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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

☑

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

For the Fiscal Year Ended December 31, 2017

2022         

Or

☐

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

For the transition period from                      to                     

Commission file number: 1-13445

Capital


Sonida Senior Living, Corporation

Inc.

(Exact name of registrant as specified in its charter)

Delaware

75-2678809

Delaware

75-2678809
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)

16301 Quorum Drive, Suite 160A
Addison, TX

75001

14160 Dallas Parkway, Suite 300

Dallas, Texas

75254

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(972) 770-5600

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

Title of each class

Trading
Symbol(s)

Name of each exchange


on which registered

Common Stock, $.01 par value per share

SNDA

New York Stock Exchange

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

None

Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes  ☐¨    No  ☑

x

Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐¨    No  ☑

x

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

¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ☑x    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

¨

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

Large accelerated filer

¨

☐

Accelerated filer

☑

¨

Non-accelerated filer

x

☐  (Do not check if a smaller reporting company)

Smaller reporting company

☐

x

Emerging growth company

☐

¨

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

Yes  ¨    No  x

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  Yes  ¨    No  x
If the securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ¨ No x
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). Yes ¨ No x
Indicate by a check mark whetherwhether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐¨    No  ☑

x

The aggregate market value of the 24,076,010 2,471,603 shares of the Registrant’s common stock, par value $0.01 per share (“Common Stock”), held by non-affiliates (defined to exclude all of the Registrant’s executive officers, directors, and certain significant stockholders) on June 30, 2017,2022, the last day of the Registrant’s most recently completed second quarter, based upon the adjusted closing price of the Registrant’s Common Stock as reported by the New York Stock Exchange on such date was approximately $366.2approximately $51.9 million. As of February 23, 2018,March 30, 2023, the Registrant had 30,500,8006,923,349 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement pertaining to its 20182023 Annual Meeting of Stockholders and filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A are incorporated herein by reference into Part III of this report.


Table of ContentsCAPITAL
SONIDA SENIOR LIVING, CORPORATION

INC.

TABLE OF CONTENTS


Page
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PART I

2

20

16

27

30

27

30

27

30

27

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PART II

28

31

31

32

48

44

48

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48

44

49

44

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45
PART III

50

46

50

46

50

46

50

46

50

46

PART IV

51

47

54

51

F-1

F-1













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Cautionary Note Regarding Forward-Looking Statements

Certain information contained in this Annual Report on Form 10-K of Sonida Senior Living, Inc. (together with its consolidated subsidiaries, “Sonida,” “we,” “our,” “us,” or the “Company”) constitutes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts included in this Annual Report on Form 10-K, including, without limitation, those relating to the Company’s future business prospects and strategies, financial results, working capital, liquidity, capital needs and expenditures, interest costs, insurance availability and contingent liabilities, are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “project,” “plans,” “estimate” or “continue” or the negatives thereof or other variations thereon or comparable terminology.

Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially from those indicated in the forward-looking statements, including, among others, the risks, uncertainties and factors set forth under “Item. 1A. Risk Factors” in this Annual Report on Form 10-K, and also include the following:

•the impact of COVID-19, including the actions taken to prevent or contain the spread of COVID-19, the transmission of its highly contagious variants and sub-lineages and the development and availability of vaccinations and other related treatments, or another epidemic, pandemic or other health crisis;
•the Company’s ability to generate sufficient cash flows from operations, additional proceeds from debt financings or refinancings, and proceeds from the sale of assets to satisfy its short and long-term debt obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities;
•increases in market interest rates that increase the cost of certain of our debt obligations;
•increased competition for, or a shortage of, skilled workers, including due to the COVID-19 pandemic or general labor market conditions, along with wage pressures resulting from such increased competition, low unemployment levels, use of contract labor, minimum wage increases and/or changes in overtime laws;
•the Company’s ability to obtain additional capital on terms acceptable to it;
•the Company’s ability to extend or refinance its existing debt as such debt matures;
•the Company’s compliance with its debt agreements, including certain financial covenants, and the risk of cross-default in the event such non-compliance occurs;
•the Company’s ability to complete acquisitions and dispositions upon favorable terms or at all;
•the risk of oversupply and increased competition in the markets which the Company operates;
•the Company’s ability to improve and maintain controls over financial reporting and remediate the identified material weakness discussed in Item 9 of this Annual Report on Form 10-K;
•the departure of certain of the Company’s key officers and personnel;
•the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes;
•risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, competition in the labor market, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; and
•changes in accounting principles and interpretations.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or outcomes that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this Annual Report on Form 10-K apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form 10-K. Except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

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PART I

ITEM 1.

ITEM 1.    BUSINESS.

Overview

Sonida Senior Living, Inc., (formerly known as Capital Senior Living Corporation,Corporation), a Delaware corporation (together with its subsidiaries, the “Company”"we," "us," "our," or "the Company"), is one of the largest operatorsleading owner-operators of senior housing communities in the United States in terms of resident capacity. The Company and its predecessors have provided senior housing since 1990. As of December 31, 2017,2022, the Company operated 12972 senior housing communities in 2318 states with an aggregate capacity of approximately 16,5008,000 residents, including 8362 senior housing communities whichthat the Company owned and 46 senior housing10 communities that the Company leased. During 2017, approximately 94.4% of total revenues for the seniorthird-party managed.
We generally provide residential housing communities operated by the Company were derived from private pay sources.

The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the elderly,people aged 75 years and older, including independent living, assisted living, and memory care services. Many of the Company’sour communities offer a continuum of care to meet itsour residents’ needs as they change over time by integrating independent living, assisted living, and memory care, and iswhich may be bridged by home care through independent home care agencies, sustainingagencies. Our integrated approach sustains residents’ autonomy and independence based on their physical and mentalcognitive abilities.

Website

Strategy
Our mission is to bring quality senior living to life. We provide comfortable, safe, affordable communities where residents can form friendships, enjoy new experiences, and receive personalized care from team members who treat them like family, while also striving to (i) achieve and sustain a strong, competitive position within our geographically concentrated regions, and (ii) continue to enhance the performance of our operations. Our strategic priorities are designed to enhance our performance and position our portfolio for near- and long-term growth.  
During the year ended December 31, 2022, we introduced a new management plan focused on a number of strategic priorities that are core to the Company's refreshed mission. By executing on these priorities, we aim to continue our growth and margin expansion and to enhance our market position as a leading owner-operator of senior housing communities in the United States. The following strategic priorities are intended to complement and enhance our core operational efforts while addressing the Company's financial position and increasing margin penetration against the backdrop of rapidly evolving demographic, economic and regulatory environments.
Operational Excellence. We strive to remove inefficiencies and improve quality in our operations to reinvest in the Company by focusing on:
•Rate optimization
•Marketing initiatives to maintain post-COVID occupancy recovery
•Group Purchasing Program ("GPO") enhancements and compliance
•Improving liquidity through better collections and cash management
Value. Our living environment and team members deliver value to our residents and strive to exceed their expectations by improving:
•Resident satisfaction
•Reputation score
•Services and programming
•Health and safety
Team. Strong local leadership teams develop engaged, loyal and caring team members by focusing on:
•Employee engagement
•Community leadership team retention
•Labor management and cost control
•Contract labor reduction

As discussed below, in November 2021, we raised approximately $154.8 million from investors, which allowed us to make strategic investments in our portfolio and to position us for further growth. Over the past year we also made significant capital expenditures in our communities, including overall refreshes and technological improvements, to enhance our residents' experience and to drive future growth.
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We strive to create commercial distinction where our brand presence is synonymous with excellence.  Our sales team is focused on customer engagement and performance-based media strategies. Our marketing activities focus on increasing the volume of leading indicators, including new resident inquiries and tours, so that potential residents and their families can effectively evaluate our portfolio of services.  
Our overall strategy is focused on organic growth through existing community advancement as well as growth through acquisitions. We continue to be positioned to provide competitive residential rates and flexible product offerings.  Our portfolio is situated in markets where positive demographic trends exist with respect to population growth, income growth, and increased chronic medical conditions relative to the 75+ age group.  

