Brookdale Senior Living Inc. (BKD) FY 2021 MD&A

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis should be read in conjunction with our historical consolidated financial statements and related notes contained in "Item 8. Financial Statements and Supplementary Data." In addition to historical information, this discussion and analysis may contain forward-looking statements that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management's expectations. See additional risks and uncertainties described in "Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995" for more information. Factors that could cause such differences include those described in this section and "Item 1A. Risk Factors" of this Annual Report on Form 10-K.

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Executive Overview and Recent Developments

Our Business

We are the nation's premier operator of senior living communities, operating and managing 679 communities in 41 states as of December 31, 2021, with the ability to serve more than 60,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and CCRCs.

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

Strategy

Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer. Brookdale continues to be driven by its mission—to enrich the lives of those we serve with compassion, respect, excellence, and integrity. During this pandemic recovery phase, we have continued to focus on the health and wellbeing of our residents and associates and "Winning the Recovery, Faster" by providing high quality care and personalized service. We believe successful execution on this strategy provides the best opportunity to create attractive long-term stockholder value. During this recovery phase, we are focused on priorities that will position us for growth and take advantage of positive trends in demographics, customer preferences, and lower new supply in the industry. Our key strategic priorities are as follows.

•Attract, engage, develop, and retain the best associates. Brookdale’s culture is based on servant leadership. We believe engaged associates lead to an enhanced resident experience, higher retention, and ultimately improved operations that drives accelerated growth. Through this strategic priority, we intend to diversify and optimize our recruiting plans and enhance our already compelling value proposition for our associates in the areas of compensation, leadership, career growth, and meaningful work.

•Get every available room in service at the best profitable rate. We believe that we provide highly valuable services to seniors, and we continue to strive to expand the number of seniors we serve through increasing our occupancy levels, while remaining focused on driving rate and improving margin. With this strategic priority, we intend to ensure all communities are appropriately priced within their market. Through our targeted sales and marketing efforts, we plan to drive increased move-ins through enhanced outreach with impactful points of differentiation based on quality, a portfolio of choices, and personalized service delivered by caring and engaged associates.

•Earn resident and family trust and satisfaction by providing valued high quality care and personalized service. We believe that earning the trust of our residents and their families will allow us to build relationships that create passionate advocates and generate referrals. We intend to create a consistent high quality experience for residents, including through the implementation and execution of our high quality clinical, operational, and resident engagement programs. We are a learning organization that uses multiple tools to obtain feedback from residents, their families, and our associates to improve our services to meet the changing needs of residents.

The above three priorities are intended to provide long-term returns to our stockholders by focusing on growing RevPAR, Adjusted EBITDA, and cash flow.

Strategic innovation also continues to be an important factor for our long-term growth. We are piloting programs in several areas and, in the future, plan to roll out initiatives to further accelerate our growth. We plan to explore additional products and services that we may offer to our residents or to seniors living outside of our communities and, where opportunities arise, pursue development, investment, and acquisition opportunities.

•Enhance Healthcare and Wellness. Our vision is to enable those we serve to live well by offering our residents a high-quality healthcare and wellness platform. We believe Brookdale is uniquely positioned to be a key participant and partner in the value-based healthcare ecosystem. Our initiatives include piloting redesigned delivery of clinical care within assisted living communities and embedding technology-enabled care management capabilities, in order to better align our communities with payors, providers, and healthcare systems. We are also piloting the expansion of our private duty

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services business to serve those living outside of our communities. We believe the successful execution of these initiatives will improve resident health and wellbeing and drive incremental revenue by increasing move-ins and extending residents' average length of stay resulting in increased occupancy.

•Drive Innovation and Leverage Technology. We are engaged in a variety of innovation initiatives and over time plan to pilot and test new ideas, technologies, and operating models in order to enhance our residents' engagement and experience, improve outcomes, and increase average length of stay and occupancy. With our technology platform, we also expect to identify solutions to reduce complexity, increase productivity, lower costs, and increase our ability to collaborate with third parties.

•Grow and Improve Our Senior Living Portfolio. As we emerge from the pandemic, we intend to (i) expand our footprint and services in core markets where we have, or can achieve, a clear leadership position, (ii) execute an ongoing capital recycling program through acquiring leased communities and exiting non-strategic or underperforming owned assets or leases when possible, and (iii) pivot back to portfolio growth through targeted development, investment, and acquisition opportunities. We will also continue to invest in our development capital expenditures program through which we expand, renovate, reposition, and redevelop selected existing senior living communities where economically advantageous.

We believe that our successful execution on these strategic priorities and our longer-term growth plans will allow us to achieve our goal to be the first choice in senior living by being the nation’s most trusted and effective senior living provider and employer.

COVID-19 Pandemic Update

The COVID-19 pandemic significantly disrupted the senior living industry and our business beginning in March 2020. We expect the impact of this disruption to continue into 2023. The health and wellbeing of our residents and associates has been and continues to be our highest priority. Due to the average age and prevalence of chronic medical conditions among our residents, they generally are at disproportionately higher risk of becoming severely ill from COVID-19. By staying up to date with COVID-19 vaccines, our residents can generally mitigate their risk of becoming severely ill from COVID-19 infection. Since COVID-19 vaccines received emergency use authorization, we have worked diligently to ensure our residents have access to vaccines, including completing at least three initial vaccine clinics and at least one booster vaccine clinic for all of our communities. As of January 31, 2022, our resident vaccine acceptance rate was above 95%.

Community Response. Our COVID-19 response efforts center on infection prevention and control protocols, including following requirements and guidance of federal, state, and local governments and agencies, including the CDC and CMS. We have enhanced and reinforced training our associates in such protocols and continue to actively monitor government requirements and guidance and adapt our policies, procedures, and response efforts when applicable. Upon confirmation of positive COVID-19 exposure at a community, we take actions intended to minimize further exposure, including enhanced personal protection protocols, temporarily isolating residents or finding placement in an alternate care setting to best address their care needs, and in some cases, restricting new resident admissions as directed by authorities having jurisdiction.

We may also restrict visitors at our communities, screen associates and permitted visitors, suspend group outings or programming, and modify communal dining as necessary to comply with regulatory requirements or at the direction of authorities having jurisdiction. At the onset of the pandemic, substantial restrictions at our communities were in place across our portfolio. We began easing restrictions on a community-by-community basis in July 2020 where regulatory requirements and guidance allowed. As of December 31, 2020, 89% of our communities were open for new resident move-ins.

