# Brookdale Senior Living Inc. (BKD) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Brookdale Senior Living Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1332349/000133234924000041/bkd-20231231.htm
Accession: 0001332349-24-000041
Filing date: 2024-02-21
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BKD/
All MD&A years: /company/BKD/mda/
Previous year: /company/BKD/mda/fy2022/ (FY 2022)
Next year: /company/BKD/mda/fy2024/ (FY 2024)

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.

Executive Overview and Recent Developments

For information regarding our business, including our strategy and recent developments regarding macroeconomic conditions and resident fee increases, refer to "Item 1. Business."

Liquidity

In December 2023, we completed two financing transactions, which refinanced all of our remaining 2024 debt maturities. After giving effect to these transactions, our next debt maturity without extension options is September 2025. In the first transaction, we obtained $179.5 million of debt secured by non-recourse first mortgages on 47 communities, which also continue to secure $580.4 million of additional outstanding mortgages with a later maturity. The facility includes certain "borrow-up" provisions,

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which we expect will enable us to obtain additional funding in 2024 under the loan based on the performance of the underlying communities. At the closing, we repaid $260.1 million of debt under the facility, which was scheduled to mature in 2024, using proceeds from the $179.5 million loan and cash on hand. In the second transaction, we amended our revolving credit agreement to provide an expanded commitment of up to $100.0 million which can be drawn in cash or as letters of credit and represents a $20.0 million increase from the previously existing commitment. Additionally, in December 2023, we sold our remaining 20% equity interest in our Health Care Services unconsolidated venture and received proceeds of $27.4 million. We recognized a non-cash impairment charge of $26.0 million as a result of our decision to sell the equity interest prior to the recovery of its market value. Refer to Notes 3 and 7 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for additional information on the sale and financing transactions, respectively.

As of December 31, 2023, our total liquidity was $340.7 million, consisting of $278.0 million of unrestricted cash and cash equivalents, $29.8 million of marketable securities, and $32.9 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 appropriate expense discipline, continuing to refinance maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets. There is no assurance that financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in monetizing certain assets.

On February 9, 2024, we obtained $50.0 million of debt secured by first priority mortgages on 11 communities. The loan bears interest at a variable rate equal to SOFR plus a margin of 350 basis points. The debt matures in February 2027 with two one-year renewal options, exercisable subject to certain performance criteria.

COVID-19 Pandemic Update

The COVID-19 pandemic has adversely impacted our occupancy and resident fee revenue beginning in March 2020. From March 2020 through February 2021, we lost 1,330 basis points of weighted average consolidated senior housing occupancy due to the pandemic, resulting in our lowest weighted average occupancy of 69.4% during February 2021. We continued to execute on key initiatives to rebuild our occupancy in recent years. As of December 2023, we recovered 890 basis points of weighted average consolidated senior housing occupancy, and December 2023 weighted average occupancy was 78.3%. While the Federal COVID-19 Public Health Emergency Declaration expired on May 11, 2023, we cannot predict with reasonable certainty the impacts that the COVID-19 pandemic and the continued recovery ultimately will have on our business, results of operations, cash flow, and liquidity. The table below sets forth our recent consolidated occupancy trend.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2019","2020","2021","2022","2023"],["Weighted average occupancy","83.9","%","77.5","%","71.5","%","75.4","%","77.2","%"]]
[[/GREPCENT_TABLE]]

Transaction Activity

Community Transactions

During 2023, we completed the sale of two owned communities for cash proceeds of $25.6 million, net of $29.6 million in mortgage debt repaid and transaction costs, and recognized a net gain on sale of communities of $36.3 million. During 2023, we elected not to exercise our lease renewal option under the current terms for a master lease and completed the termination of our triple-net lease obligations on the 18 communities for which the master lease was scheduled to expire on December 31, 2023. Additionally, we acquired the remaining 50% equity interest in one community during 2023 for $0.6 million. During 2022, we completed the sale of two owned communities for cash proceeds of $4.4 million, net of transaction costs, and the termination of triple-net lease obligations on four communities (including through the acquisition of one formerly leased community).

Welltower Lease Amendments

During the three months ended June 30, 2023, we entered into amendments to our existing lease arrangements with Welltower Inc. ("Welltower") pursuant to which we continue to lease 74 communities. In connection with the amendments, we extended the maturity of one lease involving 39 communities from December 31, 2026 until June 30, 2032. As a result, our amended lease arrangements provide that the current term for 69 of the communities will expire on June 30, 2032 and the current term for five of the communities will expire on December 31, 2024. The amendments did not change the amount of required lease payments over the previous term of the leases or the annual lease escalators. In addition, Welltower agreed to make available a pool in the aggregate amount of up to $17.0 million to fund costs associated with certain capital expenditure projects for 69 of

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the communities. Upon reimbursement of such expenditures, the annual minimum rent under the lease will prospectively increase by the amount of the reimbursement multiplied by the sum of the then current SOFR (subject to a floor of 3.0%) and a margin of 4.0%, and such amount will escalate annually consistent with the minimum rent escalation provisions of the 39 community lease.