Recent Developments
2022 Mortgage Refinance
In March 2022, the Company completed the refinancing of certain existing mortgage debt with Ally Bank (the “Refinance Facility”) for ten of its communities. The Refinance Facility includes an initial term loan of $80 million. In addition, $10 million is available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements, and up to an additional uncommitted $40 million may be available in the lender's discretion to fund future growth initiatives. On December 13, 2022, the Company entered into an agreement with Ally Bank to amend the Refinance Facility by adding two additional subsidiaries of the Company (which own the two Indiana properties acquired during the first quarter of 2022) as borrowers. The amendment increased the principal by $8.1 million to $88.1 million, with an additional $10 million still available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements. See "Note 8 - Notes Payable" in the Notes to Consolidated Financial Statements.
Management Transition
As previously announced in the Form 8-K filed by the Company on August 5, 2022, Kimberly S. Lody notified the Company on August 2, 2022 that she was resigning as the Company’s Internet website www.capitalsenior.com contains an Investor Relations section, which provides linksPresident and Chief Executive Officer and as a member of the Board of Directors (the “Board”), effective September 2, 2022. In accordance with the Company’s succession plan, on August 2, 2022, the Board appointed Brandon M. Ribar, the Company’s Executive Vice President and Chief Operating Officer, as President and Chief Executive Officer of the Company and as a member of the Board, effective September 2, 2022.
Indiana Acquisition
On February 1, 2022, the Company completed the acquisition of two senior living communities located in Indiana for a combined purchase price of $12.3 million. The communities consist of a total of 157 independent living units. The purchase price for these communities was funded at the time of acquisition with cash on hand and subsequently financed in December 2022, as described in the "2022 Mortgage Refinance" paragraph above.
Corporate Name Change
On November 9, 2021, the Company filed a Certificate of Amendment to the Company’s annual reportsAmended and Restated Certificate of Incorporation, as amended, with the Delaware Secretary of State to effect the change of the Company’s name from "Capital Senior Living Corporation" to “Sonida Senior Living, Inc.” effective as of November 15, 2021 (the “Name Change”). In addition, the Company’s board of directors adopted an amendment to the Company’s Second Amended and Restated Bylaws to reflect the Company’s new legal name, effective as of November 15, 2021.
In conjunction with the Name Change, the ticker symbol of the Company’s common stock on the New York Stock Exchange changed from "CSU" to “SNDA.” The CUSIP number for the Company’s common stock following the effectiveness of the Name Change remained unchanged.
Investment Agreement
On October 1, 2021, the Company entered into an Amended and Restated Investment Agreement (the "A&R Investment Agreement") with Conversant Dallas Parkway (A) LP (“Conversant Fund A”) and Conversant Dallas Parkway (B) LP ("Conversant Fund B" and, together with Conversant Fund A, the “Conversant Investors”), affiliates of Conversant Capital LLC, which amended and restated in its entirety the Investment Agreement that the Company entered into with the Conversant Investors on July 22, 2021 (the “Original Investment Agreement”). Pursuant to the A&R Investment Agreement, (i) the Conversant Investors purchased from the Company, and the Company sold to the Conversant Investors, in a private placement (the “Private Placement”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), 41,250 shares of newly designated Series A convertible preferred stock, par value $0.01 per share (the “Series A Preferred Stock”), at a
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price per share equal to $1,000; and 1,650,000 shares of common stock, par value $0.01 per share, at a price per share equal to $25; (ii) the Conversant Investors received 1,031,250 warrants, each evidencing the right to purchase one share of common stock at a price per share of $40 and with an exercise expiration date of five years after the Closing Date; (iii) the Company amended the terms of its previously announced rights offering under the Original Investment Agreement to allow the holders of record of its outstanding shares of common stock at the close of business on September 10, 2021 the right to purchase at $30 per share, 1.1 shares of common stock for each share of common stock held (the “Rights Offering”), in each case as more fully described in the A&R Investment Agreement. On or after the closing date under the A&R Investment Agreement, the Company may from time to time request additional investments from the Conversant Investors in shares of Series A Preferred Stock for investment in accretive capital expenditures and acquisitions post-closing up to an aggregate amount equal to $25.0 million, subject to certain conditions.
In addition, pursuant to the A&R Investment Agreement, the Conversant Investors agreed to partially backstop the Amended Rights Offering up to $50.5 million through the purchase of additional shares of the Company's common stock at $30 per share. In consideration for the backstop commitments of the Conversant Investors, the Company paid the Conversant Investors, as a premium, 174,675 shares of common stock.
Simultaneously with the entry into the Original Investment Agreement, the Company and the Conversant Investors entered into a $17.3 million secured promissory note (the “Promissory Note”) to provide interim debt financing which was scheduled to mature in July 2022. The Promissory Note was amended to reduce the aggregate indebtedness outstanding by $1.3 million, resulting in an amended secured promissory note in the amount of $16.0 million. The Promissory Note was fully repaid upon closing of the transactions contemplated by the A&R Investment Agreement and the Company recognized a $1.0 million loss on extinguishment of the Promissory Note. See "Note 8- Notes Payable" in the Notes to Consolidated Financial Statements.
The transactions contemplated by the A&R Investment Agreement were subject to stockholder approval, which was received on October 22, 2021. The Rights Offering expired on October 27, 2021 with subscription rights to purchase 1,133,941 shares exercised. The transactions contemplated by the A&R Investment Agreement closed (the “Closing”) on November 3, 2021 and resulted in net proceeds to the Company of $141.4 million after paying customary transaction and closing costs of approximately $13.4 million. The Conversant Investors and Arbiter Partners QP, LP (“Arbiter”) backstopped the Rights Offering, pursuant to which they purchased an additional 1,160,806 shares of common stock and 114,911 shares of common stock, respectively, and received a backstop fee of 174,675 shares of common stock and 17,292 shares of common stock, respectively.
At the Closing, the Company, the Conversant Investors and Silk Partners LP (“Silk”) entered into an Investor Rights Agreement (the "Investor Rights Agreement"), pursuant to which, among other things, the Company's board of directors was reconstituted to consist of four new directors designated by the Conversant Investors, two new directors designated by Silk and three continuing directors.
At the Closing, all outstanding performance-based stock based compensation held by the Company's officers and other key employees, including restricted shares, were converted at target award levels to time-based restricted stock awards that are scheduled vest on the applicable scheduled vesting dates or the relevant award termination date applicable to such performance shares. See “Note 10- Stock-Based Compensation” in the Notes to Consolidated Financial Statements.
COVID-19 Pandemic Update
The United States broadly continues to recover from the pandemic caused by COVID-19, which significantly disrupted the nation’s economy, the senior living industry and the Company’s business. The COVID-19 pandemic caused a decline in the occupancy levels at the Company’s communities, which has negatively impacted the Company’s revenues and operating results, which depend significantly on such occupancy levels.  In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company had previously restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As of December 31, 2022, all of the Company's senior living communities were open for new resident move-ins. Although vaccines are now widely available, we cannot predict the severity of ongoing impact of COVID-19 on our business. If the situation surrounding the spread of COVID-19 worsens, including the risk of transmission of highly contagious variants of the COVID-19 virus, the Company may have to impose or revert to restricted or limited access to its communities.
During the COVID-19 pandemic, we were also successful in the early procurement of personal protective equipment (“PPE”) and sterilization supplies, which enabled us to set up quick-access supply hubs to support our geographical regions.  We responded with real-time operational adjustments to support a consistent resident service model, despite the rapidly changing and challenging senior living environment.
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During 2022 and 2021, we incurred significant additional operating costs and expenses in order to implement enhanced infection control protocols and enhanced care for our residents. For example, we incurred substantial costs for procurement of additional PPE, cleaning and disposable food service supplies, enhanced cleaning, infection control, environmental sanitation costs, and increased labor expenses for hazard pay and contract labor at certain communities with COVID-19 positive residents. We also incurred costs related to COVID-19 testing of our residents and our employees. In total, we incurred approximately $0.4 million and $1.9 million in incremental COVID-19 costs in fiscal years 2022 and 2021, respectively. We expect to continue to incur such incremental costs until the COVID-19 pandemic significantly subsides.
In April 2022 and January 2021, the Company accepted $9.1 million and $8.7 million of cash, respectively, through grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phases 4 and 3 General Distribution, respectively, which was expanded by the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) to provide grants or other funding mechanisms to eligible healthcare providers for healthcare-related expenses or lost revenues attributable to COVID-19. Both the Phase 4 and Phase 3 Provider Relief Funds were recorded as other income in the years ended December 31, 2022 and 2021, respectively. The CARES Act Provider Relief Funds are grants that do not have to be repaid provided we satisfy the terms and conditions of the CARES Act. In addition, during the years ended December 31, 2022 and 2021 the Company received approximately $1.2 million and $0.6 million, respectively, in relief from various state agencies.
CARES Act Provider Relief Funds are subject to the terms and conditions of the program, including stringent restrictions that funds may only be used to reimburse COVID-19 related expenses or lost revenue that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. While we intend to pursue additional funding that may become available, there can be no assurances that we will qualify for, or receive, any additional relief funds in the future.
The Company elected to utilize the CARES Act payroll tax deferral program to delay payment of a portion of its payroll taxes incurred from April 2020 through December 2020. The Company repaid one-half of the deferral amount in December 2021 and the other half became due on December 31, 2022. The Company has submitted applications to enter into payment plans for the remaining amounts due. In conjunction with the deferral and payment plan applications, the Company accrued penalties and interest of $0.7 million and $0.4 million, respectively, which were included in accrued expenses on the Company’s Consolidated Balance Sheets. As of December 31, 2022 and December 31, 2021, the Company had $4.8 million and $3.7 million, respectively, in deferred payroll taxes, which is included in accrued expenses in the Company’s Consolidated Balance Sheets.

Going Concern Uncertainty and Related Strategic and Cash-Preservation Initiatives
As noted elsewhere in this Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Section 16 filings and any amendments to those reports and filings. These reports and filings are available through the Company’s Internet website free of charge as soon as reasonably practicable after such material is electronically filed with or furnisheddue to the Securitiescurrent inflationary environment, elevated interest rates, and Exchange Commission (“SEC”).

continued impact of COVID-19 on our financial position, as well as our upcoming debt maturities, our management concluded as of December 31, 2022 that there is substantial doubt about our ability to continue as a going concern. We have implemented plans, which include strategic and cash-preservation initiatives designed to provide us with adequate liquidity to meet our obligations for at least the 12-month period following the date our fiscal year 2022 financial statements are issued. See “Note 2–Going Concern Uncertainty and Related Strategic and Cash-Preservation Initiatives” in the Notes to Consolidated Financial Statements.