During 2021, various communities experienced restrictions on new resident move-ins, with a peak of such restrictions occurring in September 2021. As of January 31, 2022, substantially all of our communities were open for new resident move-ins. We may revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of authorities having jurisdiction.

Vaccine Update. In December 2020, the FDA authorized COVID-19 vaccines for emergency use, and we initiated our first vaccine clinic a week after such authorization. By April 9, 2021, we facilitated at least three rounds of COVID-19 vaccine clinics at all of our communities through the Pharmacy Partnership for Long-Term Care Program offered through the CDC. As of January 31, 2022, our resident vaccine acceptance rate was above 95%. By November 2021, the CDC recommended that all adults receive a vaccine booster dose. We have completed at least one booster vaccine clinic for all of our communities. In the second half of 2021, we adopted a policy requiring our associates to be vaccinated against COVID-19, subject to certain exceptions necessary to comply with applicable federal, state, and local laws.

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Rebuilding Occupancy. We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic. From March 2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy. In 2021, we achieved ten consecutive months of weighted average consolidated senior housing occupancy growth on a sequential basis. During the latter half of 2021, we believe the nationwide spread of the COVID-19 Delta variant caused some moderation in our sequential monthly occupancy growth rate as some potential residents and their families were more cautious, or temporarily delayed their decision regarding moving into senior living communities in certain areas as the Delta variant spread. According to data from NIC, senior housing occupancy increased 220 basis points from the first quarter to the fourth quarter of 2021 for stabilized portfolios. Our weighted average consolidated senior housing occupancy increased 390 basis points during such period. The table below sets forth our consolidated occupancy trend during the pandemic.

We began to experience our typical seasonality pattern in January 2022. We cannot predict with reasonable certainty when our occupancy will return to pre-COVID-19 pandemic levels.

Revenue and Expense Impacts. In the aggregate, for the years ended December 31, 2021 and 2020, and compared to our pre-pandemic expectations for 2020, we estimate the pandemic has resulted in $660.1 million of lost resident fee revenue, including $556.5 million in our consolidated senior housing portfolio. Estimated lost resident fee revenue for 2021 includes $328.0 million in our consolidated senior housing portfolio and $51.0 million in our former Health Care Services segment.

In the aggregate, for the years ended December 31, 2021 and 2020, we have incurred $173.2 million of facility operating expense for incremental direct costs to respond to the pandemic, including $47.7 million for the year ended December 31, 2021. The direct costs include those for: acquisition of additional PPE, medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers compensation, and health plan expense; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. For the years ended December 31, 2021 and 2020, we recorded $23.0 million and $105.6 million, respectively, of non-cash impairment charges in our operating results for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at certain communities.

Financial Relief. The CARES Act, signed into law on March 27, 2020, and Paycheck Protection Program and Health Care Enhancement Act, signed into law on April 24, 2020, provide liquidity and financial relief to certain businesses, among other things. Certain impacts of such programs are provided below.

•During the years ended December 31, 2021 and 2020, we accepted $0.8 million and $109.8 million, respectively, of cash from grants from the Provider Relief Fund administered by HHS, under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. During the three months ended December 31, 2021, we applied for the Phase 4 general distribution from the Provider Relief Fund. We expect to receive the Phase 4 general distribution during the first half of 2022. We intend to pursue any additional funding that may become available. There can be no assurance that we will qualify for, or receive, such future grants in the amount we expect, that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by HHS, or that future funding programs will be made available for which we qualify.

•During the year ended December 31, 2020, we received $87.5 million under the Accelerated and Advance Payment Program administered by CMS, $75.2 million of which related to our former Health Care Services segment and $12.3 million of which related to our CCRCs segment. Recoupment of advanced payments began one year after payments were issued at a rate of 25% of Medicare payments for the first eleven months following the anniversary of issuance and at a rate of 50% of Medicare payments for the next six months. Any outstanding balance of advanced payments will be due following such recoupment period. During the year ended December 31, 2021, $20.8 million of the advanced payments

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were recouped. Pursuant to the sale of 80% of our equity in our Health Care Services segment, $63.6 million of such obligations related to our former Health Care Services segment were retained by the unconsolidated HCS Venture. As of December 31, 2021, the outstanding balance of advanced payments related to our CCRCs segment was $3.1 million, for which we expect recoupment during 2022.

•During the year ended December 31, 2020, we deferred payment of $72.7 million of the employer portion of social security payroll taxes incurred from March 27, 2020 through December 31, 2020 pursuant to the CARES Act. Pursuant to the sale of 80% of our equity in our Health Care Services segment, $9.6 million of such obligations related to our former Health Care Services segment were retained by the unconsolidated HCS Venture. In December 2021, we paid $31.6 million of the retained deferred amount and the remaining deferred amount of $31.6 million is due December 31, 2022.

•We were eligible to claim the employee retention credit for certain of our associates under the CARES Act. The credit for 2020 was available to employers that fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and was equal to 50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee. During the year ended December 31, 2021, we recognized $9.9 million of employee retention credits on wages paid from March 12, 2020 to December 31, 2020 within other operating income, for which we have received $3.4 million in cash as of December 31, 2021. The credit was modified and extended by subsequent legislation for wages paid from January 1, 2021 through December 31, 2021, and we are assessing our eligibility to claim such credit. There can be no assurance that we will qualify for, or receive, credits in the amount or on the timing we expect.

In addition to the grants described above, during the years ended December 31, 2021 and 2020, we received and recognized $1.7 million and $5.9 million, respectively, of other operating income from grants from other government sources.

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

Community Labor

We continue to experience pressures associated with the intensely competitive labor environment, which during 2021 included increased associate turnover, difficulty in timely filling open positions, and increasing wages. Continued increased competition for, or a shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low levels of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits package to compete effectively for such associates. We have increased our recruiting efforts to fill open positions, reviewed wage rates in all of our markets, made appropriate adjustments, and will monitor to remain competitive. We seek to ensure that our communities are staffed with full and part-time associates and our use of more expensive contract labor and overtime has increased to cover open positions. Third-party staffing agencies from which we source contract labor have increased the rates they charge which has resulted in increases in the cost of contract labor. Our labor expense in our same community portfolio increased 2.6% in 2021 from 2020, and we expect that our same community labor expense will grow at a higher percentage in

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2022 compared to 2021 as a result of an increase in our labor costs near the end of 2021, merit and market wage rate adjustments, and an anticipated increase in hours worked as our occupancy levels grow. As we fill more full and part-time positions, we expect to use less contract labor and overtime.