The amended leases for 35 of such communities were prospectively classified as operating leases subsequent to the amendment. For 2023, the classification of such lease costs as operating lease expense resulted in a $19.3 million increase in cash lease payments for operating leases and an offsetting decrease in cash lease payments for financing leases.

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

Resident Fee Revenue and Facility 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, 2021. Refer to Note 3 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for more information about our former Health Care Services segment.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2023","","2022","","2021"],["Resident fee revenue attributable to Health Care Services and disposed communities","$","49,611","","","$","67,667","","","$","259,151"],["Facility operating expense attributable to Health Care Services and disposed communities","41,303","","","59,867","","","248,869"]]
[[/GREPCENT_TABLE]]

Results of Operations

As of December 31, 2023, our total operations included 652 communities with a capacity to serve approximately 59,000 residents. As of that date, we owned 345 communities (31,205 units), leased 277 communities (19,844 units), and managed 30 communities (4,579 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, 2022 to December 31, 2023 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 components of executive compensation, 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.

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•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 components of executive compensation, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.

•RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding revenue from our former Health Care Services segment, revenue for private duty services provided to seniors living outside of our communities, and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance.

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

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

As of December 31, 2023, 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.

Discussion of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below. Discussion of our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 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, 2022, filed with the SEC on February 22, 2023.

Comparison of Years Ended December 31, 2023 and 2022

Summary Operating Results

The following table summarizes our overall operating results for the years ended December 31, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","Increase (Decrease)"],["(in thousands)","2023","","2022","","Amount","","Percent"],["Total resident fees and management fees revenue","$","2,867,431","","","$","2,597,549","","","$","269,882","","","10.4","%"],["Other operating income","9,073","","","80,469","","","(71,396)","","","(88.7)","%"],["Facility operating expense","2,129,800","","","2,083,605","","","46,195","","","2.2","%"],["Net income (loss)","(189,070)","","","(238,340)","","","(49,270)","","","(20.7)","%"],["Adjusted EBITDA","335,538","","","241,305","","","94,233","","","39.1","%"]]
[[/GREPCENT_TABLE]]

The increase in total resident fees and management fees revenue was primarily attributable to an 11.4% increase in same community RevPAR, comprised of an 8.6% increase in same community RevPOR and a 190 basis point increase in same

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community weighted average occupancy. The increase was partially offset by the disposition of 25 communities since the beginning of the prior year.

During the years ended December 31, 2023 and 2022, we recognized $9.1 million and $80.5 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 year, including for the year ended December 31, 2022, $61.1 million of grants from the Phase 4 general distribution from the Public Health and Social Services Emergency Fund ("Provider Relief Fund").

The increase in facility operating expense was primarily attributable to a 3.3% increase in same community facility operating expense, primarily resulting from broad inflationary pressure and increased costs with higher occupancy, partially offset by a decrease in the use of premium labor, primarily contract labor. The increase was partially offset by the disposition of 25 communities since the beginning of the prior year.

The decrease in net loss was primarily attributable to the increase in resident fee revenue. These changes were partially offset by a decrease in other operating income recognized, an increase in debt interest expense, an increase in facility operating expense, and a $37.6 million decrease in gain on sale of communities, net recognized compared to the prior year.

The increase in Adjusted EBITDA was primarily attributable to an increase in resident fee revenue, partially offset by the decrease in other operating income, the increase in facility operating expense, and the change in classification of $41.6 million of lease payments for 51 communities as cash facility operating lease payments as a result of lease amendments subsequent to the beginning of the prior year.

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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, 2023 and 2022 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.

[[GREPCENT_TABLE]]
[["(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)","Years Ended December 31,","","Increase (Decrease)"],["2023","","2022","","Amount","","Percent"],["Resident fees","$","2,857,270","","","$","2,585,529","","","$","271,741","","","10.5","%"],["Other operating income","$","9,073","","","$","80,469","","","$","(71,396)","","","(88.7)","%"],["Facility operating expense","$","2,129,800","","","$","2,083,605","","","$","46,195","","","2.2","%"],["Number of communities (period end)","622","","","641","","","(19)","","","(3.0)","%"],["Total average units","51,960","","","52,320","","","(360)","","","(0.7)","%"],["RevPAR","$","4,577","","","$","4,113","","","$","464","","","11.3","%"],["Occupancy rate (weighted average)","77.2","%","","75.4","%","","180","bps","","n/a"],["RevPOR","$","5,927","","","$","5,457","","","$","470","","","8.6","%"],["Same Community Operating Results and Data"],["Resident fees","$","2,758,618","","","$","2,476,619","","","$","281,999","","","11.4","%"],["Other operating income","$","8,729","","","$","76,330","","","$","(67,601)","","","(88.6)","%"],["Facility operating expense","$","2,043,956","","","$","1,978,262","","","$","65,694","","","3.3","%"],["Number of communities","612","","","612","","","\u2014","","","\u2014","%"],["Total average units","50,209","","","50,215","","","(6)","","","\u2014","%"],["RevPAR","$","4,579","","","$","4,110","","","$","469","","","11.4","%"],["Occupancy rate (weighted average)","77.4","%","","75.5","%","","190","bps","","n/a"],["RevPOR","$","5,912","","","$","5,443","","","$","469","","","8.6","%"]]
[[/GREPCENT_TABLE]]

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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, 2023 and 2022, including operating results and data on a same community basis. All 68 of the communities in our Independent Living segment are included within our same community portfolio.