We have taken, and continue to take, actions to improve our liquidity position and to address the uncertainty about our ability to continue as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, we may be unsuccessful in executing our business plans or achieving the projected results, which could adversely impact our financial results and liquidity. Those plans include various cost-cutting, efficiency and profitability initiatives. There are no assurances such initiatives will prove to be successful or the cost savings, profitability or other results we achieve through those plans will be consistent with our expectations. As a result, our results of operations, financial position and liquidity could be negatively impacted. In particular, if we are unable to extend or refinance our indebtedness prior to scheduled maturity dates, our liquidity and financial condition could be adversely impacted. Even if we are able to extend or refinance such indebtedness, the terms of the new financing may not be as favorable to us as the terms of the existing financing. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.
Industry Background

The senior living industry encompasses a broad and diverse range of living accommodations and supportive services that are provided primarily to persons 75 years of age or older.

For the elderlyseniors who require limited services, independent living residences, supplemented at times by home health care, offers a viable option. Most independent living communities typically offer community living packaged with basic services consisting of meals, housekeeping, laundry, 24-hour staffing, transportation, social and recreational activities and health care monitoring. Independent living residents typically are not reliant on assistance with activities of daily living (“ADLs”), although some residents may contract oututilize outside vendors for those services.

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As a senior’s need for assistance increases, care in an assisted living residence is often preferable and more cost-effective than home-based care or nursing home care. Typically, assisted living represents a combination of housing and support services designed to aid elderly residents with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene and monitoring or assistance with medications. Certain assisted living residencescommunities may also provide assistance to residents with low acuity medical needs, orneeds.  Others may offer higher levels of personal assistance for incontinent residents with chronic diseases and conditions or memory care services for residents with Alzheimer’s disease or other cognitive or physical frailties. Generally, assisted living residents require higher levels of care than residents of independent living residences and retirement living centers, but require lower levels of care than patientsresidents in skilled nursing facilities. For seniors who need the constant attention of a skilled nurse or medical practitioner, a skilled nursing facility may be required.

According to the American Seniors Housing Association, Seniors Housing Construction Monitor – Winter 2018 Report, as of the fourth quarter of fiscal 2017, 21.0% of the age-restricted seniors housing supply in the United States were assisted living units, 22.6% were independent living units, 49.8% were nursing care units, and 6.6% were memory care units.


The senior living industry is highly fragmented and characterized by numerous small operators. Moreover, the scope of senior living services varies substantially from one operator to another. Many smaller senior living providers do not operate purpose-built residences, do not have extensive professional training for staff and provide only limited assistance with ADLs. The Company believesWe believe that, many senior living operators do notas one of the nation’s leading owner-operators, we have the scale and resources needed to provide the required comprehensive range of senior living services designed to permit our residents to “age in place” within the communityour communities as residents develop further physical or cognitive frailties. The Company believes that as one of the nation’s largest operators it has scale and resources that provide it with certain competitive advantages.

The Company believesfrailties, whereas smaller providers do not.

We believe that a number of demographic, regulatory and other trends will contribute to the continued growth in the senior living market, including the following:

Consumer Preference

The Company believes

We believe that senior housing communities are increasingly becoming the setting preferred by many prospective residents and their families for the care of the elderly.senior population. Senior living offers residents greater independence and allows them to “age in place” in a residential setting, which the Company believeswe believe results in a higher quality of life than that experienced in more institutional or clinical settings.

The likelihood of living alone increases with age. Most of this increase is due to an aging population in which women outlive men. Societal changes, such as high divorce rates and the growing numbers of persons choosing not to marry, have further increased the number of Americans living alone. This growth in the number of elderlyseniors living alone has resulted in an increased demand for services that historically have been provided by a spouse, other family members or live-in caregivers.

Demographics

The primary market for the Company’s senior living services

Our portfolio is comprised of persons aged 75strategically positioned in (i) attractive, high-growth middle income demographic geographies and older. This age group is one of the fastest growing segments of the United States population. The older population itself is increasingly older. In 2011, the 75-84 age group in the United States (12.8 million persons) was 16 times larger than in 1900 and the 85 and over age group in the United States (5.7 million persons) was 40 times larger. The 85 and over population in the United States is projected to more than double from 5.7 million persons in 2011 to 14.1 million persons in 2040. As(ii) regions where the number of persons aged 75 and older continuesnew senior living units needed will continue to grow as a result of the Company believes that there will be corresponding increasesprojected increase in the number of persons who need assistance with ADLs.

chronic conditions in the senior population.

Senior Affluence

The average net worth of senior citizens is typically higher than non-senior citizens, partially as a result of accumulated equity through home ownership. The Company believesWe believe that a substantial portion of the senior population has historically accumulated significant resources available for their retirement and long-term care needs. The Company’sOur target population is comprised of moderate to upper incomemiddle market seniors who have, either directly or indirectly through familial support, the financial resources to afford and pay for senior housing communities, including an assisted living alternative to traditional long-term care.

Reduced Reliance on Family Care

Historically, the family has been the primary provider of care for seniors. The Company believesWe believe that the increasea reduction in the percentageavailability of women in the work force,family caregivers, the reduction of average family size, and overall increased mobility in society is reducing the role of the family as the traditional and primary caregiver for aging parents. The Company believesWe believe that these factors will make it necessary for many seniors to look outside the family for assistance as they age.



Restricted Supply of Nursing Beds

Several states in the United States have adopted Certificate of Need (“CON”) or similar statutes generally requiring that, prior to the addition of new skilled nursing beds, the addition of new services, or the making of certain capital expenditures, a state agency must determine that a need exists for the new beds or the proposed activities. The Company believesWe believe that this CON process tends to restrict the supply and availability of licensed nursing facility beds. High construction costs, limitations on government reimbursement and start-up expenses also act to constrain growth in the supply of such facilities. At the same time, nursing facility operators are continuing to focus on improving occupancy and expanding services to sub-acute patients generally of a
6
Table of Contents
younger age and requiring significantly higher levels of nursing care. As a result, the Company believeswe believe that there has been a decrease in the number of skilled nursing beds available to patients with lower acuity levels and that this trend should increase the demand for the Company’sour senior housing communities, including particularly, the Company’sour assisted living and memory care communities.

Cost-Containment Pressures

In response to rapidly rising health care costs, governmental and private pay sources have adopted cost containment measures that have reduced admissions and encouraged reduced lengths of stays in hospitals and other acute care settings. Private insurers have begun to limit reimbursement for medical services in general to predetermined charges, and managed care organizations (such as health maintenance organizations) are attempting to limit hospitalization costs by negotiating for discounted rates for hospital and acute care services and by monitoring and reducing hospital use. In response, hospitals are discharging patients earlier and referring elderlyaging patients, who may be too sick or frail to manage their lives without assistance, to nursing homes and assisted living residences where the cost of providing care is typically lower than hospital care. In addition, third-party payors are increasingly becoming involved in determining the appropriate health care settings for their insureds or clients, based primarily on cost and quality of care. Based on industry data, the typical day-rate in an assisted living facility is one-fourth of the cost for comparable care in a nursing home and two-thirds of the cost of living at home with a third party home health care provider.

Operating Strategy

The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company is implementing its operating strategy principally through the following methods:

Provide a Broad Range of Quality Personalized Care

Central to the Company’s operating strategy is its focus on providing quality care and services that are personalized and tailored to meet the individual needs of each community resident. The Company’s residences and services are designed to provide a broad range of care that permits residents to thrive and “age in place” as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, the Company seeks to attract seniors at an earlier stage, before they need the higher level of care provided in a skilled nursing facility. The Company also maintains a comprehensive quality assurance program designed to ensure the satisfaction of its residents and their family members. The Company conducts annual resident satisfaction surveys that allow residents at each community to express whether they are “very satisfied,” “satisfied” or “dissatisfied” with all major areas of a community, including, housekeeping, maintenance, activities and transportation, food service, security and management. In each of fiscal 2017 and 2016, the Company achieved 94.6% overall approval ratings from the residents’ satisfaction surveys. In addition, the Company ranked third among senior living operators nationally in 2018 according to J.D. Powers 2018 Senior Living Satisfaction Study.  The study measured resident and family overall satisfaction across factors important to them including community staff, convenience of location, food and beverage, room, building and grounds, senior service and activities among others.



Offer Services Across a Range of Pricing Options

The Company’s range of products and services is continually expanding to meet the evolving needs of its residents. The Company has developed a menu of products and service programs that may be further customized to serve both the moderate and upper income markets of a particular targeted geographic area. By offering a range of pricing options that are customized for each target market, the Company believes that it can develop synergies, economies of scale and operating efficiencies in its efforts to serve a larger percentage of the elderly population within a particular geographic market.

Improve Occupancy Rates

The Company continually seeks to maintain and improve occupancy rates by: (i) retaining residents as they “age in place” by extending optional care and service programs and converting existing units to higher levels of care; (ii) attracting new residents through the use of technology to enhance Internet marketing and on-site marketing programs focused on residents and family members; (iii) selecting communities in underserved markets; (iv) aggressively seeking referrals from senior care referral services, professional community outreach sources, including area religious organizations, senior social service programs, civic and business networks, as well as the medical community; and (v) continually refurbishing and renovating its communities.