Resident Fee Rates

The rates charged at communities are highly dependent on local market conditions and the competitive environment in which the communities operate. Substantially all of our private pay senior housing residency agreements allow for adjustments in the monthly rate payable on 90 or fewer days’ notice which enables us to seek increases in monthly rates due to inflation or other factors. Increases for level of care changes or additional services are typically allowed immediately upon notice of the change. Generally, we have increased our monthly rates, including rates for care and other services, for private pay residents on an annual basis beginning January 1 each year. We have recently made the annual rate adjustment for our in-place private pay residents, which was higher than our typical annual rate adjustment. Such adjustment reflects our increased costs associated with additional efforts to serve and care for our residents during the pandemic, the current inflationary environment, and the intensely competitive labor environment. The rate adjustment could result in a decrease in occupancy in our communities, and any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR results. In addition, the rate adjustment may not be sufficient to offset our increased costs.

Liquidity

During 2021, we received net cash proceeds of $347.6 million pursuant to the sale of 80% of our equity in our Health Care Services segment and the resulting HCS Venture's subsequent sale of certain agencies to LHC Group Inc. On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026. We received net proceeds of $224.3 million at closing after the deduction of the initial purchasers’ discount. We used $15.9 million of the net proceeds to pay the cost of capped call transactions entered into in connection with the issuance, which are expected generally to reduce or offset potential dilution to holders of our common stock. During the three months ended December 31, 2021, we repaid a $45.0 million note payable and $284.4 million of mortgage debt, including $143.0 million of mortgage debt on 11 communities for which we obtained $100.0 million of debt secured by non-recourse first mortgages. Such repayments represented substantially all of our remaining 2022 maturities.

As of December 31, 2021, our total liquidity was $536.8 million, consisting of $347.0 million of unrestricted cash and cash equivalents, $182.4 million of marketable securities, and $7.4 million of availability on our secured credit facility. We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining expense discipline, continuing to evaluate our financing structure and the state of debt markets, monetizing non-strategic or underperforming owned assets, and seeking further government-sponsored financial relief related to the pandemic. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief.

Transaction Activity

Sale of Health Care Services

On July 1, 2021, we completed the sale of 80% of our equity in our Health Care Services segment to affiliates of HCA Healthcare for a purchase price of $400.0 million in cash, subject to certain adjustments set forth in the Purchase Agreement dated February 24, 2021, including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the HCS Sale. We received net cash proceeds of $312.6 million, including $305.8 million at closing on July 1, 2021 and $6.8 million upon completion of the post-closing net working capital adjustment in October 2021. The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser. At closing of the transaction, we retained a 20% equity interest in the HCS Venture.

The results and financial position of the Health Care Services segment were deconsolidated from our consolidated financial statements as of July 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date. As of July 1, 2021, we recognized a $100.0 million asset within investment in unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling interest in the HCS Venture. We recognized a $286.5 million gain on sale, net of transaction costs, within our consolidated statement of operations for the year ended December 31, 2021 for the HCS Sale. Refer to Note 21 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for selected financial data for the Health Care Services segment through June 30, 2021.

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

Community Transactions

During 2021, we continued execution on our ongoing capital recycling program through which we have exited non-strategic or underperforming owned assets or leases. Such activities during 2021 included the sale of three owned communities and the termination of triple-net lease obligations on two communities. Additionally, we have reduced our management of communities on behalf of former unconsolidated ventures and third parties, representing a net reduction of 42 managed communities during the year.

During the year ended December 31, 2021, we completed the sale of three owned communities (249 units) for cash proceeds of $16.5 million, net of transaction costs. In addition to the conveyance of five communities to Ventas, Inc. ("Ventas") during the year ended December 31, 2020, described below, we completed the sale of two owned communities (375 units) for cash proceeds of $38.1 million, net of transaction costs.

During the year ended December 31, 2022, we expect to close on the disposition of two owned unencumbered communities (130 units) classified as held for sale as of December 31, 2021 and the termination of our lease obligations on two communities (194 units) for which we have provided notice of non-renewal. The closings of the various pending and expected transactions are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Summaries of the foregoing transactions are below. See also Note 4 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for more information about the transactions.

Ventas Lease Restructuring

On July 26, 2020 (the "Effective Date"), we entered into definitive agreements with Ventas in connection with the restructuring of our lease arrangements with Ventas, including a Master Transaction Letter Agreement (the "Master Agreement"). Pursuant to the Master Agreement:

•On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the "Master Lease") and Amended and Restated Guaranty (the "Guaranty"), which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time. Pursuant to the Master Lease, we continue to lease 120 communities (10,174 units) for an aggregate initial annual minimum rent of approximately $100.0 million, which reflects a reduction of approximately $83 million of annual minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent is subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to us. The annual minimum rent for the initial lease year of any such renewal term will be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically extended the initial term in the event of the consummation of a change of control transaction by us. The Master Lease requires us to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ended December 31, 2021. In addition, Ventas agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.

Our subsidiaries' obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The Guaranty removed the prior requirements that we satisfy, at the parent level, financial covenants and that we maintain a security deposit with Ventas. The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the Guaranty, we may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600.0 million, having minimum levels of

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operational experience and reputation in the senior living industry, and paying a change of control fee of $25.0 million to Ventas. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that we fund additional capital expenditures, and that we extend the term upon the occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as we exercise our lease term extension option with respect to the Master Lease), Ventas shall have the right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination.

•On the Effective Date, we entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management arrangement with us pursuant to a market management agreement (which is terminable by either party). Notwithstanding the foregoing, Ventas may only transition one or more communities from the Master Lease to a management arrangement if such transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such transition.

•On the Effective Date, we conveyed five owned communities (471 units) to Ventas in full release and satisfaction of $78.4 million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which we manage the communities. We also paid to Ventas $115.0 million in cash, released all security deposits to Ventas under the former guaranty (which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45.0 million unsecured interest-only promissory note to Ventas. The initial interest rate of the promissory note was 9.0% per annum and was subject to increase by 0.50% on each anniversary of the date of issuance. The promissory note was scheduled to mature on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty). In October 2021, we repaid the $45.0 million promissory note without premium or penalty.

•On the Effective Date, we issued to Ventas a warrant (the "Warrant") to purchase 16.3 million shares of our common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas’ option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all our classes of capital stock or of the total value of shares of all our classes of capital stock (the "Ownership Cap") (other than as a result of actions taken by Ventas), we would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require us to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights. Pursuant to the terms of the agreement, we filed a shelf registration statement with the SEC with respect to the shares of common stock underlying the Warrant, which was declared effective on August 17, 2020. Ventas is entitled to customary underwritten offering, piggyback, and additional demand registration rights with respect to the shares underlying the Warrant.