[[GREPCENT_TABLE]]
[["(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)","Years Ended December 31,","","Increase (Decrease)"],["2023","","2022","","Amount","","Percent"],["Resident fees","$","564,012","","","$","507,793","","","$","56,219","","","11.1","%"],["Other operating income","$","487","","","$","10,906","","","$","(10,419)","","","(95.5)","%"],["Facility operating expense","$","379,854","","","$","359,749","","","$","20,105","","","5.6","%"],["Number of communities (period end)","68","","","68","","","\u2014","","","\u2014","%"],["Total average units","12,569","","","12,569","","","\u2014","","","\u2014","%"],["RevPAR","$","3,739","","","$","3,367","","","$","372","","","11.0","%"],["Occupancy rate (weighted average)","79.4","%","","77.0","%","","240","bps","","n/a"],["RevPOR","$","4,711","","","$","4,371","","","$","340","","","7.8","%"]]
[[/GREPCENT_TABLE]]

The increase in the segment's resident fees was primarily attributable to an increase in the segment's RevPAR, comprised of a 7.8% increase in RevPOR and a 240 basis point increase in weighted average occupancy. The increase in the segment's RevPOR was primarily the result of the current year rate increase. The increase in the segment's weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic.

The increase in the segment's facility operating expense was primarily attributable to broad inflationary pressure and the costs of increased wireless internet access provided for residents, partially offset by a decrease in the use of premium labor, primarily contract labor. The labor component of the segment's facility operating expense increased 3.3% compared to the prior year.

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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, 2023 and 2022, including operating results and data on a same community basis.

[[GREPCENT_TABLE]]
[["(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)","Years Ended December 31,","","Increase (Decrease)"],["2023","","2022","","Amount","","Percent"],["Resident fees","$","1,960,432","","","$","1,755,092","","","$","205,340","","","11.7","%"],["Other operating income","$","8,008","","","$","60,630","","","$","(52,622)","","","(86.8)","%"],["Facility operating expense","$","1,466,123","","","$","1,435,764","","","$","30,359","","","2.1","%"],["Number of communities (period end)","537","","","554","","","(17)","","","(3.1)","%"],["Total average units","34,414","","","34,555","","","(141)","","","(0.4)","%"],["RevPAR","$","4,741","","","$","4,230","","","$","511","","","12.1","%"],["Occupancy rate (weighted average)","77.0","%","","75.1","%","","190","bps","","n/a"],["RevPOR","$","6,158","","","$","5,636","","","$","522","","","9.3","%"],["Same Community Operating Results and Data"],["Resident fees","$","1,898,771","","","$","1,695,838","","","$","202,933","","","12.0","%"],["Other operating income","$","7,862","","","$","57,988","","","$","(50,126)","","","(86.4)","%"],["Facility operating expense","$","1,415,671","","","$","1,377,991","","","$","37,680","","","2.7","%"],["Number of communities","528","","","528","","","\u2014","","","\u2014","%"],["Total average units","33,326","","","33,327","","","(1)","","","\u2014","%"],["RevPAR","$","4,748","","","$","4,240","","","$","508","","","12.0","%"],["Occupancy rate (weighted average)","77.1","%","","75.1","%","","200","bps","","n/a"],["RevPOR","$","6,162","","","$","5,646","","","$","516","","","9.1","%"]]
[[/GREPCENT_TABLE]]

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 9.1% increase in same community RevPOR and a 200 basis point increase in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of the current year rate increase. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's resident fees was partially offset by the disposition of 23 communities since the beginning of the prior year, which resulted in $5.3 million less in resident fees during the year ended December 31, 2023 compared to the prior year.

The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense primarily resulting from broad inflationary pressure and increased costs with higher occupancy, partially offset by a decrease in the use of premium labor, primarily contract labor. The labor component of the segment's same community facility operating expense increased 0.4% compared to the prior year. The increase in the segment's facility operating expense was partially offset by the disposition of 23 communities since the beginning of the prior year, which resulted in $7.9 million less in facility operating expense during the year ended December 31, 2023 compared to the prior year. The segment's same community facility operating expense for the years ended December 31, 2023 and 2022 excludes $0.1 million and $5.9 million, respectively, of natural disaster expense, consisting primarily of remediation of storm damage as a result of Hurricane Ian and Winter Storm Elliott in 2022.

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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, 2023 and 2022, including operating results and data on a same community basis.

