(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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, 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.

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

As of October 31, ~~2019,~~2020, the Registrant had ~~31,463,375~~31,914,264 outstanding shares of its Common Stock, $0.01 par value, per share.

							September 30, 2020			December 31, 2019
	September 30, 2019			December 31, 2018			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,703		$	31,309		$	14,293		$	23,975
Restricted cash		13,073			13,011			3,982			13,088
Accounts receivable, net		8,785			10,581			9,107			8,143
Federal and state income taxes receivable		152			152			76			72
Assets held for sale		24,366			—
Property tax and insurance deposits		12,482			13,173			8,863			12,627
Prepaid expenses and other		5,970			5,232			4,764			5,308
Total current assets		72,531			73,458			41,085			63,213
Property and equipment, net		978,224			1,059,049			692,746			969,211
Operating lease right-of-use assets, net		231,910			—			3,691			224,523
Deferred taxes, net		152			152			76			76
Other assets, net		11,383			16,485			2,863			10,673
Total assets	$	1,294,200		$	1,149,144		$	740,461		$	1,267,696
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	4,413		$	9,095		$	10,398		$	10,382
Accrued expenses		42,311			41,880			56,474			46,227
Current portion of notes payable, net of deferred loan costs		126,179			14,342			263,674			15,819
Current portion of deferred income		6,329			14,892			5,885			7,201
Current portion of financing obligations		1,718			3,113			—			1,741
Current portion of operating lease liabilities		46,801			—
Current portion of lease liabilities								8,971			45,988
Federal and state income taxes payable		303			406			307			420
Customer deposits		1,265			1,302			991			1,247
Total current liabilities		229,319			85,030			346,700			129,025
Deferred income		—			8,151
Financing obligations, net of current portion		10,132			45,647			—			9,688
Operating lease liabilities, net of current portion		214,950			—
Other long-term liabilities		—			15,643
Lease liabilities, net of current portion								590			208,967
Notes payable, net of deferred loan costs and current portion		836,589			959,408			652,194			905,637
Commitments and contingencies
Shareholders’ equity:
Shareholders’ equity (deficit):
Preferred stock, $.01 par value:								—			—
Authorized shares – 15,000; no shares issued or outstanding		—			—
Authorized shares – 15,000; 0 shares issued or outstanding
Common stock, $.01 par value:
Authorized shares – 65,000; issued and outstanding shares – 31,463 and 31,273 in 2019 and 2018, respectively		320			318
Authorized shares – 65,000; issued and outstanding shares – 31,429 and 31,441 in 2020 and 2019, respectively								319			319
Additional paid-in capital		189,435			187,879			191,882			190,386
Retained deficit		(183,115	)		(149,502	)		(447,794	)		(172,896	)
Treasury stock, at cost – 494 shares in 2019 and 2018		(3,430	)		(3,430	)
Total shareholders’ equity		3,210			35,265
Total liabilities and shareholders’ equity	$	1,294,200		$	1,149,144
Treasury stock, at cost – 494 shares in 2020 and 2019								(3,430	)		(3,430	)
Total shareholders’ equity (deficit)								(259,023	)		14,379
Total liabilities and shareholders’ equity (deficit)							$	740,461		$	1,267,696

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenues:										��
Resident revenue	$	111,110		$	115,650		$	338,412		$	344,920		$	85,894		$	111,110		$	290,952		$	338,412
Management fees														604			—			819			—
Community reimbursement revenue														9,555			—			11,888			—
Total revenues														96,053			111,110			303,659			338,412
Expenses:
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below)		80,394			76,195			230,229			220,863			65,165			80,394			211,874			230,229
General and administrative expenses		7,554			5,589			21,766			17,323			8,128			7,554			21,036			21,766
Facility lease expense		14,233			14,077			42,706			42,515			5,926			14,233			23,234			42,706
Stock-based compensation expense		898			2,095			1,558			6,603			421			898			1,494			1,558
Depreciation and amortization expense		16,136			15,998			48,085			46,891			15,547			16,136			47,584			48,085
Long-lived asset impairment														3,240			—			39,194			—
Community reimbursement expense														9,555			—			11,888			—
Total expenses		119,215			113,954			344,344			334,195			107,982			119,215			356,304			344,344
Income (loss) from operations		(8,105	)		1,696			(5,932	)		10,725
Other income (expense):
Interest income		59			42			173			117			14			59			83			173
Interest expense		(12,562	)		(12,705	)		(37,728	)		(37,771	)		(11,141	)		(12,562	)		(34,044	)		(37,728	)
Write-off of deferred loan costs		—			—			(97	)		—
Write-down of assets held for sale		—			—			(2,340	)		—
Gain on disposition of assets, net		—			—			38			10
Other income		1			7			8			2
Loss before provision for income taxes		(20,607	)		(10,960	)		(45,878	)		(26,917	)
Write down of assets held for sale														—			—			—			(2,340	)
Gain (loss) on facility lease modification and termination, net														(753	)		—			10,487			(97	)
Gain (loss) on disposition of assets, net														(191,032	)		—			(198,388	)		38
Other income (expense)														9			1			2			8
Loss from continuing operations before provision for income taxes														(214,832	)		(20,607	)		(274,505	)		(45,878	)
Provision for income taxes		(124	)		(129	)		(371	)		(388	)		(132	)		(124	)		(393	)		(371	)
Net loss	$	(20,731	)	$	(11,089	)	$	(46,249	)	$	(27,305	)	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Per share data:																			0
Basic net loss per share	$	(0.68	)	$	(0.37	)	$	(1.53	)	$	(0.92	)	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share	$	(0.68	)	$	(0.37	)	$	(1.53	)	$	(0.92	)	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Weighted average shares outstanding — basic		30,324			29,877			30,236			29,779			30,730			30,324			30,578			30,236
Weighted average shares outstanding — diluted		30,324			29,877			30,236			29,779			30,730			30,324			30,578			30,236
Comprehensive loss	$	(20,731	)	$	(11,089	)	$	(46,249	)	$	(27,305	)	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)

	Common Stock						Additional Paid-In			Retained			Treasury						Common Stock						Additional Paid-In			Retained			Treasury
	Shares			Amount			Capital			Deficit			Stock			Total

Balance at December 31, 2017		30,505		$	310		$	179,459		$	(95,906	)	$	(3,430	)	$	80,433
Restricted stock awards (cancellations), net		628			6			(6	)		—			—			—
Stock-based compensation		—			—			1,949			—			—			1,949
Net loss		—			—			—			(7,156	)		—			(7,156	)
Balance at March 31, 2018		31,133		$	316		$	181,402		$	(103,062	)	$	(3,430	)	$	75,226
Restricted stock awards (cancellations), net		45			1			(1	)		—			—			—
Stock-based compensation		—			—			2,559			—			—			2,559
Net loss		—			—			—			(9,060	)		—			(9,060	)
Balance at June 30, 2018		31,178		$	317		$	183,960		$	(112,122	)	$	(3,430	)	$	68,725
Restricted stock awards (cancellations), net		1			1			(1	)		—			—			—
Stock-based compensation		—			—			2,095			—			—			2,095
Net loss		—			—			—			(11,089	)		—			(11,089	)
Balance at September 30, 2018		31,179		$	318		$	186,054		$	(123,211	)	$	(3,430	)	$	59,731
																			Shares			Amount			Capital			Deficit			Stock			Total
Balance at December 31, 2018		31,273		$	318		$	187,879		$	(149,502	)	$	(3,430	)	$	35,265			31,273		$	318		$	187,879		$	(149,502	)	$	(3,430	)	$	35,265
Adoption of ASC 842		—			—			—			12,636			—			12,636			—			—			—			12,636			—			12,636
Restricted stock awards (cancellations), net		(150	)		(2	)		2			—			—			—			(150	)		(2	)		2			—			—			—
Stock-based compensation		—			—			(978	)		—			—			(978	)		—			—			(978	)		—			—			(978	)
Net loss		—			—			—			(12,984	)		—			(12,984	)		—			—			—			(12,984	)		—			(12,984	)
Balance at March 31, 2019		31,123		$	316		$	186,903		$	(149,850	)	$	(3,430	)	$	33,939			31,123			316			186,903			(149,850	)		(3,430	)		33,939
Restricted stock awards (cancellations), net		346			4			(4	)		—			—			—			346			4			(4	)		—			—			—
Stock-based compensation		—			—			1,638			—			—			1,638			—			—			1,638			—			—			1,638
Net loss		—			—			—			(12,534	)		—			(12,534	)		—			—			—			(12,534	)		—			(12,534	)
Balance at June 30, 2019		31,469		$	320		$	188,537		$	(162,384	)	$	(3,430	)	$	23,043			31,469			320			188,537			(162,384	)		(3,430	)		23,043
Restricted stock awards (cancellations), net		(6	)		—			—			—			—			—			(6	)		—			—			—			—			—
Stock-based compensation		—			—			898			—			—			898			—			—			898			—			—			898
Net loss		—			—			—			(20,731	)		—			(20,731	)		—			—			—			(20,731	)		—			(20,731	)
Balance at September 30, 2019		31,463		$	320		$	189,435		$	(183,115	)	$	(3,430	)	$	3,210			31,463			320			189,435			(183,115	)		(3,430	)		3,210


Balance at December 31, 2019																				31,441		$	319		$	190,386		$	(172,896	)	$	(3,430	)	$	14,379
Restricted stock awards (cancellations), net																				(52	)		—			—			—			—			—
Stock-based compensation																				—			—			597			—			—			597
Net loss																				—			—			—			(47,181	)		—			(47,181	)
Balance at March 31, 2020																				31,389		$	319		$	190,983		$	(220,077	)	$	(3,430	)	$	(32,205	)
Restricted stock awards (cancellations), net																				43			—			—			—			—			—
Stock-based compensation																				—			—			478			—			—			478
Net loss																				—			—			—			(12,753	)		—			(12,753	)
Balance at June 30, 2020																				31,432		$	319		$	191,461		$	(232,830	)	$	(3,430	)	$	(44,480	)
Restricted stock awards (cancellations), net																				(3	)		—			—			—			—			—
Stock-based compensation																				—			—			421			—			—			421
Net loss																				—			—			—			(214,964	)		—			(214,964	)
Balance at September 30, 2020																				31,429		$	319		$	191,882		$	(447,794	)	$	(3,430	)	$	(259,023	)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
Operating Activities
Net loss	$	(46,249	)	$	(27,305	)	$	(274,898	)	$	(46,249	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		48,085			46,891			47,584			48,085
Amortization of deferred financing charges		1,237			1,281			1,399			1,237
Amortization of deferred lease costs and lease intangibles		—			638
Amortization of lease incentives		—			(1,426	)
Deferred income		790			(712	)		(217	)		790
Operating lease expense adjustment		(4,285	)		—			(18,460	)		(4,285	)
Write-off of deferred loan costs		97			—
Loss on disposition of assets, net								198,388			59
Gain on facility lease modification and termination, net								(10,487	)		—
Long-lived asset impairment								39,194			—
Write-down of assets held for sale		2,340			—			—			2,340
Gain on disposition of assets, net		(38	)		(10	)
Provision for bad debts		2,182			2,254			2,190			2,182
Stock-based compensation expense		1,558			6,603			1,494			1,558
Changes in operating assets and liabilities:
Accounts receivable		(385	)		(2,076	)		(3,616	)		(385	)
Property tax and insurance deposits		690			1,935			1,091			690
Prepaid expenses and other		(2,001	)		1,685			911			(2,001	)
Other assets		(373	)		1,267			(2,056	)		(373	)
Accounts payable		(4,683	)		1,205			1,101			(4,683	)
Accrued expenses		430			(3,073	)		11,317			430
Other liabilities		—			(1,908	)
Federal and state income taxes receivable/payable		(103	)		(84	)		(117	)		(103	)
Deferred resident revenue		(6	)		(198	)		1			(6	)
Customer deposits		(38	)		(96	)		(189	)		(38	)
Net cash (used in)/provided by operating activities		(752	)		26,871
Net cash used in operating activities								(5,370	)		(752	)
Investing Activities
Capital expenditures		(14,271	)		(17,954	)		(11,211	)		(14,271	)
Proceeds from disposition of assets		4,888			22			6,396			4,888
Net cash used in investing activities		(9,383	)		(17,932	)		(4,815	)		(9,383	)
Financing Activities
Proceeds from notes payable		5,268			1,740			3,673			5,268
Repayments of notes payable		(16,884	)		(16,844	)		(11,901	)		(16,884	)
Cash payments for financing obligations		(1,095	)		(2,054	)
Cash payments for financing lease and financing obligations								(361	)		(1,095	)
Deferred financing charges paid		(698	)		(87	)		(14	)		(698	)
Net cash used in financing activities		(13,409	)		(17,245	)		(8,603	)		(13,409	)
Decrease in cash and cash equivalents		(23,544	)		(8,306	)		(18,788	)		(23,544	)
Cash and cash equivalents and restricted cash at beginning of period		44,320			31,024			37,063			44,320
Cash and cash equivalents and restricted cash at end of period	$	20,776		$	22,718		$	18,275		$	20,776
Supplemental Disclosures
Cash paid during the period for:
Interest	$	35,723		$	36,345		$	25,855		$	35,723
Lease modification and termination							$	6,791		$	—
Income taxes	$	505		$	546		$	13		$	505

Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates, and manages senior housing communities throughout the United States. As of September 30, ~~2019,~~2020, the Company operated ~~128~~119 senior housing communities in 2322 states with an aggregate capacity of approximately ~~16,400~~14,700 residents, including 8261 senior housing communities that the Company owned, ~~and 46~~34 senior housing communities that the Company ~~leased.~~leased, and 24 communities that the Company managed on behalf of third parties. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying Consolidated Balance Sheet, as of December 31, ~~2018,~~2019, has been derived from audited consolidated financial statements of the Company for the year ended December 31, ~~2018,~~2019, and the accompanying unaudited consolidated financial statements, as of and for the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have not been included pursuant to those rules and regulations. For further information, refer to the financial statements and notes thereto for the year ended December 31, ~~2018,~~2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~1, 2019.~~31, 2020. The Company meets the SEC’s definition of a “Smaller Reporting Company,” and therefore qualifies for the SEC’s reduced disclosure requirements for smaller reporting companies.