Healthpeak CCRC Venture and Master Lease Transactions

On October 1, 2019, we entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak Properties, Inc. ("Healthpeak"). The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of our interest in our unconsolidated entry fee CCRC venture with Healthpeak (the "CCRC Venture") (rather than removing the community from the CCRC Venture for joint marketing and sale). The components of the multi-part transaction included:

•CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired our 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs (6,383 units) for a total purchase price of $289.2

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million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). We recognized a $369.8 million gain on sale of assets for year ended December 31, 2020, and we derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the existing management agreements on the 14 entry fee CCRCs, Healthpeak paid us a $100.0 million management agreement termination fee, and we transitioned operations of the entry fee CCRCs to a new operator. We recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. The sale of our interest in the CCRC Venture and the $100.0 million of management termination fees generated approximately $579.0 million of taxable income in three months ended March 31, 2020. We utilized operating losses and tax loss carryforwards to offset the federal taxable gain on this transaction. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs (889 units) into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities.

•Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated our existing master lease pursuant to which we continued to lease 25 communities (2,711 units) from Healthpeak, and we acquired 18 formerly leased communities (2,014 units) from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, we paid $405.5 million to acquire such communities and to reduce our annual rent under the amended and restated master lease. We funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak agreed to terminate the lease for one leased community (159 units), which occurred during December 2020. With respect to the continuing 24 communities (2,552 units), our amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition transaction, we recognized a $19.7 million gain on debt extinguishment during the year ended December 31, 2020 and derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement. During March 2020, we obtained $30.0 million of additional non-recourse mortgage financing on the acquired communities.

During the year ended December 31, 2021, the new unconsolidated entry fee CCRC venture completed the sale of the two remaining entry fee CCRCs for cash proceeds of $14.0 million, net of associated mortgage debt repayments and transaction costs. Subsequent to the sale transaction, the new unconsolidated entry fee CCRC venture has no continuing operations. During the year ended December 31, 2021, we received $8.3 million of cash distributions from the new unconsolidated entry fee CCRC venture and recognized $13.6 million of equity in earnings of unconsolidated ventures for our proportionate share of the net income of the new unconsolidated entry fee CCRC venture, which was primarily comprised of a gain on sale of assets for the sale of the two remaining entry fee CCRCs. Subsequent to these transactions, we have exited substantially all of our entry fee CCRC operations.

Additional Acquisitions Pursuant to Purchase Option

On January 22, 2020, we acquired eight formerly leased communities (336 units) from National Health Investors, Inc. pursuant to our exercise of a purchase option for a purchase price of $39.3 million. We funded the community acquisitions with cash on hand. During the three months ended March 31, 2020, we obtained $29.2 million of non-recourse mortgage financing, primarily secured by the acquired communities. On August 31, 2020, we acquired one formerly leased community (103 units) pursuant to our exercise of a purchase option for a purchase price of $25.0 million and funded the acquisition with cash on hand and non-recourse mortgage financing secured by the acquired community.

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Revenue and Operating Expense Impacts of Transaction Activity

The table below sets forth our resident fee revenue and facility operating expense attributable to our former Health Care Services segment and communities disposed since January 1, 2019.

Results of Operations

As of December 31, 2021, our total operations included 679 communities with a capacity to serve over 60,000 residents. As of that date, we owned 347 communities (31,636 units), leased 299 communities (20,949 units), and managed 33 communities (4,824 units). The following discussion should be read in conjunction with our consolidated financial statements and the related notes, which are included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period of January 1, 2020 to December 31, 2021 affect the comparability of our results of operations, and summaries of such transactions and their impact on our results of operations are discussed above in "Transaction Activity."

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

•Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to respond to the COVID-19 pandemic.

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

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

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

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

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

As of December 31, 2021, we had three reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. These segments were determined based on the way that our chief operating decision maker organizes our business activities for making operating decisions, assessing performance, developing strategy, and allocating capital resources. On July 1, 2021, we sold 80% of our equity in our Health Care Services segment. For periods beginning July 1, 2021, the results and financial position of our Health Care Services segment were deconsolidated from our consolidated financial statements and our 20% equity interest in the Health Care Services venture is accounted for under the equity method of accounting.

As of December 31, 2021, our Management Services operating segment is no longer identified as a reportable segment as a result of the reduction in the number of communities we manage, which has reduced the operating segment's revenue, operating income, and assets below the reporting threshold.

Discussion of our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below. Discussion of our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 25, 2021.

Comparison of Years Ended December 31, 2021 and 2020

Summary Operating Results

The following table summarizes our overall operating results for the years ended December 31, 2021 and 2020.

The decrease in total resident fees and management fees revenue was primarily attributable to a $348.7 million decrease in resident fees, including a 5.0% decrease in same community RevPAR, comprised of a 620 basis point decrease in same community weighted average occupancy and a 3.2% increase in same community RevPOR. In addition, the deconsolidation of results of the Health Care Services segment effective July 1, 2021 resulted in a decrease of $181.8 million of resident fees compared to prior year. The disposition of 17 communities through sales and conveyances of owned communities and lease terminations since the beginning of the prior year resulted in $41.4 million less in resident fees during the year ended December 31, 2021 compared to the prior year. Management fee revenue decreased $110.1 million primarily due to $100.0 million of management fee revenue recognized during the prior year for the management termination fee payment from Healthpeak and transition of management agreements on 67 net communities subsequent to the beginning of the prior year.

During the years ended December 31, 2021 and 2020, we recognized $12.4 million and $115.7 million, respectively, of government grants and employee retention credits as other operating income based on our estimates of our satisfaction of the conditions of the grants and credits during the period.

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The decrease in facility operating expense was primarily attributable to a $216.4 million decrease in facility operating expenses for the Health Care Services segment, primarily due to deconsolidation of results of the segment effective July 1, 2021, which resulted in a $186.4 million decrease in facility operating expenses. Additionally, the disposition of communities since the beginning of the prior year resulted in $40.2 million less in facility operating expense during the year ended December 31, 2021 compared to the prior year. Same community facility operating expense decreased 0.6% which was primarily due to a $52.9 million decrease in non-labor incremental direct costs to respond to the COVID-19 pandemic. The decrease in same community facility operating expense was partially offset by a $30.2 million, or 2.6%, increase in our same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions, offset by decreases in incremental direct labor costs to respond to the COVID-19 pandemic and decreases in employee benefit expense and workers compensation expense due to lower claims. For the year ended December 31, 2022, we expect our same community labor expense will grow at a higher percentage as a result of an increase in our labor costs near the end of 2021, merit and market wage rate adjustments, and an anticipated increase in hours worked as our occupancy levels grow. Facility operating expense for the years ended December 31, 2021 and 2020 includes $47.7 million and $125.5 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

The change in net income (loss) was primarily attributable to the net impact of the revenue, other operating income, and facility operating expense factors previously discussed, as well as an $85.7 million decrease in net gain on sale of assets, primarily due to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year compared to the $286.5 million gain related to the sale of 80% of our equity in our Health Care Services segment in the current year. These decreases were partially offset by decreases in non-cash asset impairment expense, facility operating lease expense, general and administrative expense, and depreciation and amortization expense compared to the prior year period.