[[GREPCENT_TABLE]]
[["(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)","Years Ended December 31,","","Increase (Decrease)"],["2023","","2022","","Amount","","Percent"],["Resident fees","$","332,826","","","$","322,644","","","$","10,182","","","3.2","%"],["Other operating income","$","578","","","$","8,933","","","$","(8,355)","","","(93.5)","%"],["Facility operating expense","$","283,823","","","$","288,092","","","$","(4,269)","","","(1.5)","%"],["Number of communities (period end)","17","","","19","","","(2)","","","(10.5)","%"],["Total average units","4,977","","","5,196","","","(219)","","","(4.2)","%"],["RevPAR","$","5,560","","","$","5,138","","","$","422","","","8.2","%"],["Occupancy rate (weighted average)","73.4","%","","73.4","%","","0","bps","","n/a"],["RevPOR","$","7,576","","","$","6,997","","","$","579","","","8.3","%"],["Same Community Operating Results and Data"],["Resident fees","$","295,835","","","$","272,988","","","$","22,847","","","8.4","%"],["Other operating income","$","380","","","$","7,436","","","$","(7,056)","","","(94.9)","%"],["Facility operating expense","$","248,274","","","$","242,196","","","$","6,078","","","2.5","%"],["Number of communities","16","","","16","","","\u2014","","","\u2014","%"],["Total average units","4,314","","","4,319","","","(5)","","","(0.1)","%"],["RevPAR","$","5,714","","","$","5,267","","","$","447","","","8.5","%"],["Occupancy rate (weighted average)","74.8","%","","74.2","%","","60","bps","","n/a"],["RevPOR","$","7,639","","","$","7,100","","","$","539","","","7.6","%"]]
[[/GREPCENT_TABLE]]

The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 7.6% increase in same community RevPOR and a 60 basis point increase in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of the current year rate increase. The increase in the segment's resident fees was partially offset by the disposition of two communities since the beginning of the prior year, which resulted in $12.8 million less in resident fees during the year ended December 31, 2023 compared to the prior year.

The decrease in the segment's facility operating expense was primarily attributable to the disposition of two communities since the beginning of the prior year, which resulted in $10.6 million less in facility operating expenses expense during the year ended December 31, 2023 compared to the prior year. The decrease in the segment's facility operating expense was partially offset by an increase in the segment's same community facility operating expense primarily resulting from broad inflationary pressure. The labor component of the segment's same community facility operating expense increased 2.4% compared to the prior year.

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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, 2023 and 2022.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","Increase (Decrease)"],["(in thousands)","2023","","2022","","Amount","","Percent"],["Management fees","$","10,161","","","$","12,020","","","$","(1,859)","","","(15.5)","%"],["Reimbursed costs incurred on behalf of managed communities","139,325","","","147,361","","","(8,036)","","","(5.5)","%"],["Costs incurred on behalf of managed communities","139,325","","","147,361","","","(8,036)","","","(5.5)","%"],["General and administrative expense","178,894","","","168,594","","","10,300","","","6.1","%"],["Facility operating lease expense","202,410","","","165,294","","","37,116","","","22.5","%"],["Depreciation and amortization","342,712","","","347,444","","","(4,732)","","","(1.4)","%"],["Asset impairment","40,572","","","29,618","","","10,954","","","37.0","%"],["Loss (gain) on sale of communities, net","(36,296)","","","(73,850)","","","(37,554)","","","(50.9)","%"],["Interest income","23,146","","","6,935","","","16,211","","","NM"],["Interest expense","238,274","","","204,717","","","33,557","","","16.4","%"],["Gain (loss) on debt modification and extinguishment, net","(2,702)","","","(1,357)","","","1,345","","","99.1","%"],["Equity in earnings (loss) of unconsolidated ventures","(3,996)","","","(10,782)","","","(6,786)","","","(62.9)","%"],["Non-operating gain (loss) on sale of assets, net","1,441","","","595","","","846","","","142.2","%"],["Other non-operating income (loss)","21,687","","","12,114","","","9,573","","","79.0","%"],["Benefit (provision) for income taxes","(8,784)","","","1,559","","","(10,343)","","","NM"]]
[[/GREPCENT_TABLE]]

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, partially offset by an increase in community costs incurred as a result of broad inflationary pressure for communities managed in both years.

General and Administrative Expense. The increase in general and administrative expense was primarily attributable to an increase in estimated incentive compensation costs and an increase in organizational restructuring costs compared to the prior year, primarily for severance costs for our senior leadership changes. General and administrative expense includes transaction and organizational restructuring costs of $3.9 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.

Facility Operating Lease Expense. The increase in facility operating lease expense was primarily due to the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the beginning of the prior year.

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

Asset Impairment. During the current year, we recorded $40.6 million of non-cash impairment charges, primarily due to a non-cash impairment charge of $26.0 million on our investment in the Health Care Services venture (the "HCS Venture") as a result of our decision to sell our equity interest prior to the recovery of its market value. The impairment charges also include amounts for certain leased communities with lower than expected occupancy and decreased future cash flow estimates. During the prior year, we recorded $29.6 million of non-cash impairment charges, primarily for certain leased communities with decreased occupancy and future cash flow estimates as a result of the continued impacts of the COVID-19 pandemic and for natural

49

disaster related property damage sustained at certain communities during the year, including property damage sustained from Hurricane Ian in September 2022 and Winter Storm Elliott in December 2022.