Improve Operating Efficiencies

The Company seeks to improve operating efficiencies at its communities by actively monitoring and managing operating costs and by moving to a more centralized operating platform. By having an established portfolio of communities in geographically concentrated regions throughout the United States with regional management in place, the Company believes it has established a platform to achieve operating efficiencies through economies of scale in the purchase of bulk items, such as food and supplies, and in the spreading of fixed costs, such as corporate overhead, over a larger revenue base, and to provide more effective management supervision and financial controls. The Company’s growth strategy includes acquiring additional communities within our geographically concentrated regions to achieve further efficiencies.

Emphasize Employee Training and Retention

The Company devotes special attention to the hiring, screening, training, supervising and retention of its employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, the Company conducts national management meetings and encourages sharing of expertise among managers. The Company has also implemented a comprehensive online training program that addresses the specific challenges of working within the senior living environment. The Company’s commitment to the total quality management concept is emphasized throughout its training programs. This commitment to the total quality management concept means identification of the “best practices” in the senior living market and communication of those “best practices” to the Company’s executive directors and their staff. The identification of best practices is realized by a number of means, including: emphasis on regional and executive directors keeping up with professional trade publications; interaction with other professionals and consultants in the senior living industry through seminars, conferences and consultations; visits to other properties; leadership and participation at national and local trade organization events; and information derived from marketing studies and resident satisfaction surveys. This information is continually processed by regional managers and the executive directors and communicated to the Company’s employees as part of their training. The Company hires an executive director for each of its communities and provides them with autonomy, responsibility and accountability. The Company’s staffing of each community with an executive director allows it to hire more professional employees at these positions, while the Company’s developed career path helps it to retain the professionals it hires. The Company believes its commitment to and emphasis on employee training and retention differentiates the Company from many of its competitors.



Senior Living Services

The Company provides

We provide senior living services to the elderly,residents aged 75 and greater, including independent living, assisted living, and memory care services. By offering a variety of services and encouraging the active participation of theeach resident and thesuch resident’s family and medical consultants, the Company isprofessionals, we are able to customize itsour service plan to meet the specific needs and desires of each resident. Additionally, the Company is actively working to expand service offerings through conversions of existing units to higher levels of care. As a result, the Company believeswe believe that it iswe are able to maximize customer satisfaction and avoid the high cost of delivering unnecessary services to residents.

The Company’s

Our operating philosophy is to provide quality senior housing communities and services to senior citizens and deliver a continuum of care for itsour residents as their needs change over time coordinatedin coordination with third party post-acute care providers. This continuum of care, which integrates independent living, assisted living, and memory care services and is bridged by home care, sustains residents’our residents' autonomy and independence based on their physical and mental abilities. AsIn many of our communities, as residents age, in many of the Company’s communities, they are able to obtain the additional services they need within the same community, avoiding the disruptive and often traumatic move to a different facility.

Our lease agreements with our residents are generally for a term of one year and, under certain circumstances, are typically terminable by us or the resident upon providing 30 days’ notice, unless state law stipulates otherwise.
Independent Living Services

The Company provides

We provide independent living services to seniors who typically do not yet need assistance or support with ADLs, but who prefer the physical and psychological comfort of a residential community that offers health care and other services. As of December 31, 2017, the Company owned 40 communities and leased 15 communities that provide independent living services, which include communities that combine assisted living and other services, with an aggregate capacity for approximately 6,900 residents.

Independent living services provided by the Companyus include daily meals, transportation, social and recreational activities, laundry, housekeeping and 24-hour staffing. The CompanyWe also fostersfoster the wellness of itsour residents by offering access to health screenings (such as blood pressure checks), periodic special services (such as COVID-19 and influenza inoculations), dietary and similar programs, as well asand ongoing exercise and fitness classes. Classes are given by health care professionals to keep residents informed about health and disease management. Subject to applicable government regulation,governmental regulations, personal care and medical services are available to independent living residents through either the community staff or through the Company’s agency or other independent home care agencies. The Company’s independent living residents pay an average fee of $2,800 per month, in general, depending on the specific community, program of services, size of the unit and amenities offered. The Company’s contracts with its independent living residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.

Assisted Living Services

The Company offers

We offer a wide range of assisted living care and services, including personal care services, 24-hour staffing, support services, and other supplemental services. As of December 31, 2017, the Company owned 67services, including memory care services at some communities and leased 40 communities that provide assisted living services, which include communities that combine independent living and other services, with an aggregate capacity for approximately 9,600 residents.(as described below). The residents of the Company’sat our assisted living residences generally need help with some or all ADLs, but do not require the more acute medical care traditionally givenprovided in nursing homes. Upon admission to the Company’sour assisted living communities, and in consultation with the resident, the resident’s family and medical consultants, each resident is assessed to determine his or her health status, including functional abilities and need for personal care services. The resident also completes a lifestyleslifestyle assessment to determine the resident’s preferences. From these assessments, a care plan is developed for each resident to ensureso that all staff members who render care can meet the specific needs and preferences of each resident, where possible. Each resident’s individual care plan is reviewed periodically to determine whether a change in the level of care is needed.


The Company hasWe have adopted a philosophy of assisted living care that allows a resident to maintain a dignified independent lifestyle. Residents and their families are encouraged to be partners in the residents’ care and to take as much responsibility for their well-being as possible. The basic types of assisted living services offered by the Company include the following:

us include:

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Table of Contents
Personal Care Services.    These services include assistance with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene, and monitoring or assistance with medications.

Support Services.    These services include meals, assistance with social and recreational activities, laundry services, general housekeeping, maintenance services and transportation services.

Supplemental Services.    These services include extra transportation services, personal maintenance, extra laundry services and special care services, such as services for residents with certain forms of dementia. Certain of these services require extra charges.

The Company’s assisted living residents pay an average fee of $4,000 per month, in general, depending on the specific community, the level of personal care services, support service and supplemental services provided to the resident, size of the unit and amenities offered. The Company’s contracts with its assisted living residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.

Memory Care Services

The Company maintains

We maintain programs and special unitsliving accommodations at some of itsour communities for residents with certain forms of dementia, which provide the attention, care and services needed to help thosethese residents maintain a higher quality of life. Specialized services include assistance with ADLs, behavior management, and life skills-based activities programs, the goal of which is to provide a normalized environment that supports residents’the resident’s remaining functional abilities. Special unitsliving accommodations for residents with certain forms of dementia are located in a separate area of the community and have theirwith its own dining facilities, resident lounge areas, and specially trained staff. The special care areas are designed to allow residents the freedom to ambulate as they wish, while keeping them safely contained within a secure area with a minimum amount of disruption tofrom other residents. Resident fees for these programs and special unitsliving accommodations are dependent on the size of the unit, the design type and the level of services provided.

The Company’s

In January 2021, we announced our new memory care program, Magnolia Trails, which was developed to meet the growing need for individualized programming for residents pay an average feereceiving memory care services. The program is designed to engage the five senses to create calming yet stimulating spaces and tailored care plans that seek to address our residents’ changing and evolving needs. Each resident’s preferences and current cognitive state influences his or her experience, including, the physical layout and design of $5,200 per month,the space, dining options, programs, and activities. Aspects of the program include playing light background music that aligns with the generation living in general, dependingthe community, caregivers wearing business casual shirts and khakis rather than uniforms or scrubs, and our team members sharing items with residents in order to spark positive memories of family members or past experiences. The same responsive, sensory-focused approach is taken with dining. A dynamic menu of options is served throughout the day in a flexible but consistent manner. Our staff members provide warm, scented washcloths before each meal and incorporate inviting, calming aromas, and soft music to enhance the ambiance.
Because Magnolia Trails is focused on the specific community,best way to engage each individual resident, employees learn about and incorporate each resident’s personal history and interests into his or her ongoing daily interactions. Comforting, hands-on activities are available, such as flower arranging, puzzles, and matching games. Interactive experience stations, such as pet care, gardening, and tool benches are also available.  Another hallmark of the levelprogram is an emphasis on family connections, including ongoing educational opportunities specifically designed to help family members understand dementia and aspects of personalthe disease and its progression. All communities with the Magnolia Trails program use a resident engagement mobile application where family members can receive real-time photos, videos and updates about their loved ones electronically.  
Respite Care and Temporary Care Programs
Our respite care and temporary care program provides a transitional apartment for seniors who are not entirely ready to return home after a hospital or rehabilitation stay. In addition to a fully furnished apartment, seniors enrolled in this program also have full access to our community’s amenities and services, including 24-hour staffing, delicious and nutritious dining, and scheduled transportation. Our flexible agreement includes a minimum two-week stay that also allows the community's guests to remain for any extended period of time if they so choose.
Home Care Services
Home care services support service and supplemental services providedare available through third-party providers to the resident, size of the unit and amenities offered. The Company’s contracts with its memory care residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.