The decrease in Adjusted EBITDA was primarily attributable to the revenue, other operating income, and facility operating expense factors previously discussed, partially offset by a $162.7 million decrease in cash facility operating lease payments, primarily reflecting reduced cash lease payments as a result of the lease restructuring transaction with Ventas on July 26, 2020, and a decrease in general and administrative expense as a result of the HCS Sale.

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Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the years ended December 31, 2021 and 2020 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.

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Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the years ended December 31, 2021 and 2020, including operating results and data on a same community basis.

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 750 basis point decrease in same community weighted average occupancy and a 1.8% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the loss of 1,340 basis points of weighted average occupancy from March 2020 through February 2021 related to the COVID-19 pandemic, which was partially offset by a 190 basis points increase in weighted average occupancy thereafter through December 2021. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases.

The decrease in the segment's facility operating expense was primarily attributable to a decrease in the segment's same community facility operating expense, including a $10.1 million decrease in incremental direct costs to respond to the COVID-19 pandemic and a decrease in food costs due to reduced occupancy during the year. These decreases in the segment's same community facility operating expense were partially offset by an increase in advertising costs as we scaled back advertising during the prior year as a result of the initial year of the pandemic. The segment's facility operating expense for the years ended December 31, 2021 and 2020 includes $5.9 million and $16.1 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

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Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the years ended December 31, 2021 and 2020, including operating results and data on a same community basis.

The decrease in the segment's resident fees was primarily attributable to a decrease in the segment's same community RevPAR, comprised of a 590 basis point decrease in same community weighted average occupancy and a 2.9% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the loss of 1,360 basis points of weighted average occupancy from March 2020 through February 2021 related to the COVID-19 pandemic, which was partially offset by a 510 basis points increase in weighted average occupancy thereafter through December 2021. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. Additionally, the disposition of 14 communities (1,120 units) since the beginning of the prior year resulted in $18.7 million less in resident fees during the year ended December 31, 2021 compared to the prior year.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year, which resulted in $17.6 million less in facility operating expense during the year ended December 31, 2021 compared to the prior year, and a decrease in the segment's same community facility operating expense. The decrease in the segment's same community facility operating expense was primarily attributable to a $41.2 million decrease in non-labor incremental direct costs to respond to the COVID-19 pandemic. The decrease in the segment's same community facility operating expense was partially offset by a $26.3 million, or 3.1%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions, offset by decreases in incremental direct labor costs to respond to the COVID-19 pandemic and decreases in employee benefit expense and workers compensation expense due to lower claims. The segment's facility operating expense for the years ended December 31, 2021 and 2020 includes $32.3 million and $82.5 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

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CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the years ended December 31, 2021 and 2020, including operating results and data on a same community basis.

The decrease in the segment's resident fees was primarily attributable to the disposition of three communities (576 units) since the beginning of the prior year, which resulted in $22.7 million less in resident fees during the year ended December 31, 2021 compared to the prior year. The decrease in the segment's resident fees was partially offset by an increase in the segment's same community RevPAR, comprised of a 7.0% increase in same community RevPOR and a 340 basis point decrease in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of an occupancy mix shift from less independent living services to more skilled nursing services within the segment and in-place rent increases. The decrease in the segment's same community weighted average occupancy primarily reflects the loss of 1,440 basis points of weighted average occupancy from March 2020 through February 2021 related to the COVID-19 pandemic, which was partially offset by a 640 basis points increase in weighted average occupancy thereafter through December 2021.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year, which resulted in $22.6 million less in facility operating expense during the year ended December 31, 2021 compared to the prior year period, partially offset by an increase in the segment's same community facility operating expense. The increase in the segment's same community facility operating expense was primarily attributable to a $6.9 million, or 5.9%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime to cover open positions, offset by decreases in incremental direct labor costs to respond to the COVID-19 pandemic and decreases in employee benefit expense and workers compensation expense due to lower claims. The segment's facility operating expense for the years ended December 31, 2021 and 2020 includes $7.4 million and $18.8 million, respectively, of incremental direct costs to respond to the COVID-19 pandemic.

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Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the years ended December 31, 2021 and 2020.

Management Fees. The decrease in management fees was primarily attributable to $100.0 million of management agreement termination fees recognized for the year ended December 31, 2020 for the management agreement termination fee received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture. As of December 31, 2021, we have completed the transition of management arrangements on 67 net communities since the beginning of the prior year, generally for management arrangements on certain former unconsolidated ventures in which we sold our interest and interim management arrangements on formerly leased communities. Management fees of $20.6 million for the year ended December 31, 2021 include $5.2 million of management agreement termination fees and $2.7 million of other management fees attributable to communities for which our management agreements were terminated during such period.

Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on Behalf of Managed Communities. The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year.

General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to decreases in transaction and organizational restructuring costs, compensation costs as a result of reductions in our corporate headcount related to the sale of 80% of our equity in our Health Care Services segment and as we scaled our general and administrative costs in connection with community dispositions, and non-cash stock-based compensation expense. These decreases were partially offset by an increase in incentive compensation costs. General and administrative expense includes transaction and organizational restructuring costs of $3.8 million and $13.4 million for the years ended December 31, 2021 and 2020, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs. General and administrative expense of $184.9 million for the year ended December 31, 2021 includes direct general and administrative expense attributable to the Health Care Services segment, which was deconsolidated on July 1, 2021.

Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the Ventas lease portfolio restructuring during the prior year and lease termination activity since the beginning of the prior year.

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Depreciation and Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity since the beginning of the prior year and leasehold improvements for certain leased communities becoming fully depreciated since the beginning of the prior year.

Asset Impairment. During the current year, we recorded $23.0 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic and for natural disaster related property damage sustained at certain communities during the year. During the prior year, we recorded $107.3 million of non-cash impairment charges, primarily for right-of-use assets for certain leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic.