Loss (Gain) on Sale of Communities, net. The decrease in gain on sale of communities, net was due to a $73.9 million non-cash gain on sale of communities in the prior year for the amendment of leases for 16 communities that were previously accounted for as failed sale-leaseback transactions, as the amendment resulted in the transfer of control of the assets of the communities for accounting purposes and qualification as a sale. Refer to Note 3 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for more information about the amendment. The decrease was partially offset by the sale of our one remaining entrance fee community during the current year.

Interest Income. The increase in interest income was primarily due to higher interest rates on our cash, cash equivalents, and marketable securities.

Interest Expense. The increase in interest expense was primarily due to an increase in interest expense on long-term debt primarily as a result of increases in variable interest rates, partially offset by a decrease in interest expense on financing lease obligations primarily due to the change in classification of lease costs from financing leases to operating leases as a result of lease amendments subsequent to the beginning of the prior year.

Equity in Earnings (Loss) of Unconsolidated Ventures. The decrease in equity in loss of unconsolidated ventures was primarily due to improved operating results for the HCS Venture prior to the sale of our equity interest in December 2023.

Other Non-operating Income (Loss). The increase in other non-operating income was primarily due to increased income recognized for insurance recoveries from our property and casualty insurance policies.

Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the years ended December 31, 2023 and 2022 was primarily due to an increase in the tax expense resulting from the valuation allowance recorded against state income tax operating losses. We recorded an aggregate deferred federal, state, and local tax benefit of $41.5 million for the year ended December 31, 2023, which was offset by an increase in the valuation allowance of $49.1 million. We recorded an aggregate deferred federal, state, and local tax benefit of $58.4 million for the year ended December 31, 2022, which was partially offset by an increase in the valuation allowance of $57.1 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.

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.

[[GREPCENT_TABLE]]
[["","Years Ended December 31,","","Increase (Decrease)"],["(in thousands)","2023","","2022","","Amount","","Percent"],["Net cash provided by (used in) operating activities","$","162,923","","","$","3,281","","","$","159,642","","","NM"],["Net cash provided by (used in) investing activities","(113,364)","","","(67,429)","","","45,935","","","68.1","%"],["Net cash provided by (used in) financing activities","(174,439)","","","100,382","","","(274,821)","","","NM"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","(124,880)","","","36,234","","","(161,114)","","","NM"],["Cash, cash equivalents, and restricted cash at beginning of year","474,548","","","438,314","","","36,234","","","8.3","%"],["Cash, cash equivalents, and restricted cash at end of year","$","349,668","","","$","474,548","","","$","(124,880)","","","(26.3)","%"],["Adjusted Free Cash Flow","$","(47,631)","","","$","(201,385)","","","$","153,754","","","76.3","%"]]
[[/GREPCENT_TABLE]]

The increase in net cash provided by operating activities was primarily attributable to an increase in resident fee revenue compared to the prior year and $31.6 million paid during the prior year for previously deferred payroll taxes for 2020 pursuant to the Coronavirus Aid, Relief, and Economic Security Act of 2020, partially offset by a $41.2 million decrease in cash received

50

associated with government grants and credits, an increase in facility operating expense, and an increase in debt interest expense compared to the prior year.

The increase in net cash used in investing activities was primarily attributable to a $201.7 million decrease in proceeds from sales and maturities of marketable securities compared to the prior year, partially offset by an $89.2 million decrease in purchases of marketable securities and a $78.9 million increase in net proceeds from the sale of assets compared to the prior year.

The change in net cash provided by (used in) financing activities was primarily attributable to $139.4 million of proceeds from the 2022 issuance of the tangible equity units, an $86.1 million increase in repayment of debt and financing lease obligations, and a $48.7 million decrease in debt proceeds compared to the prior year.

The change in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities and an increase in property and casualty insurance proceeds compared to the prior year, partially offset by a $48.3 million increase in non-development capital expenditures, net compared to the prior year.

Our principal sources of liquidity have historically been from:

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

•cash flows from operations;

•proceeds from our credit facilities;

•funds generated through unconsolidated venture arrangements;

•proceeds from mortgage financing or refinancing of various assets;

•funds raised in the debt or equity markets; and

•proceeds from the disposition of assets.

Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. In the past, we also have received pandemic-related government relief, including cash grants.

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

•working capital;

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

•debt, interest, and lease payments;

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

•capital expenditures and improvements;

•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, 2023, we had $3.7 billion of debt outstanding at a weighted average interest rate of 5.58%. As of such date, 91.9%, or $3.4 billion, of our total debt obligations represented non-recourse property-level mortgage financings.

As of December 31, 2023, we had $1.0 billion of operating and financing lease obligations, and for the twelve months ending December 31, 2024, we will be required to make approximately $281.0 million of cash lease payments in connection with our existing operating and financing leases.

As of December 31, 2023, we had $63.6 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility. We also had a separate secured letter of credit facility providing for up to $15.0 million of letters of credit as of December 31, 2023, under which $14.5 million had been issued as of that date.