In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments ~~(all of which were normal recurring accruals)~~ necessary to present fairly the Company’s financial position as of September 30, ~~2019,~~2020, results of operations for the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, and cash flows for the nine month periods ended September 30, ~~2019~~2020 and ~~2018.~~2019. The results of operations for the three and nine month periods ended September 30, ~~2019~~2020 are not necessarily indicative of the results for the year ending December 31, ~~2019.~~2020.

A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business.

Accounting Standards Codification (“ASC”) 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In complying with the requirements under ASC 205-40 to complete an evaluation without considering mitigating factors, the Company considered several conditions or events including (1) uncertainty around the impact of COVID-19 on the Company’s operations and financial results, and (2) operating losses and negative cash flows from operations for projected fiscal years 2020 and 2021. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

The Company is implementing plans as discussed below, which includes strategic and cash-preservation initiatives, which are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) improved operating cash flows due to strategic and cash preservation initiatives discussed below, (2) debt forbearance, to the extent available on acceptable terms, and (3) forbearance on rent payments to landlords, to the extent available on acceptable terms.

The Company has taken or intends to take the following actions, among others, to improve its liquidity position and to address uncertainty about its ability to operate as a going concern:

The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, or at all, many of which have been made worse or more unpredictable by COVID-19. Accordingly, management determined it was not probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenders as collateral pursuant to letters of credit. The deposits must remain so long as the letters of credit are outstanding which are subject to renewal annually.

The following table sets forth ~~our~~the Company’s cash and cash equivalents and restricted cash (in thousands):

	September 30,				September 30,
	2019		2018		2020		2019
Cash and cash equivalents	$	7,703	$	9,245	$	14,293	$	7,703
Restricted cash		13,073		13,473		3,982		13,073
	$	20,776	$	22,718	$	18,275	$	20,776

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information to determine whether impairment indicators exist.

If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. Recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation and disposition, calculated utilizing the lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period. Asset groups were established at the individual property level and consist of property and equipment, net for owned properties and property and equipment, net and right-of-use assets, net for leased properties. Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the Company’s assumptions. Impairment, if any, is recorded in the period in which the impairment occurred.

Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends, and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates.

During the first quarter of 2019, the Company classified 1 senior housing community located in Kokomo, Indiana, as held for sale, resulting in $4.9 million being reclassified as assets held for sale and $3.5 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value, net of costs of disposal of $4.9 million. As the fair value was less than the carrying value of $7.2 million, a remeasurement write-down of approximately $2.3 million was recorded to adjust the carrying values of the assets held for sale at March 31, 2019. The senior living community was sold during the second quarter of 2019 for its carrying value.

During the third quarter of fiscal 2019, the Company classified ~~two~~2 communities, located in Springfield, Missouri and Peoria, Illinois, as assets held for sale resulting in net assets of $24.4 million being reclassified to assets held for sale and $44.4 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Company’s Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value of $62.8 million, net of disposal costs. The ~~two~~2 senior living communities were sold ~~on October 1, 2019, for $64.8 million resulting in net proceeds to~~during the ~~Company~~fourth quarter of ~~approximately $14.8 million. See additional discussion at “Note 10 - Subsequent Events.”~~2019. There were no0 senior housing communities classified as held for sale by the Company at September 30, 2020 or December 31, ~~2018.~~2019.

The Company had no material off-balance sheet arrangements at September 30, 2020 or December 31, 2019.

Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided, which totaled approximately $84.7 million and $286.1 million for the three and nine months ended September 30, 2020, respectively, and approximately $109.4 million and $333.4 million for the three and nine months ended September 30, 2019, ~~respectively, and approximately $113.8 million and $339.2 million for the three and nine months ended September 30, 2018,~~ respectively. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 ~~days~~days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. At June 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred resident fees paid by residents prior to the month housing and support services were to be provided totaling approximately $5.0 million and $4.3 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2020. At June 30, 2019 and December 31, 2018, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.1 million and $4.5 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2019. At June 30, 2018 and December 31, 2017, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $3.8 million and $3.9 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2018. The Company had contract liabilities for deferred resident fees totaling approximately ~~$4.4 million and $4.5~~$4.3 million, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at September 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~ 2019. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears and totaled approximately $0.1 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, and approximately $1.0 million and $3.1 million for the three and nine months ended September 30, 2019, ~~respectively, and approximately $1.2 million and $3.6 million for the three and nine months ended September 30, 2018,~~ respectively, as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The Company's senior housing communities have residency agreements ~~which~~that generally require the resident to pay a community fee prior to moving into the community and are recorded initially by the Company as deferred revenue. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had contract liabilities for deferred community fees totaling approximately ~~$1.9~~$1.6 million and ~~$1.1~~$2.2 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets.

The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $1.0 million and $3.2 million during the three and nine months ended September 30, 2020, respectively. The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $0.7 million and $1.9 million during the three and nine months ended September 30, 2019, respectively.

During the first quarter of 2020, the Company entered into management agreements whereby it manages certain communities under a contract which provides periodic management fee payments to the Company and reimbursement for costs and expenses related to such communities. In addition, during the third quarter of 2020, the Company entered into a management agreement with Fannie Mae, whereby it manages the 18 communities of which it is in the process of legally transferring the ownership to Fannie Mae. The Company ~~recognized~~will continue to manage the communities until ownership of such communities has legally transferred to Fannie Mae. See “Note 6- Debt Transactions.” Management fees are generally determined by an agreed upon percentage of gross revenues (as defined in the management agreement). The Company has determined that all community ~~fees~~management activities are a single performance obligation, which is satisfied over time as ~~a component~~the services are rendered. The Company's estimate of ~~resident~~the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred. Such revenue ~~within~~is included in "community reimbursement revenue" on the Company’s Consolidated Statements of Operations and Comprehensive ~~Loss~~Loss. The related costs are included in "community reimbursement expense" on the Company’s Consolidated Statements of ~~approximately $0.7~~Operations and Comprehensive Loss. The Company recognized revenue from management fees of $0.6 million and ~~$2.1~~$0.8 million, during the three and nine months ended September 30, ~~2018,~~2020, respectively. The Company recognized revenue from reimbursed costs incurred on behalf of managed communities of $9.6 million and $11.9 million, during the three and nine months ended September 30, 2020, respectively.

Effective January 1, 2019, the Company adopted the new lease standard provisions of ASC 842. Due to the adoption of ASC 842, the unamortized balances of lease acquisition costs and lease incentives were reclassified as a component of the respective operating lease right-of-use asset. Additionally, the unamortized balance of deferred gains associated with sale leaseback transactions totaling approximately $10.0 million was written-off to retained deficit.

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

Modifications to existing lease agreements, including changes to the lease term or payment amounts, are reviewed to determine whether they result in a separate contract. For modifications that do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and liabilities at the effective date of the modification.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of ~~$7.6~~$7.9 million and ~~$6.8~~$8.6 million at September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.

~~Employee Health and Dental Benefits, Workers’ Compensation, and Insurance Reserves~~Self-Insurance Liability Accruals

The Company offers full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Additionally, the Company may be liable for an Employee Shared Responsibility Payment (“ESRP”) pursuant to the Affordable Care ~~Act (“ACA”).~~Act. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential coverage (“MEC”) to at least 70% of full-time employees and their dependents, or did offer MEC to at least 70% of full-time employees and their dependents ~~which~~that did not meet the affordable or minimum value criteria and had ~~one~~1 or more full-time employees certified as being allowed the premium tax ~~credit (“PTC”).~~credit. The IRS determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by employees. Management believes that the liabilities recorded and reserves established for outstanding losses and expenses are adequate to cover the ultimate cost of losses and expenses incurred at September 30, ~~2019;~~2020; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.

The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events including potential settlements for pending claims, known incidents which may result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined.

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. The effective tax rates for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes a tax on modified gross revenues for communities within the State of Texas. ~~During each of the three and nine months ended September 30, 2019 and 2018, the~~The Company ~~consolidated~~consolidates 38 Texas communities ~~and~~for purposes of the TMT, ~~increased~~which contributes to the overall provision for income taxes.

Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between ~~the~~ financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which ~~we expect~~the Company expects those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. ~~Based upon this analysis, an adjustment to~~At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance ~~of $5.0 million~~on its U.S. and $2.7 million was recorded during the third quarters of fiscal 2019 and 2018, respectively. Cumulative adjustments to the valuation allowance for the nine months ended September 30, 2019 and 2018 were $10.7 million and $6.3 million, respectively.state net deferred tax assets. The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be ~~realized and resulted in net reductions of $57.0 million and $46.3 million to the Company’s deferred tax assets at September 30, 2019 and December 31, 2018, respectively.~~realized. However, in the event that wethe Company were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period such determination was ~~made~~.made. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.

The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that such position is “more likely than not” to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state tax audits for years prior to ~~2015.~~2016 and 2015, respectively.

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the CARES Act were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. Future regulatory guidance under the FFCR Act and the CARES Act remains forthcoming, and such guidance could ultimately increase or lessen their impact on the Company’s business and financial condition.

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except for per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Net loss	$	(20,731	)	$	(11,089	)	$	(46,249	)	$	(27,305	)	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Net loss allocated to unvested restricted shares		—			—			—			—			0			0			0			0
Undistributed net loss allocated to common shares	$	(20,731	)	$	(11,089	)	$	(46,249	)	$	(27,305	)	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Weighted average shares outstanding – basic		30,324			29,877			30,236			29,779			30,730			30,324			30,578			30,236
Effects of dilutive securities:
Employee equity compensation plans		—			—			—			—			0			0			0			0
Weighted average shares outstanding – diluted		30,324			29,877			30,236			29,779			30,730			30,324			30,578			30,236
Basic net loss per share – common shareholders	$	(0.68	)	$	(0.37	)	$	(1.53	)	$	(0.92	)	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share – common shareholders	$	(0.68	)	$	(0.37	)	$	(1.53	)	$	(0.92	)	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)

Awards of unvested restricted stock and restricted stock units representing approximately ~~1,127,647~~685,000 shares, as well as ~~147,239~~147,000 outstanding stock options, were antidilutive as a result of the net loss reported by the Company for the three ~~months ended September 30, 2019. For the~~and nine months ended September 30, ~~2019, awards~~2020. Awards of unvested restricted stock and restricted stock units representing approximately ~~1,055,981~~1,128,000 shares ~~as well as 147,239 outstanding~~and approximately 147,000 stock options, were antidilutive as a result of the net loss reported by the Company for ~~such period. For~~ the three and nine months ended September 30, ~~2018, unvested restricted stock and restricted stock units representing approximately 1,367,000 shares and approximately 1,339,000 shares, respectively, were antidilutive as a result of~~

~~the net loss reported by the Company for such periods.~~2019. Accordingly, such shares and options were not included in the calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ ~~equity.~~equity (deficit). All shares acquired by the Company have been purchased in open-market transactions. There were no0 repurchases of the Company’s common stock during the nine months ended September 30, ~~2019~~2020 or fiscal ~~2018.~~2019.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020, the adoption of which did not have a material impact on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, ~~2019, with early adoption permitted for fiscal years beginning after December 15, 2018.~~2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

During the ~~FASB issued ASU 2016-02,~~ ~~Leases~~ ~~(Topic “ASC 842”). ASU 2016-02 amends~~first quarter of 2020, the ~~existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets~~Company determined that the modifications of certain of its Master Lease Agreements (see “Note 5- Dispositions and ~~making targeted changes to lessor accounting. The new lease standard requires lessees to recognize~~Other Significant Transactions”) and adverse impacts on the ~~balance sheet~~Company’s operating results resulting from the COVID-19 pandemic were indicators of potential impairment of its long-lived assets. As such, the Company evaluated its long-lived asset groups for impairment and identified communities with a ~~liability~~carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to ~~make lease payments~~be generated by the assets.

In March 2020, the Company entered into forbearance agreements with Ventas and ~~a right-of-use asset representing the right to use the underlying asset for~~Welltower, which, among other things, provide that the lease ~~term. Additionally, in July 2018,~~agreements covering the ~~FASB issued ASU 2018-11,~~ ~~Leases, Targeted Improvements, which provided entities~~communities will be converted into property management agreements with the Company as manager on December 31, 2020 if the properties have not transitioned to a ~~transition method option~~successor operator on or prior to ~~not restate comparative periods presented, but~~such date (see “Note 5- Dispositions and Other Significant Transactions”). The Company’s leases with Ventas and Welltower were originally scheduled to recognize a cumulative effect adjustment to beginning retained earnings in the period of adoption. The Company adopted the new lease standard on January 1, 2019, on a prospective basis, forgoing comparative reporting using the modified retrospective adoption method, utilizing the simplified transition method available pursuantmature during 2025 and 2026. Due to the standard, which allowed the Company to continue to apply the legacy accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company elected to utilize certain practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying assets in which it is the lessee, not reassess initial direct costs for existing leases, and make an accounting policy election not to account for leases with an initial term of 12 months or less on the balance sheet. Adoptionmodification of the lease ~~standards by~~term and the expected impacts of the COVID-19 pandemic, the Company ~~initially resulted~~evaluated certain owned communities and all leased communities for impairment and tested the recoverability of these assets by comparing projected undiscounted cash flows associated with these assets to their respective historical carrying values. For communities in which the ~~recording~~historical carrying value was not recoverable, the Company compared the estimated fair value of ~~operating lease right-of-use~~the assets to their carrying amount and recorded an impairment charge for the excess of ~~$255.4 million and operating lease liabilities of $289.5 million on the Company’s Consolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for~~carrying amount over fair value. For the operating lease right-of-use assets, fair value was estimated utilizing a discounted cash flow approach based on historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The fair values of the property and equipment, net of these communities, were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage. These fair value measurements are considered Level 3 measurements within the valuation hierarchy. During the first quarter of 2020, the Company recorded non-cash impairment charges of $6.2 million and $29.8 million to operating lease ~~liabilities is~~right-of-use assets, net and property and equipment, net, respectively.

During the three months ended September 30, 2020, the Company recorded non-cash impairment charges of $1.3 million and $1.1 million to operating lease right-of-use assets, net and property and equipment, net, respectively, due to ~~net reductions~~a change in the useful life of 15 of its communities, all of which transferred to new operators subsequent to quarter-end (see “Note 12, Subsequent Events,” for discussion of these properties’ transitions). Due to the ~~reclassification~~changes in useful lives, the Company concluded the assets related to those properties had indicators of ~~certain deferred lease costs~~impairment and ~~lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit.~~ the carrying values were not fully recoverable. The fair ~~value~~values of the right-of-use assets ~~was~~were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. In addition, during the three months ended September 30, 2020 the Company recorded a non-cash impairment charge of $0.8 million to property and equipment, net of one owned community. The ~~estimated future~~fair value of the property and equipment, net of this community was determined was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities. This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their fair value. In total, the Company recognized non-cash impairment charges of $3.2 million and $39.2 million for the three and nine months ended September 30, 2020, respectively. The Company did 0t record any impairment charges for the three or nine months ended September 30, 2019.