Home Care Services

As of December 31, 2017,living at the Company made home care services available to clients at a majority of itsour senior housing communities through third-party providers. The Company believescommunities. We believe that the provision of private pay, home care services is an attractive adjunct to itsour independent living services because it allows the Companyenables us to make available more services to itsour residents as they age in place and increases the length of stay in the Company’sour communities. In addition, the Company makes available to residentswe make certain customized physician, dentistry, podiatry and other health-related rehabilitation and therapy services that may be offered byavailable to our residents through third-party providers.



8
Table of Contents
Operating Communities

The table below sets forth certain information with respect to the senior housing communities we operated by the Company as of December 31, 2017.

2022.
Resident Capacity Commencement
CommunityLocationUnitsILALMCTotalOwnership
of Operations1
Owned:
Aspen GroveLambertville, MI79 — 59 27 86 100 %03/14
Autumn GlenGreencastle, IN49 — 58 — 58 100 %06/13
Brookview MeadowsGreen Bay, WI79 42 38 — 80 100 %01/15
Chateau of BatesvilleBatesville, IN41 — 43 — 43 100 %10/12
Cottonwood VillageCottonwood, AZ160 87 52 21 160 100 %03/91
Country CharmGreenwood, IN89 — 166 — 166 100 %10/12
Courtyards at Lake GranburyGranbury, TX82 — 73 18 91 100 %03/12
Georgetowne PlaceFort Wayne, IN166 15 138 14 167 100 %10/05
Good Tree Retirement and MemoriesStephenville, TX59 40 31 8 79 100 %03/12
Greenbriar VillageIndianapolis, IN105 — 82 44 126 100 %08/15
Harrison at Eagle ValleyIndianapolis, IN119 — 105 14 119 100 %03/91
Heritage at the PlainsOneonta, NY108 94 28 16 138 100 %05/15
Keystone Woods Assisted LivingAnderson, IN59 — 61 — 61 100 %07/11
Laurel Hurst Laurel WoodsColumbus, NC80 70 48 32 150 100 %10/11
Marquis Place of ElkhornElkhorn, NE63 — 43 23 66 100 %03/13
North PointeAnderson, SC41 — 58 28 86 100 %10/11
Oaks at BrownsburgBrownsburg, IN97 98 — — 98 100 %02/22
Oaks at PlainfieldPlainfield, IN60 61 — — 61 100 %02/22
RiverbendJeffersonville, IN97 — 65 48 113 100 %03/12
Remington at Valley RanchIrving, TX128 128 — — 128 100 %04/12
Residence of ChardonChardon, OH42 — 42 — 42 100 %10/12
Rose ArborMaple Grove, MN137 32 70 42 144 100 %06/06
RosemontHumble, TX96 — 79 48 127 100 %09/16
Summit PlaceAnderson, SC76 17 72 48 137 100 %10/11
Summit Point LivingMacedonia, OH151 68 71 12 151 100 %08/11
Vintage GardensSt. Joseph, MO103 22 71 10 103 100 %05/13
Waterford at BaytownBaytown, TX127 22 75 42 139 100 %03/15
Waterford at Carpenter’s CreekPensacola, FL94 — 94 — 94 100 %02/16
Waterford at ColbyColby, TX44 — 52 5 57 100 %01/16
Waterford at College StationCollege Station, TX53 — 39 17 56 100 %03/12
Waterford at Corpus ChristiCorpus Christi, TX52 — 52 — 52 100 %10/12
Waterford at CreeksidePensacola, FL84 — — 97 97 100 %02/16
Waterford at FairfieldFairfield, OH120 144 — — 144 100 %11/00
Waterford at FitchburgFitchburg, WI82 42 42 — 84 100 %10/13
Waterford at Fort WorthFort Worth, TX154 154 — — 154 100 %06/00
Waterford at HartfordHartford, WI39 — 34 22 56 100 %05/15
Waterford at Highland ColonyJackson, MS120 120 — — 120 100 %11/00
Waterford at IronbridgeSpringfield, MO119 119 — — 119 100 %06/01
Waterford at Levis CommonsToledo, OH146 64 113 — 177 100 %04/09
Waterford at MansfieldMansfield, OH117 — 115 25 140 100 %10/00
Waterford at MesquiteMesquite, TX154 154 — — 154 100 %09/99
Waterford at Park FallsPark Falls, WI36 — 25 12 37 100 %01/16
Waterford at PlanoPlano, TX136 91 45 — 136 100 %12/00
Waterford at PlymouthPlymouth, WI69 15 41 22 78 100 %08/14
9
Table of Contents
Resident CapacityCommencement
CommunityLocationUnitsILALMCTotalOwnership
of Operations1
Waterford at Thousand OaksSan Antonio, TX121 138 — — 138 100 %05/00
Waterford at Virginia BeachVirginia Beach, VA110 — 85 35 120 100 %10/15
Waterford at West BendWest Bend, WI40 — 20 20 40 100 %05/15
Waterford at Wisconsin RapidsWisconsin Rapids, WI58 — 40 18 58 100 %01/16
Waterford on CooperArlington, TX98 — 81 28 109 100 %03/12
Waterford on HuebnerSan Antonio, TX119 119 — — 119 100 %04/99
Wellington at ArapahoRichardson, TX141 97 45 — 142 100 %05/02
Wellington at ConroeConroe, TX43 34 20 — 54 100 %03/12
Wellington at DaytonDayton, OH156 100 38 18 156 100 %08/08
Wellington at North Bend CrossingCincinnati, OH122 54 70 15 139 100 %11/16
Wellington at North Richland HillsNorth Richland Hills, TX119 119 — — 119 100 %01/02
Wellington at SouthportIndianapolis, IN64 — 51 14 65 100 %10/12
Wellington at SpringfieldSpringfield, MA189 97 144 38 279 100 %09/16
Whispering Pines VillageColumbiana, OH73 28 57 — 85 100 %07/15
Woodlands of ColumbusColumbus, OH111 — 114 — 114 100 %10/12
Woodlands of HamiltonHamilton, OH77 — 57 28 85 100 %10/12
Woodlands of Shaker HeightsShaker Heights, OH59 — 37 25 62 100 %10/12
Wynnfield CrossingRochester, IN51 — 51 — 51 100 %07/11
 Total owned (62 Communities)5,863 2,485 3,190 934 6,609   
Managed:   
AmberleighBuffalo, NY267 201 49 17 267 N/A01/92
Crown PointeOmaha, NE138 49 70 20 139 N/A08/00
Independence Village of East LansingEast Lansing, MI146 146 — — 146 N/A08/00
Independence Village of Olde RaleighRaleigh, NC170 181 — — 181 N/A08/00
Villa Santa BarbaraSanta Barbara, CA125 — 125 — 125 N/A08/00
West ShoresHot Springs, AR135 43 93 — 136 N/A08/00
Whitley PlaceKeller, TX47 — 27 20 47 N/A02/08
Willow Grove MaumelleMaumelle, AR54 — 37 17 54 N/A12/21
Southern Meadows Senior LivingMountain Home, AR57 — 57 — 57 N/A12/21
Willow Grove SherwoodSherwood, AR57 — 57 — 57 N/A12/21
Total managed (10 Communities)1,196 620 515 74 1,209   
Total 7,059 3,105 3,705 1,008 7,818   

 

 

 

 

 

 

 

Resident Capacity1

 

 

 

 

 

 

Commencement

Community

Location

 

Units

 

 

IL

 

 

AL

 

 

Total

 

 

Ownership

 

 

of Operations2

Owned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aspen Grove

Lamberville, MI

 

 

78

 

 

 

—

 

 

 

83

 

 

 

83

 

 

 

100

%

 

03/14

Autumn Glen

Greencastle, IN

 

 

49

 

 

 

—

 

 

 

64

 

 

 

64

 

 

 

100

%

 

06/13

Brookview Meadows

Green Bay, WI

 

 

78

 

 

 

—

 

 

 

156

 

 

 

156

 

 

 

100

%

 

01/15

Canton Regency

Canton, OH

 

 

239

 

 

 

162

 

 

 

145

 

 

 

307

 

 

 

100

%

 

03/91

Chateau of Batesville

Batesville, IN

 

 

41

 

 

 

—

 

 

 

43

 

 

 

43

 

 

 

100

%

 

10/12

Cottonwood Village

Cottonwood, AZ

 

 

163

 

 

 

131

 

 

 

58

 

 

 

189

 

 

 

100

%

 

03/91

Country Charm

Greenwood, IN

 

 

89

 

 

 

—

 

 

 

166

 

 

 

166

 

 

 

100

%

 

10/12

Courtyards at Lake Granbury

Granbury, TX

 

 

81

 

 

 

—

 

 

 

112

 

 

 

112

 

 

 

100

%

 

03/12

Georgetowne Place

Fort Wayne, IN

 

 

159

 

 

 

242

 

 

 

0

 

 

 

242

 

 

 

100

%

 

10/05

Good Tree Retirement and Memories

Stephenville, TX

 

 

60

 

 

 

20

 

 

 

75

 

 

 

95

 

 

 

100

%

 

03/12

Gramercy Hill

Lincoln, NE

 

 

143

 

 

 

34

 

 

 

113

 

 

 

147

 

 

 

100

%

 

10/98

Greenbriar Village

Indianapolis, IN

 

 

124

 

 

 

—

 

 

 

134

 

 

 

134

 

 

 

100

%

 

08/15

Harbor Court

Rocky River, OH

 

 

122

 

 

 

—

 

 

 