Total liquidity of $340.7 million as of December 31, 2023 included $278.0 million of unrestricted cash and cash equivalents (excluding restricted cash of $71.7 million), $29.8 million of marketable securities, and $32.9 million of availability on our secured credit facility. Total liquidity as of December 31, 2023 decreased $111.9 million from total liquidity of $452.6 million as of December 31, 2022. The decrease was primarily attributable to repayment of debt of $358.8 million, negative $47.6 million of Adjusted Free Cash Flow, partially offset by $205.1 million of proceeds from debt and $83.5 million of net proceeds from the sale of assets, including two CCRCs and our equity interest in the HCS Venture.

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As of December 31, 2023, our current liabilities exceeded current assets by $121.7 million. Included in our current liabilities is $193.7 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our consolidated balance sheet. 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, and proceeds from financings and refinancings of various assets will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining appropriate expense discipline, continuing to refinance maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets. There is no assurance that financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in monetizing certain assets.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors." Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities’ maturing indebtedness. In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac. Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 and 2022 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness. In December 2023, we obtained a $179.5 million loan pursuant to Fannie Mae's DUS program to partially refinance maturing indebtedness. At the closing, we repaid $260.1 million of debt scheduled to mature in 2024, using proceeds from the $179.5 million loan and cash on hand. As of December 31, 2023, 14% of our owned communities were unencumbered by mortgage debt.

We have completed the refinancing of all of our debt maturities due in 2024. Our inability to obtain refinancing proceeds sufficient to cover 2025 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 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.

Funding our planned capital expenditures or 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.

Capital Expenditures

Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include maintenance expenditures (including routine maintenance of communities over $1,500 per occurrence), community renovations, unit upgrades (including unit turnovers over $500 per unit), and other major building infrastructure projects (including replacements of major building systems). Corporate capital expenditures include those for information technology systems and equipment 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.

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The following table summarizes our capital expenditures for the year ended December 31, 2023 for our consolidated business.

[[GREPCENT_TABLE]]
[["(in thousands)"],["Community-level capital expenditures, net (1)","$","161,683"],["Corporate capital expenditures, net (2)","54,828"],["Non-development capital expenditures, net (3)","216,511"],["Development capital expenditures, net","1,762"],["Total capital expenditures, net","$","218,273"]]
[[/GREPCENT_TABLE]]

(1)Reflects the amount invested, net of lessor reimbursements of $10.3 million.

(2)Includes $28.8 million of remediation costs at our communities resulting from natural disasters. A portion of such costs are reimbursable under our property and casualty insurance policies.

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

In the aggregate, we expect our full-year 2024 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $180.0 million. We anticipate that our 2024 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, 2023, the average age of the buildings in our consolidated senior housing portfolio was approximately 26 years. Our community-level non-development capital expenditures, net of lessor reimbursements, were $3,112 per unit in 2023, and our 2024 plans equate to approximately $3,100 per unit. To support our strategy and to protect the value of our community portfolio and ensure that our communities are in appropriate physical condition, over the intermediate term, we expect that our community-level non-development capital expenditures, net of lessor reimbursements, will be at annual levels in a similar range of recent and 2024 projected per unit spend.

We have no planned development capital expenditures for 2024, as we plan to prioritize our capital expenditures on community-level non-development expenditures for the near-term in order to support our communities and execution on our strategy. Over the longer term, we expect that we will also continue to invest in our development capital expenditures program through which we expand, reposition, and redevelop selected existing senior living communities where economically advantageous.

Indebtedness

As of December 31, 2023, we had $3.7 billion of debt outstanding, at a weighted average interest rate of 5.58%. As of such date, 91.9%, or $3.4 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of December 31, 2023, we had $2.2 billion of long-term fixed rate debt (including our $230.0 million principal amount of 2.00% convertible senior notes due 2026 and our $18.0 million principal amount of the senior amortizing notes component of our tangible equity units), at a weighted average interest rate of 4.07%.

As of December 31, 2023, we had $1.5 billion of long-term variable rate debt, at a weighted average interest rate of 7.74%. 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 or swap agreements in place for a majority of our long-term variable-rate debt, these agreements only limit our exposure to increases in interest rates above certain levels and generally must be renewed every one to three years. As of December 31, 2023, our $1.5 billion of outstanding long-term variable rate debt is indexed to SOFR plus a weighted average margin of 239 basis points. As of such date, $1.4 billion, or 93%, of our long-term variable rate debt is subject to interest rate cap or swap agreements, and $0.1 billion of our long-term variable rate debt is not subject to any interest rate cap or swap agreements. For our SOFR interest rate cap and swap agreements as of December 31, 2023, the weighted average fixed interest rate is 3.91%, and the weighted average remaining term is 0.8 years. Many of our long-term variable rate debt instruments include provisions that obligate us to obtain additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements.

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The annual aggregate scheduled maturities (including recurring principal payments) of long-term debt outstanding as of December 31, 2023 are as follows (in thousands).