Effective January 15, 2020, the Company’s leased senior living community located in Boca Raton, Florida transitioned to a new operator. In conjunction with the transition, the Company paid the lessor, Healthpeak, a one-time $0.3 million termination payment as a prepayment against the remaining lease payments and was relieved of any additional obligation to Healthpeak with regard to that property and the lease was terminated as to this property. The Company recorded an approximate $1.8 million gain on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

Effective March 31, 2020, the Company sold 1 community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in cash ~~flows were discounted~~proceeds after paying customary closing costs. The community was unencumbered by any mortgage debt. The Company recognized a loss of $7.4 million on the disposition, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020. The community was comprised of 171 assisted living units and 42 memory care units.

As of December 31, 2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). The Company transitioned 1 community to a different operator effective January 15, 2020. During the first quarter of 2020, the Company entered into agreements, which restructured or terminated certain of its Master Lease Agreements with each of its landlords as further described below. After giving effect to such transactions, the disposition of the Company’s Boca Raton community in January 2020, and the disposition of 5 communities in September 2020, as of September 30, 2020, the Company leased 34 senior living communities from the REITs and managed 6 senior living communities for the account of Healthpeak.

As of December 31, 2019, the Company leased 7 senior housing communities from Ventas. The term of the Ventas lease agreement was scheduled to expire on September 30, 2025. On March 10, 2020, the Company entered into an agreement with Ventas (as amended, the “Ventas Agreement”), providing for the early termination of its Master Lease Agreement with Ventas covering all seven communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreement. In addition, the Ventas Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreement during the forbearance period, which terminates on December 31, 2020 absent any defaults by the Company. In conjunction with the Ventas Agreement, the Company released to Ventas $4.1 million in security deposits and $2.5 million in escrow deposits held by Ventas, and Ventas reduced the amounts and term of the Company’s lease payments, and effectively eliminated the Company’s lease termination obligation, which was $11.4 million at December 31, 2019. The Ventas Agreement provides that Ventas can terminate the Master Lease Agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Ventas may elect to enter into a ~~rate~~property management agreement with the Company as manager or transition the properties to a new operator. If, as of December 1, 2020, Ventas has not delivered a termination notice for any communities subject to the Master Lease Agreement, then, with respect to any such communities, Ventas will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Ventas Agreement also provides that ~~is consistent~~the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreement during the applicable forbearance period and Ventas will reimburse the Company for certain specified capital expenditures.

In accordance with ~~a weighted average cost of capital from a market participant perspective.~~ ~~The adoption~~ASC Topic 842, the reduction in the monthly minimum rent payable to Ventas and modification of the lease ~~standard did not have~~term pursuant to the Ventas Agreement was determined to be a ~~material impact~~modification of the Master Lease Agreement. As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the ~~consolidated cash flows~~modified terms and determined that the lease continued to be classified as an operating lease until the communities transitioned to a different operator or management agreement, at which time the lease would terminate. The modification resulted in a reduction to the lease termination obligation, lease liability and operating lease right-of-use asset recorded in theCompany's Consolidated Balance Sheets by approximately $11.4 million, $51.6 million, and $47.8 million, respectively, during the first quarter of 2020. The Company recognized a net gain of approximately $8.4 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020 and was primarily due to the impact of the change in lease term on certain of the right-of-use asset balances. As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020. See “Note 4- Impairment of Long Lived Assets.”

As of December 31, 2019, the Company leased 24 senior housing communities from Welltower. The initial terms of the Welltower lease agreements were scheduled to expire on various dates from April 2025 through April 2026. On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between it and Welltower covering all 24 communities. Pursuant to the Welltower Agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. In addition, the Welltower Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company. In conjunction with the Welltower Agreement, the Company agreed to release $6.5 million in letters of credit to Welltower, which were released during the three months ended June 30, 2020. The Welltower Agreement provides that Welltower can terminate the agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Welltower may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Welltower has not delivered a termination notice for any communities subject to the Master Lease Agreements, then, with respect to any such communities, Welltower will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of gross revenues of the applicable community payable to the Company and ~~had no impact~~other customary terms and conditions. The Welltower Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and Welltower will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then- existing Master Lease Agreements with Welltower and modification to the lease term pursuant to the Welltower Agreement was determined to be a

modification of the Master Lease Agreements. As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that the each of the leases continued to be classified as an operating lease until the applicable communities transitioned to a different operator or management agreement, at which time such lease would terminate. The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in theCompany's Consolidated Balance Sheets by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020. The Company recognized a gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s ~~covenant compliance~~Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020. As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020. See “Note 4- Impairment of Long Lived Assets.”

During the three months ended September 30, 2020, Welltower elected to terminate the agreement with respect to 5 communities, all of which transferred to a different operator on September 10, 2020. The Company recorded an approximate $0.7 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020.

On March 1, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026. Such Master Lease Agreement terminated and was converted into a Management Agreement under a RIDEA structure pursuant to which the Company agreed to manage the 6 communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to the Management Agreement, the Company will receive a management fee equal to 5% of gross revenues realized at the applicable senior living communities plus reimbursement for its ~~current debt~~direct costs and expenses related to such communities. In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak. The Company remeasured the lease ~~agreements. See additional discussion at “Note 9 – Leases.”~~

~~The adoption of ASC 842 resulted~~liability and operating lease right-of-use asset recorded in the ~~following adjustments~~Company's Consolidated Balance Sheets at December 31, 2019 to zero, resulting in a net loss of $7.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

On May 20, 2020, the Company entered into an additional agreement with Healthpeak, effective April 1, 2020 until the end of the lease term. Pursuant to such agreement, the Company began paying Healthpeak rent of approximately $0.7 million per month for 8 senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities. The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment including accrued interest from November 1, 2021, to be made on or before November 1, 2023. At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance ~~Sheet at January 1, 2019:~~Sheets. Given that the total minimum lease payments and the lease term remain unchanged, the Company has elected not to evaluate the deferral as a rent concession and will not account for the deferral as a modification to the existing lease agreement. The Company concluded the concessions provided to the Company were not contemplated by the existing lease. The Company will account for the concession in the form of a deferral as if the lease terms were unchanged. Accordingly, once interest begins to accrue on the deferral amount, the Company will record interest expense and accrued interest payable on the portion of the deferral amount that has yet to be paid on a monthly basis until such interest payments become due. The Company will continue to account for the lease liability and right-of-use asset using the rights and obligations of the existing lease through the end of the lease term.

Effective May 1, 2019, the Company closed the sale of one senior housing community located in Kokomo, Indiana, for a total purchase price of $5.0 million and received approximately $1.4 million in net proceedsafter retiring outstanding mortgage debt of $3.5 million and paying customary transaction and closing costs (the “Kokomo Sale Transaction”). The community was comprised of 96138 assisted living units. The Company had reported these assets as held for sale at March 31, 2019 and recorded a remeasurement write-down of approximately $2.3 million to adjust the carrying values of these assets to the sales price, less costs to ~~sell.~~sell, which is included in the write down of assets held for sale net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2019.

The CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties. On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer

of 1 Fannie Mae loan covering 1 property. On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of 3 Fannie Mae loans covering 2 properties. The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and June 2020 and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.

~~Effective June 28, 2019,~~On July 8, 2020, the Company ~~exercised its option to extend its interest-only variable interest rate mortgage loan~~entered into forbearance extension agreements with ~~Compass Bank on four~~Fannie Mae, which provided for a one month extension of ~~its senior housing communities (Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley,~~the forbearance agreements between it and ~~Rose Arbor).~~Fannie Mae covering 23 properties. The ~~maturity date was~~forbearance extension agreements extended ~~from May 11, 2020 to~~the forbearance period until July ~~11,~~31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.

On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for 5 properties with forbearance agreements. The Company elected not to pay $3.9 million on the loans for the remaining 18 properties as of that date as it initiated a process which is intended to transfer the operations and ownership of such properties to Fannie Mae. Therefore, the Company was in default on such loans.

As a result of the default, Fannie Mae filed a motion with the United States District Court requesting that a receiver be appointed over the 18 properties, which was approved by the court. The Company agreed to continue to manage the 18 communities, subject to earning a management fee, until legal ownership of the properties is transferred to Fannie Mae. Management fees earned from the properties are recognized as revenue when earned. In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for reasonable operating expenses incurred on behalf of any of the 18 communities under the receivership order. As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default. In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance ASC 610-20. As such, the Company derecognized the assets and recorded a loss of $191.0 million on the transaction, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss during the three and nine months ended September 30, 2020. Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470. At September 30, 2020, the Company included $217.7 million in outstanding debt in current portion of notes payable, ~~within~~net of deferred loan costs, and $6.1 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets atrelated to these properties.

The Company also entered into a loan amendment with another lender, BBVA, USA, related to a loan covering 3 properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to principal and due in June 2021. At September 30, ~~2019.~~2020, the Company had deferred payments of $0.9 million related to the BBVA loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

The Company also entered into a debt forbearance agreement with ORIX Real Estate Capital, LLC (“ORIX”), related to a U.S. Department of Housing and Urban Development (“HUD”) loan covering 1 property pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period. At September 30, 2020, the Company had deferred payments of $0.1 million related to the ORIX loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company (“Protective Life”), related to loans covering 10 properties. These amendments allow the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan. At September 30, 2020, the Company had deferred payments of $3.2 million related to the Protective Life loans, of which $1.7 million was included in accrued expenses in the Company’s Consolidated Balance Sheets. The remaining $1.5 million of which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets. Subsequent to quarter-end, the Company entered into amendments to its loan agreements with Protective Life, which allow the Company to defer principal and interest

payments for October, November, and December 2020 and to continue to defer principal payments through September 30, 2021. See “Note 12- Subsequent Events.”

The Company previously issued standby letters of credit with Wells Fargo, ~~Bank (“Wells Fargo”),~~ totaling approximately $3.4 million, for the benefit of Hartford Financial Services (“Hartford”) in connection with the administration of workers’ ~~compensation~~compensation. On August 27, 2020, the available letters of credit were increased to $4.0 million, all of which ~~remain~~remained outstanding as of September 30, ~~2019.~~2020.

The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately ~~$6.7~~$6.5 million, for the benefit of Welltower, ~~Inc. (“Welltower”),~~ in connection with certain leases between Welltower and the ~~Company which remain outstanding as~~Company. The letters of ~~September~~credit were surrendered and paid to Welltower in conjunction with the Welltower Agreement during the quarter ended June 30, ~~2019.~~2020.

The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of ~~HCP, Inc. (“HCP”)~~Healthpeak in connection with certain leases between ~~HCP~~Healthpeak and the Company. The letters of credit were released to the Company ~~which remain outstanding as~~during the first quarter of ~~September 30, 2019.~~2020 and were included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.

The senior housing communities owned by the Company and encumbered by mortgage debt are provided as collateral under their respective loan agreements. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, these communities carried a total net book value of approximately ~~$925.0~~$883.7 million and ~~$966.9~~$898.0 million, respectively, with total mortgage loans outstanding, excluding deferred loan costs, of approximately ~~$967.4~~$921.6 million and ~~$981.6~~$926.5 million, respectively.

On June 15, 2020, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $2.2 million. The finance agreement has a fixed interest rate of 4.60% with the principal being repaid over a 10-month term. On May 20, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Forbearance”), effective April 1, 2020, through the lease term ending October 31, 2020, to defer a percentage of rent payments. At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets. See “Note 5- Dispositions and Other Significant Transactions.” In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the terms of the respective notes. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had gross deferred loan costs of approximately ~~$14.7~~$14.3 million and ~~$14.1~~$14.3 million, respectively. Accumulated amortization was approximately ~~$5.9~~$7.1 million and ~~$4.7~~$5.7 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. ~~The~~Except as noted below, the Company was in compliance with all aspects of its outstanding indebtedness as of September 30, 2020 and December 31, 2019. Pursuant to the forbearance agreements described above under “Transactions Involving Certain Fannie Mae Loans,” the Company withheld loan payments due under loan agreements with Fannie Mae covering certain of the Company’s communities for the months of April through September of 2020. Additionally, the Company does not expect to be in compliance with a certain financial covenant of its loan agreement with Fifth Third Bank, on the Company’s Autumn Glen and Cottonwood Village properties, as of September 30, 2020, in which a minimum debt service coverage ratio must be maintained. However, cure provisions within the debt agreement allow the Company to make a principal payment to bring the debt service coverage ratio into compliance. The Company is in active negotiations with Fifth Third Bank to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be reached. If a mutually agreed upon solution is not reached and the Company does not exercise its rights to cure the noncompliance with the debt covenant, the Company may be found in default of the debt agreement. In the event of default, Fifth Third has the right to declare all amounts outstanding to be immediately due and payable. As such, the Company included $31.5 million in outstanding debt related to those properties in current portion of notes payable, net of deferred loan costs, on the Company’s Consolidated Balance Sheets at September 30, ~~2019 and December 31, 2018.~~2020.

The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Company’s board of directors without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock. NoNaN preferred stock was outstanding as of September 30, ~~2019~~2020 or December 31, ~~2018.~~2019.

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. Purchases may be 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 or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. Shares of stock repurchased under the program will be held as treasury shares. Pursuant to this authorization, during fiscal 2009, the Company purchased 349,800 shares at an average cost of $2.67 per share for a total cost to the Company of approximately $0.9 million. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during the first

quarter of fiscal 2016, the Company purchased 144,315 shares of its common stock at an average cost of $17.29 per share for a total cost to the Company of approximately $2.5 million. All such purchases were made in open market transactions. The Company has ~~not~~0t purchased any additional shares of its common stock pursuant to the Company’s share repurchase program during the three or nine months ended September 30, ~~2019~~2020 or fiscal ~~2018.~~2019.

The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Loss based on their fair values.