144

 

 

 

144

 

 

 

100

%

 

12/12

Harrison at Eagle Valley

Indianapolis, IN

 

 

104

 

 

 

138

 

 

 

0

 

 

 

138

 

 

 

100

%

 

03/91

Heritage at the Plains at Parish Homestead

Oneonta, NY

 

 

108

 

 

 

97

 

 

 

53

 

 

 

150

 

 

 

100

%

 

05/15

Independence Village of Peoria

Peoria, IL

 

 

158

 

 

 

158

 

 

 

—

 

 

 

158

 

 

 

100

%

 

08/00

Keystone Woods Assisted Living

Anderson, IN

 

 

58

 

 

 

—

 

 

 

70

 

 

 

70

 

 

 

100

%

 

07/11

Laurel Hurst Laurel Woods

Columbus, NC

 

 

102

 

 

 

70

 

 

 

60

 

 

 

130

 

 

 

100

%

 

10/11

Marquis Place of Elkhorn

Elkhorn, NE

 

 

65

 

 

 

—

 

 

 

69

 

 

 

69

 

 

 

100

%

 

03/13

Middletown

Middletown, OH

 

 

61

 

 

 

—

 

 

 

75

 

 

 

75

 

 

 

100

%

 

09/13

Montclair

Springfield, MO

 

 

156

 

 

 

178

 

 

 

—

 

 

 

178

 

 

 

100

%

 

12/12

North Pointe

Anderson, SC

 

 

64

 

 

 

—

 

 

 

70

 

 

 

70

 

 

 

100

%

 

10/11

Park-Oak Grove

Roanoke, VA

 

 

93

 

 

 

—

 

 

 

164

 

 

 

164

 

 

 

100

%

 

08/14

River Crossing Assisted Living

Charlestown, IN

 

 

100

 

 

 

—

 

 

 

106

 

 

 

106

 

 

 

100

%

 

12/13

Riverbend Independent and Assisted Living

Jeffersonville, IN

 

 

97

 

 

 

—

 

 

 

114

 

 

 

114

 

 

 

100

%

 

03/12

Remington at Valley Ranch

Irving, TX

 

 

127

 

 

 

158

 

 

 

—

 

 

 

158

 

 

 

100

%

 

04/12

Residence of Chardon

Chardon, OH

 

 

42

 

 

 

—

 

 

 

52

 

 

 

52

 

 

 

100

%

 

10/12

Rose Arbor

Maple Grove, MN

 

 

146

 

 

 

86

 

 

 

87

 

 

 

173

 

 

 

100

%

 

06/06

Rosemont Assisted Living and Memory Care

Humble, TX

 

 

96

 

 

 

—

 

 

 

120

 

 

 

120

 

 

 

100

%

 

09/16

Sugar Grove

Plainfield, IN

 

 

164

 

 

 

48

 

 

 

116

 

 

 

164

 

 

 

100

%

 

12/13

Summit Place

Anderson, SC

 

 

80

 

 

 

19

 

 

 

89

 

 

 

108

 

 

 

100

%

 

10/11

Summit Point Living

Macedonia, OH

 

 

163

 

 

 

126

 

 

 

98

 

 

 

224

 

 

 

100

%

 

08/11

Towne Centre Retirement Community

Merrillville, IN

 

 

210

 

 

 

163

 

 

 

75

 

 

 

238

 

 

 

100

%

 

03/91

Vintage Gardens

St. Joseph, MO

 

 

95

 

 

 

44

 

 

 

92

 

 

 

136

 

 

 

100

%

 

05/13

Waterford at Baytown

Baytown, TX

 

 

129

 

 

 

18

 

 

 

132

 

 

 

150

 

 

 

100

%

 

03/15

Waterford at Bridle Brook

Mahomet, IL

 

 

78

 

 

 

—

 

 

 

120

 

 

 

120

 

 

 

100

%

 

09/15

Waterford at Carpenter’s Creek

Pensacola, FL

 

 

94

 

 

 

—

 

 

 

105

 

 

 

105

 

 

 

100

%

 

02/16

Waterford at Colby

Colby, TX

 

 

44

 

 

 

—

 

 

 

48

 

 

 

48

 

 

 

100

%

 

01/16

Waterford at College Station

College Station, TX

 

 

53

 

 

 

—

 

 

 

87

 

 

 

87

 

 

 

100

%

 

03/12

Waterford at Columbia

Columbia, SC

 

 

117

 

 

 

141

 

 

 

—

 

 

 

141

 

 

 

100

%

 

11/00

Waterford at Corpus Christi

Corpus Christi, TX

 

 

50

 

 

 

—

 

 

 

56

 

 

 

56

 

 

 

100

%

 

10/12

Waterford at Creekside

Pensacola, FL

 

 

84

 

 

 

—

 

 

 

98

 

 

 

98

 

 

 

100

%

 

02/16

Waterford at Deer Park

Deer Park, TX

 

 

119

 

 

 

144

 

 

 

—

 

 

 

144

 

 

 

100

%

 

11/00

Waterford at Dillon Pointe

Spartanburg, SC

 

 

51

 

 

 

—

 

 

 

55

 

 

 

55

 

 

 

100

%

 

12/13

Waterford at Edison Lakes

South Bend, IN

 

 

116

 

 

 

—

 

 

 

138

 

 

 

138

 

 

 

100

%

 

12/00

Waterford at Fairfield

Fairfield, OH

 

 

120

 

 

 

140

 

 

 

—

 

 

 

140

 

 

 

100

%

 

11/00

Waterford at Fitchburg

Fitchburg, WI

 

 

82

 

 

 

—

 

 

 

150

 

 

 

150

 

 

 

100

%

 

10/13

Waterford at Fort Worth

Fort Worth, TX

 

 

154

 

 

 

177

 

 

 

—

 

 

 

177

 

 

 

100

%

 

06/00

Waterford at Hartford

Hartford, WI

 

 

39

 

 

 

—

 

 

 

53

 

 

 

53

 

 

 

100

%

 

05/15

Waterford at Hidden Lake

Canton, GA

 

 

43

 

 

 

—

 

 

 

98

 

 

 

98

 

 

 

100

%

 

12/14

Waterford at Highland Colony

Jackson, MS

 

 

119

 

 

 

143

 

 

 

—

 

 

 

143

 

 

 

100

%

 

11/00

Waterford at Ironbridge

Springfield, MO

 

 

118

 

 

 

142

 

 

 

—

 

 

 

142

 

 

 

100

%

 

06/01

Waterford at Levis Commons

Toledo, OH

 

 

146

 

 

 

163

 

 

 

44

 

 

 

207

 

 

 

100

%

 

04/09

(1)Indicates the date on which we acquired or commenced operating the community. We operated certain of our communities pursuant to management agreements prior to acquiring interests in or leasing the communities.


 

 

 

 

 

 

 

Resident Capacity1

 

 

 

 

 

 

Commencement

Community

Location

 

Units

 

 

IL

 

 

AL

 

 

Total

 

 

Ownership

 

 

of Operations2

Waterford at Mansfield

Mansfield, OH

 

 

118

 

 

 

97

 

 

 

45

 

 

 

142

 

 

 

100

%

 

10/00

Waterford at Mesquite

Mesquite, TX

 

 

153

 

 

 

176

 

 

 

—

 

 

 

176

 

 

 

100

%

 

09/99

Waterford at Oakwood

Oakwood, GA

 

 

64

 

 

 

—

 

 

 

70

 

 

 

70

 

 

 

100

%

 

09/13

Waterford at Oshkosh

Oshkosh, WI

 

 

91

 

 

 

—

 

 

 

109

 

 

 

109

 

 

 

100

%

 

08/14

Waterford at Pantego

Pantego, TX

 

 

118

 

 

 

143

 

 

 

—

 

 

 

143

 

 

 

100

%

 

12/00

Waterford at Park Falls

Park Falls, WI

 

 

36

 

 

 

—

 

 

 

36

 

 

 

36

 

 

 

100

%

 

01/16

Waterford at Plano

Plano, TX

 

 

135

 

 

 

109

 

 

 

57

 

 

 

166

 

 

 

100

%

 

12/00

Waterford at Plymouth

Plymouth, WI

 

 

69

 

 

 

—

 

 

 

82

 

 

 

82

 

 

 

100

%

 

08/14

Waterford at Richmond Heights

Richmond Heights, OH

 

 

148

 

 

 

117

 

 

 

110

 

 

 

227

 

 

 

100

%

 

04/09

Waterford at Thousand Oaks

San Antonio, TX

 

 

119

 

 

 

135

 

 

 

—

 

 

 

135

 

 

 

100

%

 

05/00

Waterford at Virginia Beach

Virginia Beach, VA

 

 

111

 

 

 

—

 

 

 

138

 

 

 

138

 

 

 

100

%

 

10/15

Waterford at West Bend

West Bend, WI

 

 

40

 

 

 

—

 

 

 

41

 

 

 

41

 

 

 

100

%

 

05/15

Waterford at Wisconsin Rapids

Wisconsin Rapids, WI

 

 

58

 

 

 

—

 

 

 

66

 

 

 

66

 

 

 

100

%

 

01/16

Waterford on Cooper

Arlington, TX

 

 

105

 

 

 

—

 

 

 

151

 

 

 

151

 

 