[[GREPCENT_TABLE]]
[["Years Ending December 31,","","","","","Long-term Debt","Weighted Rate"],["2024","","","","","$","49,485","","6.46","%"],["2025 (1)","","","","","573,035","","7.30","%"],["2026","","","","","305,614","","2.71","%"],["2027","","","","","960,971","","6.00","%"],["2028","","","","","563,548","","5.79","%"],["Thereafter","","","","","1,273,658","","5.03","%"],["Total obligations","","","","","3,726,311","","5.58","%"],["Less amount representing deferred financing costs, net","","","","","(28,998)"],["Total","","","","","$","3,697,313"]]
[[/GREPCENT_TABLE]]

(1)    Includes the initial maturity of $320.0 million of mortgage debt for which we have the option to extend the maturity for two additional terms of one year each subject to the satisfaction of certain conditions.

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.

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. 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.

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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, were issued to the initial purchasers in reliance upon Section 4(a)(2) of the Securities Act of 1933 (the "Securities Act"), as amended. 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.

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

In December 2023, we amended our revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto. The amended agreement provides an expanded commitment amount of up to $100.0 million which can be drawn in cash or as letters of credit. The credit facility matures in January 2027, and we have the option to extend the facility for two additional terms of approximately one year each subject to the satisfaction of certain conditions. Amounts drawn under the facility will bear interest at SOFR plus an applicable margin which was 3.00% as of December 31, 2023. Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as of December 31, 2023. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon certain calculations related to the appraised value and performance of the communities securing the credit facility and the variable interest rate of the credit facility.

As of December 31, 2023, $63.6 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility, and the facility had $32.9 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, 2023 under which $14.5 million had been issued as of that date.

55

Long-Term Leases

As of December 31, 2023, we operated 277 communities under long-term leases (263 operating leases and 14 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. In certain cases, we guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. Approximately 89% of our community lease payments for the twelve months ended December 31, 2023 are subject to a weighted average maximum annual increase of 2.7% for community leases subject to fixed annual escalators or variable annual escalators based on the consumer price index subject to a cap. The remaining community lease payments are subject to variable annual escalators primarily based upon the change in the consumer price index. An additional 1% increase in the consumer price index would have resulted in additional cash lease payments of approximately $0.3 million for the twelve months ended December 31, 2023. We are responsible for all operating costs, including repairs, property taxes, and insurance. As of December 31, 2023, the weighted average remaining lease term of our operating and financing leases was 5.7 and 2.3 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.

[[GREPCENT_TABLE]]
[["Years Ending December 31,","","Community Count","","Total Units"],["2024","","6","","","857"],["2025","","122","","","10,331"],["2026","","2","","","153"],["2027","","24","","","2,555"],["2028","","12","","","1,344"],["Thereafter","","111","","","4,604"],["Total","","277","","","19,844"]]
[[/GREPCENT_TABLE]]

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. We are required to spend approximately $50.0 million in aggregate for the 24-month period ending December, 31, 2025 for capital expenditures under certain of our community leases and approximately $20.0 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.

56

For the year ended December 31, 2023, our cash lease payments for our operating leases were $255.3 million and for our financing leases were $30.4 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, 2023 are as follows (in millions).

[[GREPCENT_TABLE]]
[["Years Ending December 31,","Operating Lease Payments","Financing Lease Payments","Total Minimum Lease Payments"],["2024","$","260.7","","$","20.3","","$","281.0"],["2025","260.5","","6.8","","267.3"],["2026","145.8","","6.9","","152.7"],["2027","147.6","","6.1","","153.7"],["2028","84.8","","5.9","","90.7"],["Thereafter","251.6","","20.6","","272.2"],["Total minimum lease payments","$","1,151.0","","$","66.6","","$","1,217.6"]]
[[/GREPCENT_TABLE]]

Debt and Lease Covenants

Certain of our long-term debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities and/or increased by accumulated depreciation and amortization, and/or further adjusted for certain other specified adjustments. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. These covenants include a requirement contained in certain of our long-term debt documents for us to maintain liquidity of at least $130.0 million at each quarter-end determination date. As of December 31, 2023, our liquidity was $340.7 million.

In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).

Furthermore, our mortgage debt is secured by our communities and, in certain cases, our long-term debt and leases are secured by 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, 2023, we are in compliance with the financial covenants of our debt agreements and long-term leases.

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Summary of Contractual Obligations

The following table presents a summary of our material indebtedness and lease obligations, as of December 31, 2023.

[[GREPCENT_TABLE]]
[["","Payments Due during the Years Ending December 31,"],["(in millions)","2024","","2025(1)","","2026","","2027","","2028","","Thereafter","","Total"],["Principal on long-term debt(2)","$","49.5","","","$","573.0","","","$","305.6","","","$","961.0","","","$","563.5","","","$","1,273.7","","","$","3,726.3"],["Interest on long-term debt(3)","208.6","","","192.4","","","162.6","","","134.0","","","89.8","","","184.8","","","972.2"],["Long-term debt obligations","258.1","","","765.4","","","468.2","","","1,095.0","","","653.3","","","1,458.5","","","4,698.5"],["Lease obligations(4)","281.0","","","267.3","","","152.7","","","153.7","","","90.7","","","272.2","","","1,217.6"],["Total long-term debt and lease obligations","$","539.1","","","$","1,032.7","","","$","620.9","","","$","1,248.7","","","$","744.0","","","$","1,730.7","","","$","5,916.1"]]
[[/GREPCENT_TABLE]]

(1)Principal on long-term debt includes the initial maturity of $320.0 million of mortgage debt for which we have the option to extend the maturity for two additional terms of one year each subject to the satisfaction of certain conditions.