On May 8, 2007, the Company’s stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”), which provided for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorized the Company to issue up to 4.6 million shares of common stock and the Company had reserved shares of common stock for future issuance pursuant to awards under the 2007 Plan. Effective May 8, 2007, the 1997 Omnibus Stock and Incentive Plan (as amended, the “1997 Plan”) was terminated and no additional awards will be granted under the 1997 Plan.

~~On May~~ 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 ~~Plan.~~Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”). The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000 shares of common stock plus reserved shares not issued or subject to outstanding awards under the 2007 Plan, and the Company has reserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. ~~A description of the terms and conditions of the 2019 Plan is set forth in Appendix C of the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 8, 2019.~~ Effective March 26, 2019, the 2007 Plan was terminated and no0 additional awards will be granted under the 2007 Plan.

TheThe Company may periodically grant stock options as a long-term retention tool that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder interests with those of our employees and directors. The Company’s stock options generally vest over a period of one to five years and the related expense is amortized on a straight-line basis over the vesting period. A summary of the Company’s stock option activity and related information for the nine months ended September 30, ~~2019~~2020 is presented below:

At September 30, 2020, the options outstanding ~~at September 30, 2019~~ had no0 intrinsic value, a weighted-average remaining contractual life of ~~9.25~~8.25 years, and a weighted average exercise price of $7.46. ~~None of the options outstanding at~~At September 30, ~~2019~~2020, there was approximately $0.2 million of total unrecognized compensation expense, which is expected to be recognized over a weighted average period of 1.25 years. At September 30, 2020, 48,588 options were ~~exercisable.~~

The Company used the Black-Scholes option pricing model to estimate the grant date fair value of its stock options. The Black-Scholes model requires the input of certain assumptions including expected volatility, expected dividend yield, expected life of the optionexercisable, and the ~~risk-free interest rate. The expected volatility used by the Company is based primarily on an analysis of the historical prices of the Company’s common stock. The expected term of~~remaining options granted is based primarily on historical exercise patterns on the Company’s outstanding stock options. The risk-free rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period as the expected option life. The Company does not expect to pay dividends on its common stock, and therefore, has used a dividend yield of zero in determining the fair value of its awards. The option forfeiture rate assumption used by the Company, which affects the expense recognized as opposed to the fair value of the award, is based primarily on the Company’s historical forfeiture patterns.

~~The following table presents the Company’s assumptions utilized to estimate the grant date fair value of~~were unvested. There were 0 stock options granted during the three or nine months ended September 30, ~~2019:~~2020.

The Company periodically grants restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance and market-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock awards with performance and market-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement. Performance goals are evaluated periodically, and if such goals are not ultimately met or it is not probable the goals will be achieved, no0 compensation expense is recognized and any previously recognized compensation expense is reversed for performance-based awards.

The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted stock awards activity and related information for the nine months ended September 30, ~~2019~~2020 is presented below:

The restricted stock outstanding at September 30, ~~2019~~2020 had an intrinsic value of approximately ~~$4.9~~$0.5 million.

~~During~~ There were 0 grants of restricted stock awards or restricted stock units during the three or nine months ended September 30, 2019, the Company awarded 662,154 shares of restricted common stock to certain employees and directors of the Company, of which 325,415 shares were subject to performance and market-based vesting conditions. The average market value of the common stock on the date of grant was $4.50 per share. These awards of restricted stock vest over a one to four-year period and had an intrinsic value of approximately $3.0 million on the date of grant. Additionally, during the nine months ended September 30, 2019, the Company awarded 59,841 restricted stock units to certain directors of the Company with an average market value of $3.76 per share on the date of grant. These awards of restricted stock units vest over a one-year period and had an intrinsic value of approximately $0.2 million on the date of grant.2020.

The Company recognized ~~$0.9~~$0.4 million and ~~$1.6~~$1.5 million in stock-based compensation expense during the three and nine months ended September 30, ~~2019,~~2020, respectively, and ~~$2.1~~$0.9 million and ~~$6.6~~$1.6 million during the three and nine months ended September 30, ~~2018,~~2019, respectively, which is primarily associated with employees whose corresponding salaries and wages are included within general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Unrecognized stock-based compensation expense was ~~$5.1~~$1.7 million as of September 30, ~~2019.~~2020. If all awards granted are earned, the Company expects this expense to be recognized over a one to three-year period for performance and market-based stock awards and a one to four-year period for nonperformance-based stock awards, options and units.

The Company has claims incurred in the normal course of its business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the consolidated financial statements of the Company if determined adversely to the Company.

The Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Physical repairs have been completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. Through September 30, 2019, we have incurred approximately $6.8 million in clean-up and physical repair costs which we believe are probable of being recovered through insurance proceeds. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”) through one year after the buildings were placed back in service. Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. As of September 30, 2019, the Company has received total payments from our insurance underwriters totaling approximately $15.4 million, of which approximately $9.8 million related to Business Interruption. During the three and nine months ended September 30, 2019, the Company recognized $0.1 million and $2.5 million, respectively, of Business Interruption proceeds. During the three and nine months ended September 30, 2018, the Company recognized and $1.3 million and $4.5 million, respectively, of Business Interruption proceeds. Business Interruption proceeds have been included as a reduction to operating expenses in the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The carrying amounts and fair values of financial instruments at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, are as follows (in thousands):

	September 30, 2019				December 31, 2018				September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	7,703	$	7,703	$	31,309	$	31,309	$	14,293	$	14,293	$	23,975	$	23,975
Restricted cash		13,073		13,073		13,011		13,011		3,982		3,982		13,088		13,088
Notes payable, excluding deferred loan costs		971,591		959,190		983,207		945,318		923,048		921,567		930,085		899,326

The following methods and assumptions were used in estimating the Company’s fair value disclosures for financial instruments:

Cash and cash equivalents and Restricted cash: The carrying amounts reported in the Company’s Consolidated Balance Sheets for cash and cash equivalents and restricted cash approximate fair value, which represent level 1 inputs as defined in the accounting standards codification.

Notes ~~payable:~~payable, excluding deferred loan costs: The fair value of notes payable, excluding deferred loan costs, is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent level 2 inputs as defined in the accounting standards codification.

:During the three and nine months ended September 30, 2020, 0 senior living communities were classified as assets held for sale. During the first quarter of ~~fiscal~~ 2019, the Company classified ~~one~~1 senior living community as held for sale and ~~determined~~recognized a remeasurement write-down of approximately $2.3 million ~~was required~~ to adjust the carrying ~~value~~values of the assets to ~~its~~their fair value, net of cost of disposal. The senior living community was sold during the second quarter of ~~fiscal~~ 2019 for its carrying value.

During the third quarter of ~~fiscal~~ 2019, the Company classified ~~two~~2 senior living communities as held for sale, which required no0 remeasurement to adjust the carrying ~~value~~values to ~~its~~the fair ~~value. See additional discussion at “Note 10 - Subsequent Events.”~~values.

The Company determines, using level 2 inputs as defined in the accounting standards codification, the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions.

The ~~Company’s adoption of ASC 842 on January 1, 2019, resulted in the recognition of~~Company recorded non-cash impairment charges to operating lease right-of-use assets, ~~which were determined not fully recoverable~~net of $1.3 million and ~~required impairment write-down adjustments~~$7.5 million for the three and nine months ended September 30, 2020, respectively. The Company recognized impaired operating lease right-of-use assets, net at their fair values of ~~approximately $17.8~~$15.0 million ~~recorded directly to retained deficit.~~and $0.5 million at March 31, 2020 and September 30, 2020 respectively. The fair ~~value~~values of the right-of-use assets ~~was~~were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ~~ratio.~~ratio of 1.1. The ~~estimated future cash flows~~range of discount rates utilized was 7.7% to 10.3%, depending upon the property type and geographical location of the respective community. See “Note 4- Impairment of Long-Lived Assets.”

During the three and nine months ended September 30, 2020, the Company recorded non-cash impairment charges of $1.9 million and $31.7 million to property and equipment, net, respectively. The fair value of the impaired assets was $10.5 million and $12.5 million at March 31, 2020 and September 30, 2020, respectively. At March 31, 2020, the fair values of the property and equipment, net of these communities were ~~discounted at a rate that is consistent with a weighted average~~primarily determined utilizing the cost approach, which determines the current replacement cost of ~~capital from~~the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage. At September 30, 2020, the fair value of the property and equipment, net of the owned community was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities. The fair values of the property and equipment, net of the leased communities were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market ~~participant perspective.~~capitalization rates. All of the aforementioned fair value measurements are considered Level 3 measurements within the valuation hierarchy.

The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.

9.As of September 30, 2020, there was a wide range of possible outcomes as a result of the COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impacts. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease, the duration and degree to which visitors are restricted from the Company's communities, the effect of the pandemic on the demand for senior living communities, the degree to which the Company may receive government financial relief and the timing thereof, and the duration and costs of the Company’s response efforts. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

value of future minimum lease payments. As of September 30, 2020, the weighted average discount rate and average remaining lease terms of the Company's operating leases was 4.1% and0.4 years, respectively. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. As of September 30, 2020, the weighted average discount rate and average remaining lease term of the Company's financing leases was 7.0% and 3.3 years, respectively. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

The Company has operating leases for various real estate (primarily senior housing communities) and ~~equipment.~~equipment as well as financing leases for certain vehicles. As of September 30, ~~2019,~~2020, the Company leased 4634 senior housing communities from certain ~~real estate investment trusts (“REITs”).~~REITs. Under these facility lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. Additionally, facility leases may include contingent rent increases when certain operational performance thresholds are surpassed, at which time the right-of-use assets and lease liability will be remeasured.

~~Most of the Company’s lease agreements include one or more options to renew, with renewal terms that can extend the lease term for an additional one to 20 years at the Company’s option.~~ The recoverability of assets and depreciable life of leasehold improvements are limited by expected lease terms. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees. As of September 30, 2020, the Company was not in compliance with certain provisions of the Welltower Agreement and the Ventas Agreement due to the Company’s events of default regarding certain Fannie Mae loan agreements (see “Note 6- Debt Transactions”). Ventas and Welltower subsequently waived the defaults under the Ventas Agreement and the Welltower Agreement, respectively. The Company was in compliance with all ~~of its~~other lease covenants at September 30 ~~2019 and~~2020. As of December 31, ~~2018.~~

2019, the Company was not in compliance with certain financial covenants with regard to its Master Lease Agreements with Ventas and Welltower. The ~~following table summarizes information related~~Company subsequently entered into the Ventas Agreement and the Welltower Agreement with respect to such defaults. Under the ~~Company’s lease activities~~agreements, the Company does not have to comply with certain financial covenants of the respective Master Lease Agreements during the ~~nine months ended September 30, 2019:~~forbearance period, which terminates on December 31, 2020, absent any defaults by the Company under such agreements. The Company was in compliance with all other lease covenants at December 31, 2019.

A summary of operating and financing lease expense (including the respective presentation on the consolidated statement of operations) and cash flows from leasing transactions is as follows:

Future minimum lease payments associated with operating lease liabilities recognized on the Company’s Consolidated Balance Sheets as of September 30, ~~2019,~~2020, are as follows (in thousands):

2019 (excluding the nine months ended September 30, 2019)	$	16,295
2020		62,588
Year Ending December 31,			Operating Leases			Financing Leases
2020 (excluding the nine months ended September 30, 2020)			$	8,727		$	39
2021		50,550		321			155
2022		50,479		132			155
2023		50,443		85			145
2024				47			7
Thereafter		94,573		3			2
Total	$	324,928	$	9,315		$	503
Less: Amount representing interest (present value discount)		63,177		(205	)		(52	)
Present value of operating lease liabilities	$	261,751
Less: Current portion of operating lease liabilities		46,801
Operating lease liabilities, net of current portion	$	214,950
Present value of lease liabilities			$	9,110		$	451
Less: Current portion of lease liabilities				(8,845	)		(126	)
Lease liabilities, net of current portion			$	265		$	325

OnProtective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

Effective October 1, 2019, the Company sold two communities located in Springfield, Missouri and Peoria, Illinois, for $64.8 million. The properties were sold in order to monetize assets deemed at peak performance and resulted in net proceeds to the Company of approximately $14.8 million. At September 30, 2019, these properties were deemed as assets held for sale resulting in $24.4 million being reclassified to assets held for sale and $44.4 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Company’s Consolidated Balance Sheets. These communities comprised of 156 and 158 independent living units, respectively.

~~On October 22, 2019,~~2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties. These amendments allow the Company to defer interest payments for October, November, and December 2020 and to extend the deferral period of principal payments through September 1, 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.

Effective October 15, 2020, the Company’s leased senior living community located in St. Louis, Missouri transitioned to a ~~lease amendment~~new operator. In conjunction with ~~HCP, as lessors~~the transition, the Company was relieved of ~~certain~~any additional obligation to Healthpeak with regard to that property. The transition was the second transaction under the Company’s October 22, 2019 agreement with Healthpeak.

Effective November 1, 2020, 14 of the Company’s leased ~~properties, to transition four HCP properties~~senior living communities transitioned to new ~~operators on or around January 15, 2020, and to sell the remaining five as soon as possible, with expected sale dates in or around~~operators. The transitions were the second ~~quarter~~and third transactions under the Welltower Agreement.

Effective as of November 1, 2020, subsequent to quarter-end, the Company entered into an agreement with Healthpeak to extend the end of the lease term from October 31, 2020 to ~~a buyer or buyers. Under the terms of the~~April 30, 2021 (subject to 2 possible three month extensions). Pursuant to such agreement, the Company will ~~make a one-time payment~~begin paying Healthpeak monthly rent of $250,000 per each transitioned property as a prepayment against the remaining lease payments for a combined total of $1.0 million. For the five properties to be sold, HCP is required to arrange, negotiate, and close the sale of these properties. The Company is entitled to 50%any excess cash flow of the ~~proceeds in excess~~communities and earning a management fee for continuing to manage the communities.