Interest Expense. The decrease in interest expense was primarily due to a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates, and the acquisition of communities previously subject to financing leases since the beginning of the prior year.

Gain (Loss) on Debt Modification and Extinguishment, Net. The decrease in gain (loss) on debt modification and extinguishment, net was primarily due to a $19.7 million gain on debt extinguishment recognized during the year ended December 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement. This gain was partially offset by $7.9 million of costs incurred during the three months ended September 30, 2020 for debt modifications and extinguishments.

Equity in Earnings (Loss) of Unconsolidated Ventures. The change in equity in earnings (loss) of unconsolidated ventures was primarily due to the gain on sale of assets recognized by our CCRC Venture for the sale of the two remaining entry fee CCRCs during the current year.

Gain (Loss) on Sale of Assets, Net. The decrease in gain on sale of assets, net was primarily due to a $369.8 million gain on sale of assets recognized for the sale of our ownership interest in the CCRC Venture during the prior year compared to the $286.5 million gain related to the HCS Sale in the current year.

Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the years ended December 31, 2021 and 2020 was primarily due to the tax impact of the multi-part transaction with Healthpeak that occurred in the three months ended March 31, 2020 and the HCS Sale in the three months ended September 30, 2021. The impact represented the tax expense recorded on the gain on the sale of our interest in the CCRC Venture and the HCS Sale, offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak and the HCS Sale.

We recorded an aggregate deferred federal, state, and local tax expense of $3.2 million for the year ended December 31, 2021, of which $104.3 million was recorded as the result of the HCS Sale that occurred on July 1, 2021, offset by a benefit of $101.1 million as a result of the operating loss for the year ended December 31, 2021. The tax expense was offset by a decrease in the valuation allowance of $13.0 million, resulting from the HCS Sale, current operating losses, and the anticipated reversal of future tax liabilities offset by future tax deductions.

We recorded an aggregate deferred federal, state, and local tax expense of $22.1 million for the year ended December 31, 2020. The expense includes $93.1 million as a result of the gain on the sale of our ownership interest in the CCRC Venture, offset by a benefit of $115.2 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the year ended December 31, 2020. The tax expense for the year ended December 31, 2020 is offset by a reduction in valuation allowance of $27.9 million.

Liquidity and Capital Resources

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

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Liquidity

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

The change in net cash provided by (used in) operating activities was attributable primarily to a decrease in same community revenue compared to the prior year, a $111.8 million decrease in government grants and credits received compared to the prior year, the $100.0 million management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture in the prior year, $87.5 million of cash received under the Medicare accelerated and advance payment program in the prior year, and the $104.3 million net impact of the $72.7 million of the employer portion of social security payroll taxes deferred during the prior year compared to $31.6 million paid in the current year for the prior year deferred amount. These changes were partially offset by a $162.7 million decrease in cash facility operating lease payments, including the impact of the $119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction with Ventas effective July 26, 2020. Net cash used in operating activities of $94.6 million in the current year reflects the significant disruption on our business as a result of the COVID-19 pandemic and $52.4 million of repayments and recoupments in the current year as a result of the temporary liquidity relief under the CARES Act received in the prior year.

The change in net cash provided by (used in) investing activities was primarily attributable to $472.2 million of cash paid for the acquisition of communities during the prior year, a $78.0 million increase in proceeds from sales and maturities of marketable securities, a $37.1 million increase in distributions received from unconsolidated ventures, a $16.0 million decrease in purchases of marketable securities, and a $9.2 million decrease in cash paid for capital expenditures compared to the prior year. The change also includes an increase of $2.7 million in proceeds from sale of assets. During the current year, we received net cash proceeds of $312.5 million for the sale of 80% of our equity in our Health Care Services segment. During the prior year, we received $289.2 million of net proceeds for the sale of our interest in our unconsolidated entry fee CCRC venture with Healthpeak.

The change in net cash provided by (used in) financing activities was primarily attributable to a $610.1 million decrease in debt proceeds compared to the prior year, partially offset by a $97.3 million decrease in repayment of debt and financing lease obligations and an $18.1 million decrease in cash paid for share repurchases.

The change in Adjusted Free Cash Flow was primarily attributable to the change in net cash provided by (used in) operating activities.

Our principal sources of liquidity have historically been from:

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

•cash flows from operations;

•proceeds from our credit facilities;

•funds generated through unconsolidated venture arrangements;

•proceeds from mortgage financing or refinancing of various assets;

•funds raised in the debt or equity markets; and

•proceeds from the disposition of assets.

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Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. We also have received pandemic-related government relief, including cash grants and advanced Medicare payments, and we have elected to utilize pandemic-related payroll tax deferral program, each as described above.

Our liquidity requirements have historically arisen from:

•working capital;

•operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs;

•debt, interest, and lease payments;

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

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

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

•purchases of common stock under our share repurchase authorizations;

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

•prior to 2009, dividend payments.

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

•working capital;

•operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic;

•debt, interest, and lease payments;

•payment of deferred payroll taxes under the CARES Act;

•recoupment of payments received under the Accelerated and Advance Payment Program;

•acquisition consideration;

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

•capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities;

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

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

We are highly leveraged and have significant debt and lease obligations. As of December 31, 2021, we had $3.8 billion of debt outstanding, at a weighted average interest rate of 3.4%. As of such date, 94.1%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of December 31, 2021, our 2022 mortgage debt maturities are $30.0 million, excluding recurring monthly principal payments.

As of December 31, 2021, we had $1.4 billion of operating and financing lease obligations. For the year ending December 31, 2022, we will be required to make approximately $272.8 million of cash lease payments in connection with our existing operating and financing leases.

As of December 31, 2021, $72.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of December 31, 2021, under which $13.6 million had been issued as of that date.

Total liquidity of $536.8 million as of December 31, 2021 included $347.0 million of unrestricted cash and cash equivalents (excluding restricted cash of $91.3 million), $182.4 million of marketable securities, and $7.4 million of availability on our secured credit facility. Total liquidity as of December 31, 2021 decreased $38.7 million from total liquidity of $575.5 million as of December 31, 2020. The decrease was primarily attributable to $355.9 million of payments of mortgage debt, negative $286.7 million of Adjusted Free Cash Flow, the repayment of a $45.0 million note payable, and $15.9 million paid for the capped call transactions. These decreases in liquidity were partially offset by net cash proceeds of $347.6 million pursuant to the sale of 80% of our equity in our Health Care Services segment and the resulting HCS Venture's subsequent sale of certain agencies to LHC Group Inc., $224.3 million of net proceeds at closing for our offering of $230.0 million principal amount of 2.00% convertible senior notes due 2026, and $100.0 million of proceeds from mortgage debt.