 

100

%

 

03/12

Waterford on Huebner

San Antonio, TX

 

 

119

 

 

 

135

 

 

 

—

 

 

 

135

 

 

 

100

%

 

04/99

Wellington at Arapaho

Richardson, TX

 

 

140

 

 

 

113

 

 

 

57

 

 

 

170

 

 

 

100

%

 

05/02

Wellington at Conroe

Conroe, TX

 

 

44

 

 

 

25

 

 

 

35

 

 

 

60

 

 

 

100

%

 

03/12

Wellington at Dayton

Dayton, OH

 

 

149

 

 

 

146

 

 

 

94

 

 

 

240

 

 

 

100

%

 

08/08

Wellington at Kokomo

Kokomo, IN

 

 

96

 

 

 

—

 

 

 

138

 

 

 

138

 

 

 

100

%

 

07/11

Wellington at North Bend Crossing

Cincinnati, OH

 

 

122

 

 

 

54

 

 

 

146

 

 

 

200

 

 

 

100

%

 

11/16

Wellington at North Richland Hills

North Richland Hills, TX

 

 

118

 

 

 

139

 

 

 

—

 

 

 

139

 

 

 

100

%

 

01/02

Wellington at Southport

Indianapolis, IN

 

 

64

 

 

 

—

 

 

 

105

 

 

 

105

 

 

 

100

%

 

10/12

Wellington at Springfield

Springfield, MA

 

 

235

 

 

 

119

 

 

 

117

 

 

 

236

 

 

 

100

%

 

09/16

Whispering Pines Village

Columbiana, OH

 

 

68

 

 

 

24

 

 

 

88

 

 

 

112

 

 

 

100

%

 

07/15

Whitcomb House

Milford, MA

 

 

87

 

 

 

—

 

 

 

87

 

 

 

87

 

 

 

100

%

 

10/13

Woodlands of Columbus

Columbus, OH

 

 

116

 

 

 

—

 

 

 

117

 

 

 

117

 

 

 

100

%

 

10/12

Woodlands of Hamilton

Hamilton, OH

 

 

77

 

 

 

—

 

 

 

100

 

 

 

100

 

 

 

100

%

 

10/12

Woodlands of Shaker Heights

Shaker Heights, OH

 

 

66

 

 

 

—

 

 

 

85

 

 

 

85

 

 

 

100

%

 

10/12

Woodview Assisted Living

Fort Wayne, IN

 

 

88

 

 

 

—

 

 

 

153

 

 

 

153

 

 

 

100

%

 

12/13

Wynnfield Crossing Assisted Living

Rochester, IN

 

 

50

 

 

 

—

 

 

 

79

 

 

 

79

 

 

 

100

%

 

07/11

 

 

 

 

8,475

 

 

 

4,474

 

 

 

6,293

 

 

 

10,767

 

 

 

 

 

 

 

Leased:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ventas:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amberleigh

Buffalo, NY

 

 

267

 

 

 

387

 

 

 

66

 

 

 

453

 

 

N/A

 

 

01/92

Crown Pointe

Omaha, NE

 

 

136

 

 

 

85

 

 

 

80

 

 

 

165

 

 

N/A

 

 

08/00

Independence Village of East Lansing

East Lansing, MI

 

 

146

 

 

 

161

 

 

 

—

 

 

 

161

 

 

N/A

 

 

08/00

Independence Village of Olde Raleigh

Raleigh, NC

 

 

167

 

 

 

177

 

 

 

—

 

 

 

177

 

 

N/A

 

 

08/00

Villa Santa Barbara

Santa Barbara, CA

 

 

125

 

 

 

64

 

 

 

62

 

 

 

126

 

 

N/A

 

 

08/00

West Shores

Hot Springs, AR

 

 

137

 

 

 

131

 

 

 

42

 

 

 

173

 

 

N/A

 

 

08/00

Whitley Place

Keller, TX

 

 

47

 

 

 

—

 

 

 

65

 

 

 

65

 

 

N/A

 

 

02/08

HCN:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Azalea Trails Assisted Living

Tyler, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Buffalo Creek Assisted Living

Waxahachie, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Dogwood Trails Assisted Living

Palestine, TX

 

 

65

 

 

 

—

 

 

 

75

 

 

 

75

 

 

N/A

 

 

09/10

Hawkins Creek Assisted Living

Longview, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Hearth at Prestwick

Avon, IN

 

 

132

 

 

 

—

 

 

 

150

 

 

 

150

 

 

N/A

 

 

08/06

Hearth at Windermere

Fishers, IN

 

 

128

 

 

 

—

 

 

 

150

 

 

 

150

 

 

N/A

 

 

08/06

Heritage Oaks Assisted Living

Conroe, TX

 

 

75

 

 

 

—

 

 

 

90

 

 

 

90

 

 

N/A

 

 

09/10

Keepsake Village of Columbus

Columbus, IN

 

 

42

 

 

 

—

 

 

 

48

 

 

 

48

 

 

N/A

 

 

08/06

Magnolia Court Assisted Living

Nacogdoches, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Martin Crest Assisted Living

Weatherford, TX

 

 

56

 

 

 

—

 

 

 

86

 

 

 

86

 

 

N/A

 

 

09/10

Pecan Point Assisted Living

Sherman, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Santa Fe Trails Assisted Living

Cleburne, TX

 

 

56

 

 

 

—

 

 

 

86

 

 

 

86

 

 

N/A

 

 

09/10

Spring Lake Assisted Living

Paris, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Spring Meadows Libertyville

Libertyville, IL

 

 

198

 

 

 

208

 

 

 

45

 

 

 

253

 

 

N/A

 

 

04/11

Spring Meadows Naperville

Naperville, IL

 

 

193

 

 

 

186

 

 

 

45

 

 

 

231

 

 

N/A

 

 

04/11

Spring Meadows at Summit

Summit, NJ

 

 

89

 

 

 

—

 

 

 

98

 

 

 

98

 

 

N/A

 

 

04/11

Spring Meadows at Trumbull

Trumbull, CT

 

 

152

 

 

 

182

 

 

 

56

 

 

 

238

 

 

N/A

 

 

04/11

Stonefield Assisted Living

McKinney, TX

 

 

75

 

 

 

—

 

 

 

90

 

 

 

90

 

 

N/A

 

 

09/10

Operations Overview

 

 

 

 

 

 

 

Resident Capacity1

 

 

 

 

 

 

Commencement

Community

Location

 

Units

 

 

IL

 

 

AL

 

 

Total

 

 

Ownership

 

 

of Operations2

Walnut Creek Assisted Living

Mansfield, TX

 

 

56

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

09/10

Waterford at Ames

Ames, IA

 

 

49

 

 

 

—

 

 

 

122

 

 

 

122

 

 

N/A

 

 

02/06

Waterford at Miracle Hills

Omaha, NE

 

 

54

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

03/06

Waterford at Roxbury Park

Omaha, NE

 

 

55

 

 

 

—

 

 

 

70

 

 

 

70

 

 

N/A

 

 

02/06

Waterford at Van Dorn

Lincoln, NE

 

 

63

 

 

 

—

 

 

 

84

 

 

 

84

 

 

N/A

 

 

02/06

Waterford at Woodbridge

Plattsmouth, NE

 

 

40

 

 

 

—

 

 

 

45

 

 

 

45

 

 

N/A

 

 

02/06

HCP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Atrium of Carmichael

Sacramento, CA

 

 

151

 

 

 

155

 

 

 

—

 

 

 

155

 

 

N/A

 

 

01/92

Charlotte Square

Charlotte, NC

 

 

118

 

 

 

—

 

 

 

150

 

 

 

150

 

 

N/A

 

 

12/06

Chesapeake Place

Chesapeake, VA

 

 

103

 

 

 

—

 

 

 

153

 

 

 

153

 

 

N/A

 

 

12/06

Covenant Place of Abilene

Abilene, TX

 

 

50

 

 

 

—

 

 

 

55

 

 

 

55

 

 

N/A

 

 

08/04

Covenant Place of Burleson

Burleson, TX

 

 

74

 

 

 

—

 

 

 

80

 

 

 

80

 

 

N/A

 

 

08/04

Covenant Place of Waxahachie

Waxahachie, TX

 

 

50

 

 

 

—

 

 

 

55

 

 

 

55

 

 

N/A

 

 

08/04

Crescent Place

Cedar Hill, TX

 

 

80

 

 

 

—

 

 

 

85

 

 

 

85

 

 

N/A

 

 

11/05

Crescent Point

Cedar Hill, TX

 

 

111

 

 

 

134

 

 

 

—

 

 

 

134

 

 

N/A

 

 

08/04

Crosswood Oaks

Sacramento, CA

 

 

121

 

 

 

127

 

 

 

—

 

 

 

127

 

 

N/A

 

 

01/92

Good Place

North Richland Hills, TX

 

 

72

 

 

 

—

 

 

 

80

 

 

 

80

 

 

N/A

 

 

08/04

Greenville Place

Greenville, SC

 

 

85

 

 

 

—

 

 

 

153

 

 

 

153

 

 

N/A

 

 

12/06

Meadow Lakes

North Richland Hills, TX

 

 

118

 

 

 

145

 

 

 

—

 

 

 

145

 

 

N/A

 

 

08/04

Myrtle Beach Estates

Myrtle Beach, SC

 

 

101

 

 

 

—

 

 

 

156

 

 

 

156

 

 

N/A

 

 

12/06

Tesson Heights

St. Louis, MO

 

 

182

 

 

 

134

 

 

 

72

 

 

 

206

 

 

N/A

 

 

10/98

Veranda Club

Boca Raton, FL

 

 

186

 

 

 

129

 

 

 

97

 

 

 

226

 

 

N/A

 

 

01/92

 

 

 

 

4,541

 

 

 

2,405

 

 

 

3,351

 

 

 

5,756

 

 

 

 

 

 

 

Total

 

 

 

13,016

 

 

 

6,879

 

 

 

9,644

 

 

 

16,523

 

 

 

 

 

 

 

(1)

Independent living (IL) residences and assisted living (AL) residences based on community licensure.