On November 6, 2020, the Company accepted $8.1 million of cash for ~~one of~~grants from the ~~properties, up~~Provider Relief Fund’s Phase 2 General Distribution, which was expanded by the CARES Act to ~~$350,000.~~

provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain information contained in this report constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. Examples of forward-looking statements, include, without limitation, those relating to the Company’s future business prospects and strategies, financial results, working capital, liquidity, capital needs and expenditures, interest costs, insurance availability and contingent liabilities. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially from those indicated in the forward-looking statements, including, but not limited to, continued spread of COVID-19, including the speed, depth, geographic reach and duration of such spread, new information that may emerge concerning the severity of COVID-19, the actions taken to prevent or contain the spread of COVID or treat its impact, the legal, regulatory and administrative developments that occur at the federal, state and local levels in response to the COVID-19 pandemic, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company’s response efforts; the impact of COVID-19 on Company’s ability to continue as a going concern; the Company’s ability to generate sufficient cash flows from operations, additional proceeds from debt ~~refinancings,~~refinancing, and proceeds from the sale of assets to satisfy its short and long-term debt and lease obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities; the Company’s ability to obtain additional capital on terms acceptable to it; the Company’s ability to extend or refinance its existing debt as such debt matures; the Company’s compliance with its debt and lease agreements, including certain financial covenants, and the risk of cross-default in the event such non-compliance occurs; the Company’s ability to complete acquisitions and dispositions upon favorable terms or at ~~all;~~all, including the transfer of legal ownership of certain communities currently managed by the Company on behalf of Fannie Mae, which holds non-recourse debt on such communities; the risk of oversupply and increased competition in the markets which the Company operates; the risk of oversupply and increased competition in the markets which the Company operates; the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirements; the departure of the Company’s key officers and personnel; the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes; the risks associated with a decline in economic conditions generally; the adequacy and continued availability of the Company’s insurance policies and the Company’s ability to recover any losses it sustains under such policies; changes in accounting principles and interpretations; and the other risks and factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission (“SEC”), including those set forth under “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and this Quarterly Report on Form 10-Q.

The following discussion and analysis addresses (i) the Company’s results of operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, and (ii) liquidity and capital resources of the Company, and should be read in conjunction with the Company’s consolidated financial statements contained elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The Company is one of the largest operators of senior housing communities in the United States. ~~The Company’s~~Our operating strategy is to provide value to ~~its~~our senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. ~~The Company provides~~We provide senior living services to the ~~elderly,~~75+ population, including independent living, assisted living, and memory care services at reasonable prices. Many of ~~the Company’s~~our communities offer a continuum of care to meet its residents’ needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care, and is bridged by home care through independent home care agencies, sustains residents’ autonomy and independence based on their physical and mental abilities.

As of September 30, ~~2019,~~2020, the Company operated ~~128~~119 senior housing communities in 2322 states with an aggregate capacity of approximately ~~16,400~~14,700 residents, including 8261 senior housing communities that the Company owned, ~~and 46~~34 senior housing communities that the Company ~~leased.~~leased, and 24 senior housing communities that the Company managed on behalf of third parties.

A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from COVID-19. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business.

In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, COVID-19 has caused, and management expects will continue to cause, a decline in the occupancy levels at the Company’s communities, which has negatively impacted, and will likely continue to negatively impact the Company’s revenues and operating results, which depend significantly on such occupancy levels. During the second half of March, new resident leads, visits, and move-in activity began to decline compared to typical levels. This trend intensified throughout the third quarter of 2020, and began to adversely impact occupancy, resulting in decrease in consolidated senior housing occupancy (excluding the community sold effective March 31, 2020) from 79.9% for the first quarter to 77.6% for the third quarter of 2020. We expect further deterioration of resident fee revenue resulting from fewer move-ins and typical resident attrition inherent in our business, which may increase due to the impacts of COVID-19. Lower than normal controllable move-out activity during the COVID-19 pandemic may partially offset future adverse revenue impacts.

In addition, the outbreak of COVID-19 has required the Company to incur, and management expects will require the Company to continue to incur, significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents at such communities and has resulted in reduced occupancies at such communities. During the second half of March 2020, the Company began to incur incremental direct costs to prepare for and respond to the COVID-19 pandemic, and such costs increased throughout the third quarter of 2020. Facility operating expense for the three and nine months ended September 30, 2020 includes $1.4 million and $4.6 million, respectively, of incremental and direct costs as a result of the COVID-19 pandemic, including costs for acquisition of additional personal protective equipment (“PPE”), cleaning and disposable food service supplies, testing of the Company’s residents and employees, enhanced cleaning and environmental sanitation costs, and increased labor expense. The Company expects such costs to continue. We are unable to reasonably predict the total amount of costs we will incur related to the pandemic, but such costs are likely to be substantial.

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 preparation and response efforts may delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impact of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and geographic concentrations of the pandemic and any resurgence 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 and availability of COVID-19 infection and antibody 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; 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, 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 preparation and response efforts, including increased supplies, labor, litigation, and other expenses; the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements and enforcement actions resulting from COVID-19, including those that may limit our collection 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.

Accounting Standards Codification (“ASC”) 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern for the 12-month period following the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

In complying with the requirements under ASC 205-40 to complete an evaluation without considering mitigating factors, the Company considered several conditions or events including (1) uncertainty around the impact of COVID-19 on the Company’s operations and financial results (see “COVID-19 Pandemic” above), and (2) operating losses and negative cash flows from operations for projected fiscal year 2020 and 2021. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

date its financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) improved operating cash flows due to strategic and cash preservation initiatives discussed below, (2) debt forbearance, to the extent available on acceptable terms, and (3) forbearance on rent payments to landlords, to the extent available on acceptable terms.

The Company has taken or intends to take the following actions, among others, to improve its liquidity position and to address uncertainty about its ability to operate as a going concern:

As a result of COVID-19’s short- and long-term impact to the Company’s financial position, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern depends upon many factors, including the ability to increase its revenues, reduce costs and/or pursue other transactions to raise capital, including, without limitation, by selling assets, and no assurances can be given that the Company will be able to successfully do so.

The Company primarily derives its revenue by providing senior living and healthcare services to ~~the elderly.~~seniors. When comparing the third quarter of fiscal ~~2019~~2020 to the third quarter of fiscal ~~2018,~~2019, the Company generated resident revenue of approximately ~~$111.1~~$85.9 million compared to resident revenue of approximately ~~$115.7~~$111.1 million, respectively, representing a decrease of approximately ~~$4.5~~$25.0 million, or ~~3.9%~~22.5%. ~~Our resident~~The decrease in revenue has been impacted by the aftermath of Hurricane Harvey, which resulted in the full evacuation of our residents at two of our senior housing communities located in southeast Texas during the third quarter of fiscal 2017. Physical repairs have been completed and both of these communities began accepting residents in July 2018, which resulted in an increase of approximately $0.6 million in our resident revenue during the third quarter of fiscal 2019 when comparedis primarily due to the ~~third quarter~~disposition of ~~fiscal 2018.~~

~~During~~three communities since the second quarter of ~~fiscal~~ 2019 and the Company ~~sold one~~transitioning six of its senior housing communities ~~located in Kokomo, Indiana. The increase in resident revenue from the two~~to different operators and 24 communities ~~impacted by Hurricane Harvey was fully offset with~~to management agreements during 2020, which together accounted for a decrease in ~~resident~~ revenue of approximately ~~$0.8 million due to the Kokomo Sale Transaction and a~~$21.0 million. The remaining decrease ~~in resident revenue at the Company’s remaining senior housing communities~~ of approximately ~~$4.4~~$4.0 million ~~which~~ was primarily due to a decrease of ~~280~~520 basis points in ~~average financial occupancies.~~

~~When comparing~~total occupancies at the nine months ended September 30, 2019 to the nine months ended September 30, 2018, the Company generated resident revenue of approximately $338.4 million compared to resident revenue of approximately $344.9 million, respectively, representing a decrease of approximately $6.5 million, or 1.9%. We experienced an increase of approximately $2.7 million in our resident revenue at our two senior housing communities impacted by Hurricane Harvey during the first nine months of fiscal 2019 when compared to the first nine months of fiscal 2018. However, the increase in resident revenue from the two properties impacted by Hurricane Harvey was fully offset by a decrease in resident revenue of approximately $1.4 million due to the Kokomo Sale Transaction during the second quarter of fiscal 2019 and a decrease in resident revenue at our otherCompany’s remaining senior housing ~~communities of approximately $7.8 million, which~~communities. The decrease in the total occupancy was primarily due to ~~a decrease~~reduced move-in activity, which began in the second half of ~~280 basis points~~March 2020 and intensified through the end of third quarter of 2020, related to the COVID-19 pandemic and our response efforts. The decreases in ~~average financial occupancies.~~total revenue were partially offset by increases in management fees and community reimbursement revenue of $0.6 million and $9.6 million, respectively, which were due to the Company’s management of six and 18 communities on the behalf of third parties, which commenced on March 1, 2020 and August 1, 2020, respectively.

The Company continues to evaluate its portfolio of senior housing communities and explore opportunities to monetize certain of its assets, including through the sale of various owned communities that it believes are operating in challenging markets or that no longer fit its portfolio criteria. ~~Effective May 1, 2019,~~During the first nine months of 2020, the Company ~~closed the Kokomo Sale Transaction, which resulted in the disposition of~~transitioned six communities to a different operator, transitioned 24 properties to a management agreement, and sold one senior housing community for a total purchase price of $5.0 million, and received approximately $1.4 million in net proceeds after retiring outstanding mortgage debt of $3.5 million and paying customary transaction and closing costs.property.

~~Excluding the two senior housing communities impacted by Hurricane Harvey and the Kokomo Sale Transaction, the average~~Consolidated financial occupancy ~~rate~~ for the third quarters of fiscal 2020 and 2019 was 76.1% and ~~2018 was~~ 81.3% ~~and 84.1%, respectively. For the nine months ended September 30, 2019 and 2018, the average financial occupancy rate was 82.3% and 85.1%~~, respectively. Although average financial occupancies decreased for such periods, wethe Company experienced an increase in average monthly rental rates of 36270 basis points when comparing the ~~first nine months~~third quarter of fiscal ~~2019~~2020 to ~~the first nine months of fiscal 2018.~~

~~As mentioned above, the Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during~~ the third quarter of fiscal 2017. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Physical repairs have been completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. Through September 30, 2019, we have incurred approximately $6.8 million in clean-up and physical repair costs which we believe are probable of being recovered through insurance proceeds. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage included loss of business income (“Business Interruption”) through one year after the buildings were placed back in service. Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. 2019.

As of ~~September 30,~~December 31, 2019, the Company has received total payments from our insurance underwriters totaling approximately $15.4 million, of which approximately $9.8 million related to Business Interruption. During the three and nine months ended September 30, 2019, the Company recognized $0.1 million and $2.5 million, respectively, of Business Interruption proceeds. During the three and nine months ended September 30, 2018, the Company recognized and $1.3 million and $4.5 million, respectively, of Business Interruption proceeds. Business Interruption proceeds have been included as a reduction to operating expenses in the Company’s Consolidated Statements of Operations and Comprehensive Loss.

~~The Company currently leases~~leased 46 senior housing communities from certain real estate investment trusts ~~(“REITs”), all~~and transitioned one community to a different operator effective January 15, 2020. During the first nine months of ~~which are accounted for as operating leases. The lease terms are generally for 10-15 years with renewal options for an additional 5-20 years at the Company’s option. Under these lease agreements,~~fiscal 2020, the Company ~~is responsible for all operating costs, maintenance and repairs, insurance and property taxes. The following table summarizes~~restructured certain of its Master Lease Agreements with each of ~~the Company’s facility lease agreements~~its landlords as further described below, and after giving effect to such transactions and as of September 30, 2020, the Company leased 34 senior living communities and managed six senior living communities for the account of Healthpeak.

Landlord

Initial Date of Lease

Number of
Communities

Value of
Transaction

Current Expiration and Renewal Term

Initial
Lease Rate (1)

Lease
Acquisition and
Modification
Costs (2)

Deferred
Gains / Lease
Concessions (3)

Ventas

September 30, 2005

4

$
61.4

September 30, 2025 (4)
(Two five-year renewals)

8
%

$
7.7

$
4.2

Ventas

January 31, 2008

1

5.0

September 30, 2025 (4)
(Two five-year renewals)

7.75
%

0.2

—

Ventas

June 27, 2012

2

43.3

September 30, 2025 (4)
(Two five-year renewals)

6.75
%

0.8

—

HCP

May 1, 2006

3

54.0

October 31, 2020 (5)
(Two 10-year renewals)

8
%

0.3

12.8

HCP

May 31, 2006

6

43.0

April 30, 2026 (6)
(One 10-year renewal)

8
%

0.2

0.6

HCP

December 1, 2006

4

51.0

October 31, 2020 (5)
(Two 10-year renewals)

8
%

0.7

—

HCP

December 14, 2006

1

18.0

October 31, 2020 (5)
(Two 10-year renewals)

7.75
%

0.3

—

HCP

April 11, 2007

1

8.0

October 31, 2020 (5)
(Two 10-year renewals)

7.25
%

0.1

—

Welltower

April 16, 2010

5

48.5

April 30, 2025 (15 years)
(One 15-year renewal)

8.25
%

0.6

0.8

Welltower

May 1, 2010

3

36.0

April 30, 2025 (15 years)
(One 15-year renewal)

8.25
%

0.2

0.4

Welltower

September 10, 2010

12

104.6

September 30, 2025 (15 years)
(One 15-year renewal)

8.50
%

0.4

2.0

Welltower

April 8, 2011

4

141.0

April 30, 2026 (15 years)
(One 15-year renewal)

7.25
%

0.9

16.3

Subtotal

12.4

37.1

Accumulated amortization through December 31, 2018

(7.9
)

—

Accumulated deferred gains / lease concessions recognized through December 31, 2018

—

(25.7
)
Adoption of ASC 842

(4.5
)

(11.4
)
Net lease acquisition costs / deferred gains / lease concessions as of September 30, 2019

$
-

$
-

~~There are various~~ financial covenants of the Master Lease Agreement during the forbearance period, which terminates on December 31, 2020 absent any defaults by the Company. In conjunction with the Ventas Agreement, the Company released to Ventas $4.1 million in security deposits and ~~other restrictions~~$2.5 million in escrow deposits held by Ventas, and Ventas forgave the Company’s lease ~~agreements.~~termination obligation, which was $11.4 million at December 31, 2019. The Ventas Agreement provides that Ventas can terminate the Master Lease Agreement with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Ventas may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Ventas has not delivered a termination notice for any communities subject to the Master Lease Agreement, then, with respect to any such communities, Ventas will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of the gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Ventas Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreement during the applicable forbearance period and Ventas will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Ventas and modification of the lease term pursuant to the Ventas Agreement was determined to be a modification of the Master Lease Agreement. As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the modified terms and determined that the lease continued to be classified as an operating lease until the communities transitioned to a different operator or management agreement, at which time the lease would terminate. During the first quarter of 2020, the Company reduced the lease termination obligation, lease liability and operating lease right-of-use asset recorded in ~~compliance with all of its lease covenants~~theCompany's Consolidated Balance Sheets at September 30, ~~2019~~2020 by approximately $11.1 million, $51.6 million, and $47.8 million, respectively, and recognized a net gain of approximately $8.4 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

As of December 31, ~~2018.~~2019, the Company leased 24 senior housing communities from Welltower. The initial terms of the Welltower lease agreements were scheduled to expire on various dates from April 2025 through April 2026. On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between it and Welltower covering all 24 communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. In addition, the Welltower Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company. In conjunction with the Welltower Agreement, the Company released $6.5 million in letters of credit to Welltower during the second quarter of 2020. The Welltower Agreement provides that Welltower can terminate the agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Welltower may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Welltower has not delivered a termination notice for any communities subject to the Master Lease Agreements, then, with respect to any such communities, Welltower will be deemed to have

delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of the gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Welltower Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and Welltower will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then existing Master Lease Agreements with Welltower and modification to the lease term pursuant to the Welltower Agreement was determined to be a modification of the Master Lease Agreements. As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that the leases continued to be classified as operating leases until the community transitioned to a different operator or management agreement, at which time the lease would terminate. The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in theCompany's Consolidated Balance Sheets at September 30, 2020 by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020. The Company recognized a net gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

During the three months ended September 30, 2020, Welltower elected to terminate the agreement with respect to five communities, all of which transferred to a different operator on September 10, 2020. The Company recorded an approximate $0.7 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020.