We currently estimate our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR,

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maintaining expense discipline, continuing to evaluate our financing structure and the state of debt markets, monetizing non-strategic or underperforming owned assets, and seeking further government-sponsored financial relief related to the pandemic. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the amount of, or conditions required to qualify for, any such relief.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors." The amount of mortgage financing available for our communities is generally dependent on their appraised values and performance. In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac. Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness. Until our communities’ performance recovers, we plan to refinance maturities using non-agency financing, and we expect our loan proceeds from such financing generally will be insufficient to fully cover maturing mortgage indebtedness. We have pre-paid substantially all of our 2022 maturities. Our inability to obtain refinancing proceeds sufficient to cover 2023 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.

Capital Expenditures

Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence and for unit turnovers over $500 per unit) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and, prior to July 1, 2021, healthcare services programs, and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities.

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

The following table summarizes our capital expenditures for the year ended December 31, 2021 for our consolidated business.

(1)Reflects the amount invested, net of lessor reimbursements of $42.1 million.

(2)Includes $10.7 million of remediation costs at our communities resulting from natural disasters.

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

In the aggregate, we expect our full-year 2022 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $160.0 million. In addition, we expect our full-year 2022 development capital expenditures to be approximately $20.0 million, net of anticipated lessor reimbursements, and such projects include those for expansion,

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repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2022 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors. As of December 31, 2021, the average age of the buildings in our consolidated senior housing portfolio was approximately 24 years. To support our strategy and to protect the value of our community portfolio and ensure that our communities are in appropriate physical condition, we expect that our community-level non-development capital expenditures, net of lessor reimbursements will continue at annual levels of approximately $2,000 to $2,500 per unit. Our community-level non-development capital expenditures, net of lessor reimbursements, were $2,077 per unit in 2021, and our 2022 plans equate to approximately $2,500 per unit.

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

Indebtedness

As of December 31, 2021, we had $3.8 billion of debt outstanding, at a weighted average interest rate of 3.37%. As of such date, 94.1%, or $3.6 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of December 31, 2021, we had approximately $2.4 billion of long-term fixed rate debt (including our $230.0 million principal amount of 2.00% convertible senior notes due 2026), at a weighted average interest rate of 3.94%.

Increases in prevailing interest rates as a result of inflation or other factors will increase our payment obligations on our variable-rate obligations to the extent they are unhedged and may increase our future borrowing and hedging costs. In the normal course of business, we enter into interest rate agreements with major financial institutions to manage our risk above certain interest rates on variable rate debt. Although we have interest rate cap agreements in place for a majority of our variable-rate debt, these agreements only limit our exposure to increases in interest rates above certain levels and generally must be renewed every two to three years. As of December 31, 2021, we had approximately $1.5 billion of long-term variable rate debt, at a weighted average interest rate of 2.44%. As of such date, $1.2 billion of our debt is variable rate debt subject to interest rate cap agreements. The remaining $226.9 million of our long-term variable rate debt is not subject to any interest rate cap agreements.

The annual aggregate scheduled maturities (including recurring principal payments) of long-term debt outstanding as of December 31, 2021 are as follows (in thousands).

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Convertible Senior Notes

On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "Notes"). We received net proceeds of $224.3 million at closing after the deduction of the initial purchasers’ discount. We used $15.9 million of the net proceeds to pay the cost of the capped call transactions described below. Additionally, we used the remaining net proceeds together with cash on hand to repay $284.4 million of mortgage debt and a $45.0 million note payable.

The Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between us and American Stock Transfer & Trust Company, LLC, as trustee. The Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes, and equal in right of payment to any of our indebtedness that is not so subordinated. The Notes are effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of our current or future subsidiaries.

The Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning on April 15, 2022. The Notes will mature on October 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms. Holders of the Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day; (3) if we call any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events. On or after July 15, 2026, holders may convert all or any portion of their Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election.

The conversion rate for the Notes is initially 123.4568 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $8.10 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert our Notes in connection with such a corporate event or who elects to convert any Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.

We may not redeem the Notes prior to October 21, 2024. We may redeem for cash all or (subject to certain limitations) any portion of the Notes, at our option, on or after October 21, 2024 and prior to the 51st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. The Notes were issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act in transactions not involving any public offering. The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believed are "qualified institutional buyers," as defined in, and in accordance with, Rule 144A under the Securities Act.

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In connection with the offering of the Notes, we entered into privately negotiated capped call transactions ("Capped Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the Notes and initially have an exercise price of $8.10 per share of common stock. The cap price of the Capped Call Transactions is initially approximately $9.90 per share of our common stock, representing a premium of 65% above the last reported sale price of $6.00 per share of our common stock on September 28, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of our common stock upon conversion of the Notes and/or offset the potential cash payments that we could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price.

The Capped Call Transactions are separate transactions entered into by us with the Capped Call counterparties and are not part of the terms of the Notes. The Capped Call Transactions had a cost of $15.9 million, which was paid on October 1, 2021 from the proceeds of the Notes. We account for Capped Call Transactions separately from the Notes and recognized the cost as a reduction of additional paid-in capital in the year ended December 31, 2021 as the Capped Call Transactions are indexed to our common stock.

Credit Facilities

On December 11, 2020, we entered into a revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of up to $80.0 million which can be drawn in cash or as letters of credit. The agreement matures on January 15, 2024. Amounts drawn under the facility will bear interest at 30-day LIBOR plus an applicable margin which was 2.75% as of December 31, 2021. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of December 31, 2021. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility.

As of December 31, 2021, $72.6 million of letters of credit and no cash borrowings were outstanding under our $80.0 million secured credit facility, and the facility had $7.4 million of availability. We also had a separate secured letter of credit facility providing up to $15.0 million of letters of credit as of December 31, 2021 under which $13.6 million had been issued as of that date.

Long-Term Leases

As of December 31, 2021, we operated 299 communities under long-term leases (233 operating leases and 66 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

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The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. We are responsible for all operating costs, including repairs, property taxes, and insurance. As of December 31, 2021, the weighted average remaining lease term of our operating and financing leases was 5.9 and 5.3 years, respectively. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options. The lease maturities of our senior housing community leases are as follows without giving effect to future renewals or extension options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. Our capital expenditure plans for 2022 include required minimum spend of approximately $27.0 million for capital expenditures under certain of our community leases. We are required to spend an average of approximately $26.0 million per year for each of the following three years and approximately $18.0 million in aggregate thereafter under the initial lease terms of such leases. Our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.

