Weighted average	69.6	%	70.5	%	72.5	%	73.5	%	73.4	%	74.6	%	76.4	%
Quarter end	70.6	%	72.6	%	74.2	%	74.5	%	75.0	%	76.6	%	78.4	%


	Jan 2022		Feb 2022		Mar 2022		Apr 2022		May 2022		Jun 2022		Jul 2022		Aug 2022		Sep 2022		Oct 2022
Weighted average	73.4	%	73.3	%	73.6	%	73.9	%	74.6	%	75.2	%	75.9	%	76.4	%	76.9	%	77.2	%
Month end	74.2	%	74.4	%	75.0	%	75.3	%	76.2	%	76.6	%	77.1	%	77.9	%	78.4	%	78.2	%