On March 1, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026. Such Master Lease Agreement terminated and was converted into a Management Agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak. Pursuant to the Management Agreement, the Company will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities. In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak. The Company remeasured the lease liability and operating lease right-of-use asset recorded in theCompany's Consolidated Balance Sheets at December 31, 2019 to zero, which resulted in the Company recognizing an approximate $7.0 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

On May 20, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Forbearance”), effective April 1, 2020 through the end of the lease term, pursuant to which the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities. The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment to be made on or before November 1, 2023. At September 30, 2020, the Company had deferred $1.4 million of monthly rent, which was included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

On November 1, 2020, subsequent to quarter-end, the Company entered into an agreement to extend the end of the lease term from October 31, 2020 to April 30, 2021 (subject to two possible three month extensions). Pursuant to such agreement, the Company will begin paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities.

losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, ~~2019, with early adoption permitted for fiscal years beginning after December 15, 2018.~~2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~ (Topic “ASC 842”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new lease standard requires lessees to recognize on the balance sheet a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, in July 2018, the FASB issued ASU 2018-11, ~~Leases, Targeted Improvements~~, which provided entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative effect adjustment to beginning retained earnings in the period of adoption. The Company adopted the new lease standard on January 1, 2019, on a prospective basis, forgoing comparative reporting using the modified retrospective adoption method, utilizing the simplified transition method available pursuant to the standard, which allowed the Company to continue to apply the legacy accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company elected to utilize certain practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying assets in which it is the lessee, not reassess initial direct costs for existing leases, and make an accounting policy election not to account for leases with an initial term of 12 months or less on the balance sheet. Adoption of the lease standards by the Company initially resulted in the recording of operating lease right-of-use assets of $255.4 million and operating lease liabilities of $289.5 million on the Company’s Consolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for the operating lease right-of-use assets and operating lease liabilities is due to net reductions for the reclassification of certain deferred lease costs and lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit. The adoption of the standard did not have a material impact on the consolidated earnings or cash flows of the Company and had no impact on the Company’s covenant compliance under its current debt and lease agreements.

The Company’s Internet website, www.capitalsenior.com, contains an Investor Relations section, which provides links to the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and Section 16 filings and any amendments to those reports and filings. These reports and filings are available free of charge through the Company’s Internet website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

The following table sets forth for the periods indicated selected Consolidated Statements of Operations and Comprehensive Loss data in thousands of dollars and expressed as a percentage of total revenues.

	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018						2020						2019						2020						2019
	$			%			$			%			$			%			$			%			$			%			$			%			$			%			$			%
Revenues:
Resident revenue	$	111,110			100.0		$	115,650			100.0		$	338,412			100.0		$	344,920			100.0		$	85,894			89.4		$	111,110			100.0		$	290,952			95.8		$	338,412			100.0
Management fees																										604			0.6			—			0.0			819			0.3			—			0.0
Community reimbursement revenue																										9,555			10.0			—			0.0			11,888			3.9			—			0.0
Total revenues																										96,053			100.0			111,110			100.0			303,659			100.0			338,412			100.0
Expenses:
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below)		80,394			72.4			76,195			65.9			230,229			68.0			220,863			64.0			65,165			67.8			80,394			72.4			211,874			69.8			230,229			68.0
General and administrative expenses		7,554			6.8			5,589			4.8			21,766			6.4			17,323			5.0			8,128			8.5			7,554			6.8			21,036			6.9			21,766			6.4
Facility lease expense		14,233			12.8			14,077			12.2			42,706			12.6			42,515			12.3			5,926			6.2			14,233			12.8			23,234			7.7			42,706			12.6
Stock-based compensation expense		898			0.8			2,095			1.8			1,558			0.5			6,603			1.9			421			0.4			898			0.8			1,494			0.5			1,558			0.5
Depreciation and amortization expense		16,136			14.5			15,998			13.8			48,085			14.2			46,891			13.6			15,547			16.2			16,136			14.5			47,584			15.7			48,085			14.2
Long-lived asset impairment																										3,240			3.4			—			0.0			39,194			12.9			—			0.0
Community reimbursement expense																										9,555			10.0			—			0.0			11,888			3.9			—			0.0
Total expenses		119,215			107.3			113,954			98.5			344,344			101.8			334,195			96.9			107,982			112.4			119,215			107.3			356,304			117.3			344,344			101.8
Income (loss) from operations		(8,105	)		(7.3	)		1,696			1.5			(5,932	)		(1.8	)		10,725			3.1
Other income (expense):					-						-						-						-
Interest income		59			0			42			0			173			0			117			0			14			0.0			59			0.1			83			0.0			173			0.1
Interest expense		(12,562	)		(11.3	)		(12,705	)		(11.0	)		(37,728	)		(11.2	)		(37,771	)		(11.0	)		(11,141	)		(11.6	)		(12,562	)		(11.3	)		(34,044	)		(11.2	)		(37,728	)		(11.2	)
Write-off of deferred loan costs and prepayment premiums		—			—			—			—			(97	)		(0	)		—			—
Write-down of assets held for sale		—			—			—			—			(2,340	)		(1	)		—			—			—			0.0			—			0.0			—			0.0			(2,340	)		(0.7	)
Gain on disposition of assets, net		—			0.0			—			0.0			38			0			10			0.0
Gain (loss) on facility lease modification and termination, net																										(753	)		(0.8	)		—			0.0			10,487			3.5			(97	)		(0.0	)
Gain (loss) on disposition of assets, net																										(191,032	)		(198.9	)		—			0.0			(198,388	)		(65.3	)		38			0.0
Other income		1			0.0			7			0			8			0.0			2			0.0			9			0.0			1			0.0			2			0.0			8			0.0
Loss before provision for income taxes		(20,607	)		(18.6	)		(10,960	)		(9.5	)		(45,878	)		(13.6	)		(26,917	)		(7.8	)
Loss from continuing operations before provision for income taxes																										(214,832	)		(223.7	)		(20,607	)		(18.6	)		(274,505	)		(90.4	)		(45,878	)		(13.6	)
Provision for income taxes		(124	)		(0	)		(129	)		(0	)		(371	)		(0	)		(388	)		(0	)		(132	)		(0.1	)		(124	)		(0.1	)		(393	)		(0.1	)		(371	)		(0.1	)
Net loss	$	(20,731	)		(18.7	)	$	(11,089	)		(9.6	)	$	(46,249	)		(13.7	)	$	(27,305	)		(7.9	)
Net loss from operations																									$	(214,964	)		(223.8	)	$	(20,731	)		(18.7	)	$	(274,898	)		(90.5	)	$	(46,249	)		(13.7	)

Three Months Ended September 30, ~~2019~~2020 Compared to the Three Months Ended September 30, ~~2018~~2019

Revenue was $96.1 million for the three month period ended September 30, 2020 compared to $111.1 million for the three month period ended September 30, 2019, ~~compared to $115.7 million for the three month period ended September 30, 2018,~~ representing a decrease of ~~$4.5~~$15.0 million, or approximately ~~3.9%~~13.3%. ~~This~~The decrease in revenue is primarily due to the disposition of three communities since the second quarter of 2019 and the Company transitioning six of its senior housing communities to different operators and 24 communities to management agreements during 2020, which together accounted for a decrease in revenue of approximately $21.0 million. The remaining decrease in resident revenue at the Company’s remaining senior housing communities of approximately $4.0 million was primarily due to ~~decreasing~~a decrease of 520 basis points in total occupancy. The decrease in the financial occupancy ~~levels at~~was primarily due to reduced move-in activity, which began in the second half of March 2020 and intensified through the end of the third quarter of 2020, related to the COVID-19 pandemic and our ~~communities impacting revenues~~response efforts. The decreases in total revenue were partially offset by ~~$3.7~~increases in management fees and community reimbursement revenue of $0.6 million and ~~a $0.8~~$9.6 million, ~~decrease~~respectively, which were due to the ~~Kokomo Sale Transaction in~~Company’s management of six and 18 communities on the ~~second quarter~~behalf of 2019. While the Company’s revenues have been impacted by Hurricane Harvey at two of our southeast Texas communities, those properties experienced a quarter-over-quarter increase in revenues of $0.6 million as the physical repairs were completedthird parties, which commenced on March 1, 2020 and ~~the properties continue to lease-up.~~August 1, 2020, respectively.

Total expenses were $108.0 million in the third quarter of fiscal 2020 compared to $119.2 million in the third quarter of fiscal 2019, ~~compared to $114.0 million in the third quarter~~representing a decrease of ~~fiscal 2018, representing an increase of $5.3~~$11.2 million, or ~~4.6%~~9.4%. This ~~increase~~decrease is primarily the result of a ~~$4.2~~$15.2 million decrease in operating expenses, an $8.1 million decrease in facility lease expenses, a $0.6 million decrease in depreciation expense, and a $0.5 million decrease in stock-based compensation expense, partially offset by a $3.2 million increase in ~~operating expenses,~~impairment expense, a ~~$2.0~~$9.6 million increase in community reimbursement expense and a $0.6 million increase in general and administrative expenses, a $0.2 million increase in facility lease expense due to lease escalations, and a $0.1 million increase in depreciation and amortization expense, partially offset by a $1.2 million decrease in stock-based compensation expense.expenses.

Provision for income taxes for the third quarter of fiscal ~~2019~~2020 was $0.1 million, or ~~0.6%~~0.05% of loss before income taxes, compared to a provision for income taxes of $0.1 million, or ~~1.2%~~0.6% of loss before income taxes, for the third quarter of fiscal ~~2018.~~2019. The effective tax rates for the ~~third~~first quarters of fiscal ~~2019~~2020 and ~~2018~~2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes a tax on modified gross revenues for communities within the ~~state~~State of Texas. ~~During each of the third quarters of fiscal 2019 and 2018, the~~The Company ~~consolidated~~consolidates 38 Texas communities, ~~and the TMT increased~~which contributes to the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. ~~Based upon this evaluation, adjustments to~~At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its net deferred tax ~~asset~~assets. The valuation allowance ~~of $5.0 million and $2.7 million were recorded during the third quarters of fiscal 2019 and 2018, respectively, to reduce~~reduces the Company’s net deferred tax assets to the amount that is ~~more~~“more likely than ~~not~~not” (i.e., a greater than 50% likelihood) to be realized.

As a result of the foregoing factors, the Company reported net loss and comprehensive loss of ~~$(21.0)~~$215.0 million for the three months ended September 30, ~~2019,~~2020, compared to net loss and comprehensive loss of ~~$(11.1)~~$20.7 million for the three months ended September 30, ~~2018.~~2019.

Nine Months Ended September 30, ~~2019~~2020 Compared to the Nine Months Ended September 30, ~~2018~~2019

Revenue was $303.7 million for the nine month period ended September 30, 2020 compared to $338.4 million for the nine ~~months ended September 30, 2019, compared to $344.9 million for the nine months~~month period ended September 30, 2019, representing a decrease of ~~$6.5~~$14.9 million, or ~~1.9%~~approximately 13.4%. ~~This~~The decrease in revenue is primarily due to the disposition of four communities since the first quarter of 2019 and the Company transitioning six of its senior housing communities to different operators and 24 communities to management agreements during 2020, which together accounted for a decrease to resident revenues of approximately $40.1 million, anda decrease in resident revenue at the Company’s remaining senior housing communities of approximately $7.5 million, which was primarily due to a decrease of 430 basis points in financial occupancy. The decrease in the financial occupancy ~~levels at~~was primarily due to reduced move-in activity, which began in the second half of March 2020 and continued throughout the third quarter of 2020, related to the COVID-19 pandemic and our ~~communities impacting revenues~~response efforts. The decreases in revenue were partially offset by ~~$5.2~~increases in management fees and community reimbursement revenue of $0.8 million and ~~a $1.4~~$11.9 million, ~~decrease~~respectively, which were due to the ~~Kokomo Sale Transaction in~~Company’s management of six and 18 communities on the ~~second quarter. While the Company’s revenues have been impacted by Hurricane Harvey at two~~behalf of ~~our southeast Texas communities, those properties experienced a year-over-year increase in revenues of $2.7 million as the physical repairs were completed~~third parties, which commenced on March 1, 2020 and ~~the properties continue to lease-up.~~August 1, 2020, respectively.

Total expenses were $356.3 million in the first nine months of fiscal 2020 compared to $344.3 million in the first nine months of fiscal 2019, ~~compared to $334.2 million in the first nine months of fiscal 2018,~~ representing an increase of ~~$10.1~~$12.0 million, or ~~3.0%~~3.5%. This increase is primarily the result of a ~~$9.4~~$39.2 million increase in impairment expenses and a $11.9 million increase in community reimbursement expense, partially offset by a $18.4 million decrease in operating expenses, a ~~$4.4~~$0.7 million ~~increase~~decrease in general and administrative expenses, a ~~$0.2~~$19.5 million ~~increase~~decrease in facility lease expense, ~~due to lease escalations, and~~ a ~~$1.2~~$0.5 million ~~increase~~decrease in depreciation and amortization expense, ~~partially offset by~~and a ~~$5.0~~$0.1 million decrease in stock-based compensation expense.