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

For the year ended December 31, 2021, our cash lease payments for our operating leases were $210.2 million and for our financing leases were $66.2 million. The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the consolidated balance sheet as of December 31, 2021 are as follows (in millions).

Debt and Lease Covenants

Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. In addition, our debt and lease documents generally contain non-financial

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covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage.

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

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

As of December 31, 2021, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Summary of Contractual Obligations

The following table presents a summary of our material indebtedness and lease obligations, as of December 31, 2021.

(1)Excludes deferred financing costs of $29.8 million as of December 31, 2021.

(2)Represents contractual interest for all fixed-rate obligations and interest on variable rate instruments at the December 31, 2021 rate applicable for each instrument. As of December 31, 2021, our long-term variable rate debt had a weighted average interest rate of 2.44%. We are subject to market risks from changes in interest rates and increases in prevailing interest rates will increase our payment obligations on our variable-rate obligations.

(3)Reflects future cash lease payments after giving effect to fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the applicable index or rate as of December 31, 2021.

Critical Accounting Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. We believe the following accounting estimates are the most critical as they require assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate, or different estimates that could have been selected, could have a material impact on our consolidated results of operations or financial condition. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Our significant accounting policies are discussed in Note 2 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data."

Long-Lived Asset Impairment

As of December 31, 2021, our long-lived assets were comprised primarily of $4.9 billion and $0.6 billion of net property, plant and equipment and leasehold intangibles and operating lease right-of-use assets, respectively.

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We test long-lived assets for recoverability annually during our fourth quarter or whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. 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 or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, we are required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value.

In estimating the recoverability of asset groups for purposes of our long-lived asset impairment testing, we utilize future cash flow projections that are generally developed internally. Any estimates of future cash flow projections necessarily involve predicting unknown future circumstances and events and require significant management judgments and estimates. In arriving at our cash flow projections, we consider our historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset holding periods, and other factors. In estimating the future cash flows of asset groups for purposes of our long-lived asset impairment test, we make certain key assumptions. Those assumptions include future revenues, facility operating expenses, and cash flows, including sales proceeds that we would receive upon a sale of the assets using estimated capitalization rates in the case of communities. We corroborate the estimated capitalization rates we use in these calculations with capitalization rates observable from recent market transactions.

Determining the future cash flows of an asset group involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates, operating margins, and asset holding periods used to calculate projected future cash flows. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, and our decision to dispose of assets, including execution on our ongoing capital recycling program through exiting non-strategic or underperforming owned assets or leases. Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing, or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition and changing economic or market conditions, could result in changes in estimated future cash flows and the determination that additional assets are impaired.

During 2021, 2020, and 2019, we evaluated long-lived depreciable assets and lease right-of-use assets and determined that the carrying amount of these assets exceeded the undiscounted cash flows for certain of our communities. Estimated fair values were determined for these certain properties and we recorded asset impairment charges. The following is a summary of asset impairment expense for these assets.

These impairment charges in 2021 and 2020 are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value. During 2021 and 2020, there was a wide range of possible outcomes as a result of the pandemic, as there was a high degree of uncertainty about its ultimate impacts. In arriving at our cash flow projections, we considered our estimates of the impacts of the pandemic. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, as further described in Note 3 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data". Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. These impairment charges in 2019 are primarily due to our decision to dispose of assets, either through sales or lease terminations, or lower than expected performance of the underlying communities and equal the amount by which the carrying amounts of the assets exceed their estimated fair value.

Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there have been changes in circumstances that indicate the carrying amount may not be recoverable, the recoverability of asset groups, and, if necessary, the fair value of our assets. As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the accuracy of our estimate of the future cash flows of assets, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.

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Self-Insurance Liability Accruals

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain general liability and professional liability insurance policies for our owned, leased, and managed communities under a master insurance program, our current policies provide for deductibles for each claim and contain various exclusions from coverage. As a result, we are effectively self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of our wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. In addition, we maintain a high-deductible workers compensation program. Third-party insurers are responsible for claim costs above program deductibles and retentions.

Outstanding losses and expenses for general liability, professional liability, and workers compensation are estimated based on the recommendations of independent actuaries and management's estimates. The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date. We review the adequacy of our accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel, and industry data, and adjust accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. These estimates require significant judgment, and as a result these estimates are uncertain and our actual exposure may be different from our estimates. Subsequent changes in actual experience are monitored and estimates are updated as information becomes available.

As of December 31, 2021, we accrued reserves of $109.1 million for general liability, professional liability, and workers compensation programs. During the years ended December 31, 2021, 2020, and 2019, we reduced our estimate of the amount of aggregate accrued liabilities for these programs based on recent claims experience, resulting in decreases to operating expenses by $14.2 million, $4.2 million, and $11.3 million, for the years ended December 31, 2021, 2020, and 2019, respectively.

New Accounting Pronouncements

See Note 2 to the consolidated financial statements contained in "Item 8. Financial Statement and Supplementary Data" for a discussion of new accounting pronouncements.

Non-GAAP Financial Measures

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

Adjusted EBITDA

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

We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our

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underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry.

Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

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

(1)Adjusted EBITDA includes:

•$12.4 million and $115.7 million benefit for the years ended December 31, 2021 and 2020, respectively, of government grants and credits recognized in other operating income

•$119.2 million for the year ended December 31, 2020 for the one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020

•$100.0 million benefit for the year ended December 31, 2020 for the management agreement termination fee payment received from Healthpeak in connection with the sale of our ownership interest in the CCRC Venture

Adjusted Free Cash Flow

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

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

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

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

(1) Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $3.8 million and $13.4 million for the years ended December 31, 2021 and 2020, respectively. Additionally, Adjusted Free Cash Flow includes:

•$3.9 million and $115.7 million benefit for the years ended December 31, 2021 and 2020, respectively, from government grants and credits received

•$87.5 million benefit from accelerated/advanced Medicare payments received for the year ended December 31, 2020

•$20.8 million recoupment of accelerated/advanced Medicare payments for the year ended December 31, 2021

•$119.2 million one-time cash lease payment made to Ventas in connection with our lease restructuring transaction effective July 26, 2020 for the year ended December 31, 2020

•$100.0 million benefit from the management agreement termination fee payment received from Healthpeak for the year ended December 31, 2020

•$72.7 million benefit from payroll taxes deferred for the year ended December 31, 2020

•$31.6 million paid during the year ended December 31, 2021 for deferred payroll taxes for the year ended December 31, 2020