(2)Excludes deferred financing costs of $29.0 million as of December 31, 2023.

(3)Represents contractual interest for all fixed-rate obligations and interest on variable rate instruments at the December 31, 2023 rate applicable for each instrument excluding the impact of interest rate cap and swap agreements. As of December 31, 2023, our long-term variable rate debt had a weighted average interest rate of 7.74%. We are subject to market risks from changes in interest rates and increases or decreases in prevailing interest rates would change our payment obligations on our variable-rate obligations.

(4)Reflects future minimum lease payments prior to giving effect to variable payments.

Critical Accounting Estimates

The preparation of our financial statements in conformity with 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, 2023, our long-lived assets were comprised primarily of $4.3 billion and $0.7 billion of net property, plant and equipment and leasehold intangibles and operating lease right-of-use assets, respectively.

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.

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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 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 2023, 2022, and 2021, 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.

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["(in millions)","2023","","2022","","2021"],["Operating lease right-of-use assets","$","8.3","","","$","13.7","","","$","16.6"],["Property, plant and equipment and leasehold intangibles, net","6.3","","","15.9","","","6.4"],["Total","$","14.6","","","$","29.6","","","$","23.0"]]
[[/GREPCENT_TABLE]]

These impairment charges are primarily due to decreased occupancy and future cash flow estimates at certain communities, including as a result of the impacts of the COVID-19 pandemic, and reflect the amount by which the carrying amounts of the assets exceeded 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. Additionally, future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

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. We use our wholly-owned captive insurance company for the purpose of insuring certain portions of our risk retention under our general and professional liability insurance programs. Accordingly, we are, in effect, 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, 2023, we accrued reserves of $100.8 million for general liability, professional liability, and workers' compensation programs. During the years ended December 31, 2022 and 2021, we reduced our estimate of the amount of

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aggregate accrued liabilities for these programs based on recent claims experience, resulting in decreases to operating expenses of $12.0 million and $14.2 million, respectively. During the year ended December 31, 2023, there was no significant adjustment to our operating expenses for any change in our estimate of the amount of these liabilities.

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 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, operating lease expense adjustment, non-cash stock-based compensation expense, gain/loss on sale of communities, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance.

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

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.

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2023","","2022"],["Net income (loss)","$","(189,070)","","","$","(238,340)"],["Provision (benefit) for income taxes","8,784","","","(1,559)"],["Equity in (earnings) loss of unconsolidated ventures","3,996","","","10,782"],["Loss (gain) on debt modification and extinguishment, net","2,702","","","1,357"],["Non-operating loss (gain) on sale of assets, net","(1,441)","","","(595)"],["Other non-operating (income) loss","(21,687)","","","(12,114)"],["Interest expense","238,274","","","204,717"],["Interest income","(23,146)","","","(6,935)"],["Income (loss) from operations","18,412","","","(42,687)"],["Depreciation and amortization","342,712","","","347,444"],["Asset impairment","40,572","","","29,618"],["Loss (gain) on sale of communities, net","(36,296)","","","(73,850)"],["Operating lease expense adjustment","(45,739)","","","(34,896)"],["Non-cash stock-based compensation expense","11,985","","","14,466"],["Transaction and organizational restructuring costs","3,892","","","1,210"],["Adjusted EBITDA(1)","$","335,538","","","$","241,305"]]
[[/GREPCENT_TABLE]]

(1)Adjusted EBITDA includes a $9.1 million and $80.5 million benefit for the years ended December 31, 2023 and 2022, respectively, of government grants and credits recognized in other operating income.

Adjusted Free Cash Flow

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

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

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

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

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(in thousands)","2023","","2022"],["Net cash provided by (used in) operating activities","$","162,923","","","$","3,281"],["Net cash provided by (used in) investing activities","(113,364)","","","(67,429)"],["Net cash provided by (used in) financing activities","(174,439)","","","100,382"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","$","(124,880)","","","$","36,234"],["Net cash provided by (used in) operating activities","$","162,923","","","$","3,281"],["Distributions from unconsolidated ventures from cumulative share of net earnings","(430)","","","(561)"],["Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases","(9,844)","","","(13,718)"],["Non-development capital expenditures, net","(216,511)","","","(168,166)"],["Property and casualty insurance proceeds","24,704","","","\u2014"],["Payment of financing lease obligations","(8,473)","","","(22,221)"],["Adjusted Free Cash Flow(1)","$","(47,631)","","","$","(201,385)"]]
[[/GREPCENT_TABLE]]

(1) Adjusted Free Cash Flow includes:

•$28.3 million and $69.5 million benefit for the years ended December 31, 2023 and 2022, respectively, from government grants and credits received.

•$3.1 million recoupment for the year ended December 31, 2022 of accelerated/advanced Medicare payments.

•$31.6 million paid during the year ended December 31, 2022 for deferred payroll taxes for the year ended December 31, 2020.

•$3.9 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively, for transaction and organizational restructuring costs.