Provision for income taxes for the first nine months of fiscal ~~2019~~2020 was $0.4 million, or ~~0.8%~~0.1% of loss before income taxes, compared to a provision for income taxes of $0.4 million, or ~~1.4%~~0.8% of loss before income taxes, for the first nine months of fiscal ~~2018.~~2019. The effective tax rates for the first nine months of fiscal ~~2019~~2020 and ~~2018~~2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the ~~TMT,~~Texas Margin Tax, which effectively imposes a tax on modified gross revenues for communities within the State of Texas. ~~During each of the first nine months of fiscal 2019 and 2018, the~~The Company ~~consolidated~~consolidates 38 Texas communities, ~~and the TMT increased~~which contributes to the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. ~~Based upon this evaluation, adjustments to~~At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its net deferred tax ~~asset~~assets. The valuation allowance ~~of $10.7 million and $6.3 million were recorded during the first nine months of fiscal 2019 and 2018, respectively, to reduce~~reduces the Company’s net deferred tax assets to the amount that is ~~more~~“more likely than ~~not~~not” (i.e., a greater than 50% likelihood) to be realized.

As a result of the foregoing factors, the Company reported net loss and comprehensive loss of ~~$(46.5)~~$274.9 million for the nine months ended September 30, ~~2019,~~2020, compared to net loss and comprehensive loss of ~~$(27.3)~~$46.2 million for the nine months ended September 30, ~~2018.~~2019.

In addition to approximately ~~$7.7~~$14.3 million of unrestricted cash balances on hand as of September 30, ~~2019,~~2020, the Company’s principal sources of liquidity are expected to be cash flows from operations, additional proceeds from debt refinancings, COVID-19 relief funding (including the $8.1 million of cash the Company accepted pursuant to the Provider Relief Fund’s Phase 2 General Distribution on November 6, 2020, subsequent to quarter-end), equity issuances, and/or proceeds from the sale of owned ~~assets,~~assets. The Company is implementing plans, which includes strategic and ~~the disposition of underperforming leased assets. For example, subsequent~~cash-preservation initiatives, which are designed to ~~the recently completed quarter,~~provide the Company ~~sold two communities on October 1, 2019, which resulted in net cash proceeds~~with adequate liquidity to meet its obligations for at least the ~~Company of approximately $14.8 million. Also, on October 22, 2019,~~twelve-month period following the ~~Company entered into a lease amendment with HCP, a lessor of certain of the Company’s leased properties, to transition four HCP properties to new operators in January 2020~~date its financial statements are issued. See “Going Concern and ~~sell the remaining five HCP properties in the first half of 2020 to a buyer or buyers. See additional discussion at “Note 10 - Subsequent Events.~~Management’s Plan.” The Company expects its available cash and cash flows from operations, additional proceeds from debt refinancings, and proceeds from the sale of assets to be sufficient to fund its short-term working capital requirements. The Company’s long-term capital requirements ~~primarily for renovations, conversions, acquisitions, and other corporate initiatives,~~ are and will be dependent on its ability to access additional funds through the debt and/or equity markets or additional sales of assets. The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio including debt refinancings, equity issuances, purchases and sales of assets, reorganizations and other transactions. If capital were obtained through the issuance of Company equity, the issuance of Company securities would dilute the ownership of our existing stockholders and any newly issued securities may have rights, preferences, and/or privileges senior to those of our common stock. There can be no assurance that the Company will continue to generate cash flows at or above current levels or that the Company will be able to obtain the capital necessary to meet the Company’s short and long-term capital requirements.

~~Changes~~Recent changes in the current economic environment, and other future changes, could result in decreases in the fair value of assets, slowing of transactions, and tightening liquidity and credit markets. These impacts could make ~~it more difficult~~securing debt or refinancings for the Company ~~to secure debt on acceptable terms for working capital needs, acquisitions~~ or ~~refinancings, and for potential~~ buyers ~~to secure funding to finance the acquisition~~ of the Company’s ~~properties. Additionally,~~properties more difficult or on terms not acceptable to the ~~Company may be more susceptible to being negatively impacted by operating or performance deficits based on the exposure associated with meeting certain lease coverage requirements.~~Company.

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
Net cash (used in) provided by operating activities	$	(752	)	$	26,871
Net cash provided by (used in) operating activities							$	(5,370	)	$	(752	)
Net cash used in investing activities		(9,383	)		(17,932	)		(4,815	)		(9,383	)
Net cash used in financing activities		(13,409	)		(17,245	)		(8,603	)		(13,409	)
Net decrease in cash and cash equivalents	$	(23,544	)	$	(8,306	)	$	(18,788	)	$	(23,544	)

The net cash used in operating activities for the nine months ended September 30, ~~2019~~2020 primarily results from a net loss of $274.9 million, decreases in cash flows from current assets of $3.7 million and decreases from current liabilities of $12.1 million, partially offset by net non-cash charges of ~~$52.0 million, partially offset~~$261.1 million. The net cash used in operating activities for the nine months ended September 30,

2019 primarily results from by a net loss of $46.2 million, decreases in cash flows from current assets of $2.1 million and decreases from current liabilities of $4.4 million, partially offset by net non-cash charges of $52.0 million.

The net cash ~~provided by operating~~used in investing activities for the nine months ended September 30, ~~2018~~2020 primarily results from ~~net non-cash charges~~ongoing capital improvements and refurbishments at the Company’s senior housing communities of ~~$55.5 million and increases in cash flows from current assets of $2.8~~$11.2 million, partially offset by ~~decreases~~$6.4 million in ~~cash flows~~proceeds from ~~a net loss~~the disposition of ~~$27.3 million and current liabilities of $4.2 million.~~

assets. The net cash used in investing activities for the nine months ended September 30, 2019 primarily results from capital expenditures of $14.3 million associated with ongoing capital improvements and refurbishments at the Company’s senior housing communities and $4.9 million of proceeds from the disposition of assets associated with the Kokomo Sale Transaction.

The net cash used in ~~investing~~financing activities for the nine months ended September 30, ~~2018~~2020 primarily results from ~~capital expenditures~~proceeds from notes payable of ~~$18.0~~$2.2 million, ~~associated with ongoing capital improvements~~repayments of notes payable of $10.4 million, and ~~refurbishments at the Company’s senior housing communities.~~

payments on financing obligations of $0.4 million. The net cash used in financing activities for the nine months ended September 30, 2019 primarily results from $5.3 million of proceeds from notes payable related to insurance premium financing, repayments of notes payable of $16.9 million, and payments on financing obligations of $1.1 million.

The ~~net cash used in financing activities~~CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties. On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer of one Fannie Mae loan covering one property. On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of three Fannie Mae loans covering two properties. The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and June 2020 ("Deferred Payments") and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.

On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one month extension of the forbearance agreements between it and Fannie Mae covering 23 properties. The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.

On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for five properties with forbearance agreements. The Company elected not to pay $3.8 million on the loans for the remaining 18 properties as of that date as it initiated a process which is intended to transfer the operations and ownership of such properties to Fannie Mae. Therefore, the Company was in default on such loans.

As a result of the default, Fannie Mae filed a motion with the United States District Court requesting that a receiver be appointed over the 18 properties, which was approved by the court. The Company agreed to continue to manage the 18 communities, subject to earning a management fee, until legal ownership of the properties is transferred to Fannie Mae. In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for any payments made on behalf of any of the 18 communities under the receivership order. As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default. Management fees earned from the properties are recognized as revenue when earned. In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance ASC 610-20. As such, the Company derecognized the assets and recorded a loss of $191.0 million on the transaction for the three and nine months ended September 30, ~~2018 primarily results from repayments~~2020. Once legal ownership of ~~notes payable of $16.9~~the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470. At September 30, 2020, the Company included $217.7 million ~~$1.7~~in outstanding debt and $6.1 million of ~~proceeds from notes payable related to insurance premium financing, and payments~~accrued interest on ~~capital lease and financing obligations of $2.1 million.~~

Effective June 28, 2019, the Company exercised its option to extend its interest-only variable interest rate mortgage loan with Compass Bank on four of its senior housing communities (Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor). The maturity date was extended from May 11, 2020 to July 11, 2020, and was included in the current portion of notes payable within the Company’s Consolidated Balance Sheets related to these properties.

The Company also entered into a loan amendment with another lender, BBVA, USA, related to a loan covering three properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to and due in June 2021.

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties. These amendments allowed the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021. The Company made all required debt service payments in July, August, and September 2020. On October 1, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties. These amendments allow the Company to defer interest payments for October, November, and December 2020 and to extend the deferral period of principal payments through September 1, 2021, with all such deferral amounts being added to principal due at ~~September 30, 2019.~~maturity in either 2025 or 2026, depending upon the loan.

The Company previously issued standby letters of credit with Wells Fargo, ~~Bank (“Wells Fargo”),~~ totaling approximately $3.4 million, for the benefit of Hartford Financial Services ~~(“Hartford”)~~ in connection with the administration of workers’ ~~compensation~~compensation. On August 27, 2020, the available letters of credit were increased to $4.0 million, all of which ~~remain~~remained outstanding as of September 30, ~~2019.~~2020.

The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately ~~$6.7~~$6.5 million, for the benefit of Welltower, ~~Inc. (“Welltower”),~~ in connection with certain leases between Welltower and the ~~Company which remain outstanding as~~Company. The letters of ~~September~~credit were surrendered to Welltower in conjunction with the Welltower Agreement during the quarter ended June 30, ~~2019.~~2020.

The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of ~~HCP, Inc. (“HCP”)~~Healthpeak in connection with certain leases between ~~HCP~~Healthpeak and the Company. The letters of credit were released to the Company during the first quarter of 2020 and were subsequently included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.

On May 20, 2020, the Company entered into an agreement with Healthpeak, effective April 1, 2020, through the lease term ending October 31, 2020, to defer a percentage of rent payments. At September 30, 2020, the Company had deferred $1.4 million in rent payments, which ~~remain~~is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

There are various financial covenants and other restrictions within the Company’s debt agreements. Except as noted below, the Company was in compliance with all of its outstanding indebtedness at September 30, 2020 and December 31, 2019. Pursuant to the forbearance agreements described above under “Transactions Involving Certain Fannie Mae Loans,” the Company withheld loan payments due under loan agreements with Fannie Mae covering certain of the Company’s communities for the months of April through September of 2020. Additionally, the Company does not expect to be in compliance with a certain financial covenant of its loan agreement with Fifth Third Bank, on the Company’s Autumn Glen and Cottonwood Village properties, as of September 30, ~~2019.~~2020, in which a minimum debt service coverage ratio must be maintained. However, cure provisions within the debt agreement allow the Company to make a principal payment to bring the debt service coverage ratio into compliance. The Company is in active negotiations with Fifth Third Bank to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be reached. If a mutually agreed upon solution is not reached, the Company may be found in default of the debt agreement. In the event of default, Fifth Third has the right to declare all amounts outstanding to be immediately due and payable.

Item 3. QUANTITATIVE AND ~~QUALITATI~~VEQUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company’s primary market risk is exposure to changes in interest rates on debt and lease instruments. As of September 30, 2019, the Company had $971.6 million in outstanding debt comprised of various fixed and variable interest rate debt instruments of $845.3 million and $126.3 million, respectively. In addition, as of September 30, 2019, the Company had $333.7 million in future facility lease obligations with contingent rent increases on certain leases based on changes in the consumer price index or certain operational performance measures.Not applicable.

Changes in interest rates would affect the fair market values of the Company’s fixed interest rate debt instruments, but would not have an impact on the Company’s earnings or cash flows. Fluctuations in interest rates on the Company’s variable interest rate debt instruments, which are tied to LIBOR, would affect the Company’s earnings and cash flows but would not affect the fair market values of the variable interest rate debt. Each percentage point increase in interest rates would impact the Company’s annual interest expense by approximately $1.3 million based on the Company’s outstanding variable interest rate debt as of September 30, 2019. Increases in the consumer price index would result in an increase in future facility lease expense if the leased community exceeds the contingent rent escalation thresholds set forth in each of the Company’s lease agreements.

The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and ~~Chief~~Principal Financial Officer (“~~CFO”~~PFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and ~~CFO~~PFO as appropriate, to allow timely decisions regarding required disclosure.

Based upon the controls and procedures evaluation, the Company’s CEO and ~~CFO~~PFO have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

There have not been any changes in the Company’s 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 Company’s fiscal quarter ended September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Our business involves various risks. When evaluating our business,~~The following risk factors are in addition to the ~~following information should be carefully considered in conjunction with the other information contained in our periodic filings with the SEC. Additional~~ risks and uncertainties not known to us currently or that currently we deem to be immaterial also may impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer. Negative events are likely to decrease our revenue, increase our costs, weaken our financial results and/or decrease our financial strength, and may cause our stock price to decline. There have been no material changes in our risk factors from those disclosed in Part 1, Item 1Adescribed under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, which was filed with the SEC on March 31, 2020. The effects of the events and circumstances described in the following risk factors may, directly or indirectly, heighten, exacerbate or otherwise bring to fruition many of the risks and uncertainties contained in our annual, quarterly and periodic reports filed with the SEC.

The sudden onset of COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses and operating results at our communities. Although we are unable to predict the full nature and extent of the impact of COVID-19 at this time, we expect COVID-19 will continue to have a significant adverse effect on our business, financial condition, liquidity and results of operations.

We face risks related to an epidemic, pandemic or other health crisis. A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from COVID-19. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business

In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, COVID-19 has caused, and management expects will continue to cause, a decline in the occupancy levels at the Company’s communities, which has negatively impacted , and will likely continue to negatively impact the Company’s revenues and operating results, which depend significantly on such occupancy levels. During the second half of March 2020, new resident leads, visits, and move-in activity began to decline compared to typical levels. This trend intensified throughout the third quarter of 2020, and began to adversely impact occupancy, resulting in a decrease in consolidated senior housing occupancy (excluding the community sold

effective March 31, 2020), decreasing from 79.9% for the first quarter of 2020 to 77.6% for the third quarter of 2020. We expect further deterioration of resident fee revenue resulting from fewer move-ins and typical resident attrition inherent in our business, which may increase due to the impacts of COVID-19.

In addition, the recent outbreak of COVID-19 has required the Company to incur, and management expects will require the Company to continue to incur, significant additional operating costs and expenses in order to care for its residents. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents at such communities and has resulted in reduced occupancies at such communities. During the second half March 2020, the Company began to incur incremental direct costs to prepare for and respond to the COVID-19 pandemic and such costs increased throughout the third quarter of 2020. Facility operating expense for the three and nine months ended September 30, 2020 includes $2.9 million and $3.2 million, respectively, of incremental and direct costs as a result of the COVID-19 pandemic, including costs for acquisition of additional PPE, cleaning and disposable food service supplies, testing of the Company’s residents and employees, enhanced cleaning and environmental sanitation costs, and increased labor expense. The Company expects such costs to continue. We are unable to reasonably predict the total amount of costs we will incur related to the pandemic, but such costs are likely to be substantial.

As a result, we expect COVID-19 will have a significant adverse effect on our business, financial condition, liquidity, and results of operations. It has resulted in the Company’s management concluding that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date on which the Company’s financial statements are issued.

The COVID-19 pandemic has also caused substantial volatility in the market prices and trading volumes in the equity markets, including our stock. Our stock price and trading volume may continue to be subject to wide fluctuations as a result of the pandemic, and may decline in the future.

The ultimate impacts of COVID-19 on our business, results of operations, cash flow, liquidity, and stock price will depend on many factors, some of which cannot be foreseen, including the duration, severity, and geographic concentrations of the pandemic and any resurgence 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 and availability of COVID-19 infection and antibody 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; 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, 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 preparation and response efforts, including increased supplies, labor, litigation, and other expenses; the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements and enforcement actions resulting from COVID-19, including those that may limit our collection 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.

If the Company is unable to successfully implement its business plans and strategies, the Company’s consolidated results of operations, financial position, liquidity and ability to continue as a going concern could be negatively affected.

As noted elsewhere in this Quarterly Report on Form 10-Q, due to the impact of COVID-19 on the Company’s financial position, the Company’s management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company has taken and intends to take actions to improve its liquidity position and to address the uncertainty about its ability to operate as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, the Company may be unsuccessful in executing its business plans or achieving the projected results, which could adversely impact its financial results and liquidity. Those plans include various cost-cutting, efficiency and profitability initiatives. There are no assurances such initiatives will prove to be successful or the cost savings, profitability or other results the Company achieves through those plans will be consistent with its expectations. As a result, the Company’s results of operations, financial position and liquidity could be negatively impacted. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.

Our failure to comply with financial covenants and other restrictions contained in debt instruments and lease agreements could result in the acceleration of the related debt or lease or in the exercise of other remedies.

Our outstanding indebtedness and leases are secured by our communities, and, in certain cases, a guaranty by the Company or by one or more of our subsidiaries. Therefore, an event of default under the outstanding indebtedness or leases, subject to cure provisions in certain instances, would give the respective lenders or lessors, as applicable, the right to declare all amounts outstanding to be immediately due and payable, terminate the lease, or foreclose on collateral securing the outstanding indebtedness and leases.

There are various financial covenants and other restrictions in certain of our debt instruments and lease agreements, including provisions that:

If we fail to comply with any of these requirements, then the related indebtedness or lease obligations could become due and payable prior to their stated dates. We cannot assure that we could pay these debt or lease obligations if they became due prior to their stated dates.

Pursuant to the forbearance agreements described in Management’s Discussion and Analysis under “Transactions Involving Certain Fannie Mae Loans,” we withheld loan payments due under loan agreements with Fannie Mae covering certain of our communities for the months of April through September of 2020. In addition, we were not in compliance with certain financial covenants of our loan agreement with Fifth Third Bank covering two properties at September 30, 2020. We are in active negotiations with Fifth Third Bank to resolve this default. However, we cannot give any assurance that a mutually agreeable resolution will be reached.

If we cannot regain compliance with the continued listing requirements of the New York Stock Exchange (“NYSE”), the NYSE will delist our common stock.

Our common stock is currently listed on the NYSE. On April 10, 2020, we received notice (the “Notice”) from the NYSE that the Company is no longer in compliance with NYSE continued listing standards set forth in Section 802.01B (the “Minimum Market Capitalization Standard”) and Section 802.01C (the “Minimum Stock Price Standard”) of the NYSE’s Listed Company Manual due to the fact that (i) the Company’s average global market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, its stockholders’ equity was less than $50 million, and (ii) the average closing price of the Company’s common stock was less than $1.00 over a consecutive 30 trading-day period. If we are unable to regain compliance with such continued listing requirements within the time periods prescribed by the NYSE’s rules, our common stock will be delisted. Due to recent market conditions, the NYSE temporarily tolled the applicable cure periods for complying with the Minimum Market Capitalization Standard and the Minimum Stock Price Standard, through and including June 30, 2020, and as such, the NYSE has informed the Company that it has until December 19, 2021 to regain compliance with the Minimum Market Capitalization Statement and until December 19, 2020, to regain compliance with the Minimum Stock Price Standard.

In accordance with the NYSE’s listing requirements, the Company submitted its plan to the NYSE advising the NYSE of definitive action the Company has taken, or is taking, to bring it into conformity with the Minimum Market Capitalization Standard within 18 months after the Company’s receipt of the Notice. The NYSE accepted the Company’s plan in July 2020, and as a result, the Company’s common stock will continue to be listed and traded on the NYSE during the cure period, subject to the Company’s compliance with the plan and other continued listing standards. The NYSE will review the Company on a quarterly basis to confirm compliance with the plan. If the Company fails to comply with the plan or does not meet continued listing standards at the end of the 18-month cure period, it will be subject to the prompt initiation of NYSE suspension and delisting procedures.

The Company also responded to the NYSE within 10 business days after the Company’s receipt of the Notice stating its intent to cure the Minimum Stock Price Standard, including through a reverse stock split of the Company’s common stock, subject to stockholder approval, if such action is necessary to cure the non-compliance. The Company’s Board of Directors has approved, and is submitting for stockholder approval at the Company’s 2020 Annual Meeting of Stockholders, a reverse stock split of the Company’s common stock.

A delisting of our common stock could negatively impact us by, among other things:

I~~tem~~Item 2. UNREGISTERED SALES OF ~~EQUIT~~YEQUITY SECURITIES AND USE OF PROCEEDS.

The following information is provided pursuant to Item 703 of Regulation S-K. The information set forth in the table below reflects shares purchased by the Company pursuant to its share repurchase program (as described below) as of September 30, ~~2019.~~2020.

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. All shares that have been acquired by the Company under this program were purchased in open-market transactions.

The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted.

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

14160 Dallas Parkway, Suite 300, Dallas, Texas		75254
(Address of Principal Executive Offices)		(Zip Code)

	Page Number
Part I. Financial Information		3
Item 1. Financial Statements.		3
Consolidated Balance Sheets — September 30, ~~2019~~2020 and December 31, ~~201~~20198		3
Consolidated Statements of Operations and Comprehensive Loss — Three and Nine Months ~~ended~~Ended September 30, ~~2019~~2020 and ~~2018~~2019		4
Consolidated Statements of Shareholders’ Equity (Deficit)— Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		5
Consolidated Statements of Cash Flows — Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1825
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2738
Item 4. Controls and Procedures		2738
Part II. Other Information		2738
Item 1. Legal Proceedings		2738
Item 1A. Risk Factors		2738
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2841
Item 3. Defaults Upon Senior Securities		2841
Item 4. Mine Safety Disclosures		2841
Item 5. Other Information		2841
Item 6. Exhibits		2942
Signature		3043


		~~Nine Months Ended~~
		~~September 30, 2019~~
~~Expected volatility~~		~~37.0%~~
~~Expected dividend yield~~		~~0.0%~~
~~Expected term in years~~		~~6.0~~
~~Risk free rate~~		~~2.55%~~
~~Expected forfeiture rate~~		~~0.0%~~

Lease term and discount rate:
Weighted-average remaining lease term (years)		5.84
Weighted-average discount rate		7.75%

Operating lease cost classification (in thousands):
Facility lease expense	$	42,706
General and administrative expenses		238
Operating expenses, including variable lease expense of $4,616		5,070
Total operating lease costs	$	48,014

Assets
Prepaid expenses and other	$	(2,050)
Property and equipment, net		(15,569)
Operating lease right-of-use assets, net		255,386
Other assets, net		(4,715)
Total assets	$	233,052
Liabilities and Shareholder’s Equity
Deferred income	$	(17,498)
Financing obligations		(35,956)
Operating lease liabilities		289,513
Other long-term liabilities		(15,643)
Total liabilities	$	220,416
Total shareholder’s equity	$	12,636

	Nine Months Ended September 30,
Operating Leases (in thousands)	2020		2019
Facility lease expense	$	23,234	$	42,706
General and administrative expenses		495		238
Operating expenses, including variable lease expense of $4,499 and $4,616 in 2020 and 2019, respectively		4,760		5,070
Total operating lease costs	$	28,489	$	48,014
Operating lease expense adjustment		18,460		4,285
Operating cash flows from operating leases	$	46,949	$	52,299

	Nine Months Ended September 30,
Financing Leases (in thousands)	2020		2019
Depreciation and amortization	$	110	$	—
Interest expense: financing lease obligations		25		—
Total financing lease costs		135		—
Operating cash flows from financing leases	$	110	$	—
Financing cash flows from financing leases		25		—
Total cash flows from financing leases	$	135	$	—

Landlord	Initial Date of Lease	Number of Communities		Value of Transaction		Current Expiration and Renewal Term	Initial Lease Rate (1)			Lease Acquisition and Modification Costs (2)			Deferred Gains / Lease Concessions (3)
Ventas	September 30, 2005		4	$	61.4	September 30, 2025 (4) (Two five-year renewals)		8	%	$	7.7		$	4.2
Ventas	January 31, 2008		1		5.0	September 30, 2025 (4) (Two five-year renewals)		7.75	%		0.2			—
Ventas	June 27, 2012		2		43.3	September 30, 2025 (4) (Two five-year renewals)		6.75	%		0.8			—
HCP	May 1, 2006		3		54.0	October 31, 2020 (5) (Two 10-year renewals)		8	%		0.3			12.8
HCP	May 31, 2006		6		43.0	April 30, 2026 (6) (One 10-year renewal)		8	%		0.2			0.6
HCP	December 1, 2006		4		51.0	October 31, 2020 (5) (Two 10-year renewals)		8	%		0.7			—
HCP	December 14, 2006		1		18.0	October 31, 2020 (5) (Two 10-year renewals)		7.75	%		0.3			—
HCP	April 11, 2007		1		8.0	October 31, 2020 (5) (Two 10-year renewals)		7.25	%		0.1			—
Welltower	April 16, 2010		5		48.5	April 30, 2025 (15 years) (One 15-year renewal)		8.25	%		0.6			0.8
Welltower	May 1, 2010		3		36.0	April 30, 2025 (15 years) (One 15-year renewal)		8.25	%		0.2			0.4
Welltower	September 10, 2010		12		104.6	September 30, 2025 (15 years) (One 15-year renewal)		8.50	%		0.4			2.0
Welltower	April 8, 2011		4		141.0	April 30, 2026 (15 years) (One 15-year renewal)		7.25	%		0.9			16.3
Subtotal											12.4			37.1
Accumulated amortization through December 31, 2018											(7.9	)		—
Accumulated deferred gains / lease concessions recognized through December 31, 2018											—			(25.7	)
Adoption of ASC 842											(4.5	)		(11.4	)
Net lease acquisition costs / deferred gains / lease concessions as of September 30, 2019										$	-		$	-

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
Total at June 30, 2019		494,115	$	6.94		494,115	$	6,570,222
June 1 – June 30, 2019		—		—		—		6,570,222
July 1 – July 31, 2019		—		—		—		6,570,222
September 1 – September 30, 2019		—		—		—		6,570,222
Total at September 30, 2019		494,115	$	6.94		494,115	$	6,570,222

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
Total at June 30, 2020		494,115	$	6.94		494,115	$	6,570,222
July 1 – July 31, 2020		—		—		—		6,570,222
August 1 – August 31, 2020		—		—		—		6,570,222
September 1 – September 30, 2020		—		—		—		6,570,222
Total at September 30, 2020		494,115	$	6.94		494,115	$	6,570,222

Exhibit Number			Description

3.1			Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to exhibit 3.1 to the Registration Statement No. 333-33379 on Form S-1/A filed by the Company with the Securities and Exchange Commission on September 8, 1997.)

3.1.1			Amendment to Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed by the Company with the Securities and Exchange Commission.)

3.2			Second Amended and Restated Bylaws of the Registrant. (Incorporated by reference to exhibit 3.1 to the Company’s Current Report filed by the Company on Form 8-K with the Securities and Exchange Commission on March 8, 2013.)

~~4.1~~			2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (Incorporated by reference to exhibit 10.1 to the Company's Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 15, 2019.)

~~10.1~~			Employment Agreement, dated as of September 10, 2019, by and between Capital Senior Living Corporation and Brandon M. Ribar. (Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 10, 2019.)
~~10.2~~			Sign-On Performance Award Agreement, dated as of September 10, 2019, by and between Capital Senior Living Corporation and Brandon M. Ribar. (Incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 10, 2019.)
~~10.3~~			Sign-On Restricted Stock Award Agreement, dated as of September 10, 2019, by and between Capital Senior Living Corporation and Brandon M. Ribar. (Incorporated by reference to exhibit 10.3 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 10, 2019.)

31.1*			Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)

31.2*			Certification of ~~Chief~~Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

32.1*			Certification of Kimberly S. Lody pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

32.2*			Certification of ~~Carey P. Hendrickson~~Tiffany L. Dutton pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002

101.INS*			Inline XBRL Instance ~~Document~~
		– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema Document

101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document

104*	Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


Capital Senior Living Corporation (Registrant)

By:		/s/ ~~Carey P. Hendrickson~~Tiffany L. Dutton
		~~Carey P. Hendrickson~~Tiffany L. Dutton
		~~Executive~~ Vice ~~President~~President- Accounting and ~~Chief Financial~~Principal Accounting Officer
		(Principal Financial Officer and Duly Authorized Officer)
		Date: November ~~8, 2019~~9, 2020

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company