(2)

Indicates the date on which the Company acquired or commenced operating the community. The Company operated certain of its communities pursuant to management agreements prior to acquiring interests in or leasing the communities.



Growth Strategies

The Company believesWe believe that the fragmented nature of the senior living industry, the lack of new supply entering the market, and the limited capital resources available to many small, private operators provideprovides us with an attractive opportunity for the Company to expand its existing base of senior living operations. The Company believescompetitive differentiation. We believe that itsour current operations with geographic concentrations throughout the United States and centralized support infrastructure serve as the foundation onupon which the Companywe can build senior living networks in targeted geographic markets and thereby provide a broad range of high qualityhigh-quality care in a cost-efficient manner.

The Our operating strategy includes the following core principles:

10
Table of Contents
Provide a Broad Range of Quality Personalized Care
Central to our operating strategy is our focus on providing quality care and services that are personalized and tailored to meet the principal elementsindividual needs of each community resident. Our residences and services are designed to provide a broad range of care that permits residents to thrive and “age in place” as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, we seek to attract seniors at an earlier stage before they need the Company’s clear and differentiated growth strategy:

Organic Growth

The Company intends tohigher level of care provided in a skilled nursing facility.

Portfolio Optimization
We continue to focus on itsthe occupancy, rents, and operating margins of its stabilizedour communities. The CompanyWe continually seeksseek to improve occupancy rates and increase average rents by: (i) retaining residents as they “age in place” by extending optional care and service programs, and converting existing units to higher levels of care; (ii) attracting new residents through the use of technology, to enhance Internetincluding enhanced digital marketing through social media and other electronic means, and on-site marketing programs focused on residents and family members; (iii) aggressively seeking referrals from senior care referral services and professional community outreach sources, including arealocal religious organizations, senior social service programs, civic and business networks as well as the medical community; (iv) disposing of properties or exiting management agreements of properties that do not meet our long-term goals; and (iv)(v) continually refurbishing and renovating itsour communities.

Expansion

Offer Services Across a Range of Pricing Options
Our range of products and Conversions of Existing Communities

The Company intendsservices is continually expanding to increase levels of care and capacity at certain of its existing communities through expansion and/or conversions of certain units. Increasing our levels of care and capacity is expected to increase revenue and operating income while meetingmeet the evolving needs of our residents whoresidents. We have developed a menu of products and service programs that may be further customized to serve the middle-income market of a particular targeted geographic area. By offering a range of pricing options that are customized for each target market, we believe that it can develop synergies, economies of scale and operating efficiencies in our efforts to serve a larger percentage of the senior population within a particular geographic market.

Management Services
As of December 31, 2022, we managed 10 communities on behalf of a third party. Under our existing management arrangements, we receive management fees that are determined by an average ageagreed-upon percentage of 85 years.

Pursue Strategic Acquisitions

The Company intendsgross revenues, incentive management fees (as provided for in the management arrangement), and reimbursement of certain expenses we incur on behalf of the third-party.

Improve Operating Efficiencies
We seek to continueimprove operating efficiencies at our communities by actively monitoring and managing operating costs and by moving to pursue acquisitionsa more centralized operating platform. By having an established portfolio of senior housing communities. Through strategic acquisitions, joint venture investments, or facility leases, the Company seeks to acquire communities in existing geographically concentrated regions throughout the United States with regional management teams in place, we believe we have established a platform to achieve operating efficiencies through economies of scale in the purchase of bulk items, such as food and supplies, and in the spreading of fixed costs, such as corporate overhead, over a means to increase market share, augment existing clusters, strengthen its abilitylarger revenue base, and to provide a broad range of care,more effective management supervision and create operating efficiencies. As the industry continuesfinancial controls.
Centralized Management
We aim to consolidate, the Company believes that opportunities will arise to acquire other senior living companies. The Company believes that the current fragmented nature of the senior living industry, combined with the Company’s financial resources, geographically concentrated regions, and extensive contacts within the industry, should provide it with the opportunity to evaluate a number of potential acquisition opportunities in the future. In reviewing acquisition opportunities, the Company will consider, among other things, geographic location, competitive climate, reputation and quality of management and communities, and the need for renovation or improvement of the communities.

Expand Referral Networks

The Company intends to continue to develop relationships with local and regional hospital systems, managed care organizations and other referral sources to attract new residents to the Company’s communities. In certain circumstances these relationships may involve strategic alliances or joint ventures. The Company believes that such arrangements or alliances, which could range from joint marketing arrangements to priority transfer agreements, will enable it to be strategically positioned within the Company’s markets if, as the Company believes, senior living programs become an integral part of the evolving health care delivery system.



Operations

Centralized Management

The Company centralizes itscentralize our corporate and other administrative functions so that the community-based management and staff can focus their efforts on resident care. The Company maintainsWe maintain centralized accounting, finance, legal, human resources, information technology, operational and capital procurement, training and other operational functions at its national corporate officeour support center located in Addison, Texas (the "Dallas Support Center”). Our Dallas Texas. The Company also has a corporate office in New York, New York. The Company’s corporate offices areSupport Center is generally responsible for: (i) establishing Company-wide policies and procedures relating to, among other things, resident care and operations; (ii) performing accounting and legal related functions; (iii) developing employee training programs and materials; (iv) coordinating human resources; (v) coordinating marketing functions; and (vi) providing strategic direction. In addition, financing, development, construction and acquisition activities, including feasibility and market studies, and community design, development, and construction management are conducted at the Company’s corporate offices.

The Company seeks

We seek to control operational expenses for each of itsour communities through proprietary expense management systems, standardized management reporting and centralized controls of capital expenditures, asset replacement tracking and purchasing for larger and more frequently used supplies and food inventories through group purchasing programs. Community expenditures are monitored by regionalterritory directors and district managersvice presidents who are accountable for the resident satisfaction and financial performance of the communities in their region.

Regionalterritory.

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Territory Management

The Company provides

We provide oversight and support to each of itsour senior housing communities through experienced regional directors and district managers. A district manager will generally oversee the marketing and operations of three to seven communities clustered in a small geographic area.vice presidents. A regional managerdirector will generally cover a larger geographic area consisting of eightthree to thirteentwelve communities, while a vice president generally oversees approximately 24 communities. In most cases, the district and regional managers will office out of the Company’s senior housing communities. Currently, there are district and regional managers based in the East, Central Plains, South Central, Dallas, Indiana, Midwest, Texas, Southwest, and West regions.

The executive director at each community reports to a regional or district manager. The regionaldirector, who in turn reports to a vice president who reports to our Chief Executive Officer.  Regional directors and district managers report on the operations of each community directly to senior management at the Company’s corporate office. The district and regional managersvice presidents make regular site visits to each of their assigned communities. The siteSite visits involve a physical plant inspection, quality assurance review, focused resident rate review, staff training, financial and systems audits, regulatory compliance, and team building.

building activities.

Community-Based Management

and Retention

We devote special attention to the hiring, screening, training, supervising, and retention of our employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, we conduct national management meetings and encourage sharing of expertise among managers. We have also implemented a comprehensive online training program that addresses the specific challenges of working within the senior living environment. Our commitment to the total quality management concept is emphasized throughout our training programs. This commitment to the total quality management concept emphasizes the identification of the “best practices” in the senior living market and communication of those “best practices” to our executive directors and their staff. The identification of best practices is realized by a number of means, including: (i) emphasis on territory and executive directors keeping up with professional trade publications; (ii) interaction with other professionals and consultants in the senior living industry through seminars, conferences, and consultations; (iii) visits to other properties; (iv) leadership and participation at national and local trade organization events; and (v) information derived from marketing studies and resident satisfaction surveys. This information is continually processed by territory directors and the executive directors and subsequently communicated to our employees as part of their training.
An executive director manages the day-to-day operations at each senior housing community, includingwhich includes maintaining oversight of the quality of care, delivery of resident services, sales and marketing, and monitoring of the community’s financial performance. TheDepending on the size of the community, the executive director is alsotypically supported by a community-based leadership team consisting of a sales director, wellness director, and business director. However, the executive director is ultimately responsible for all personnel, including food service, maintenance, activities, security, assisted living, housekeeping and, where applicable, assisted living nursing or care services. In most cases, each community also has department managers who direct the environmental services, nursing or care services, business management functions, dining services, activities, transportation, housekeeping, and marketing functions.

The assisted living component of theour senior housing communities is managed by licensed professionals, such as a nurse and/or a licensed administrator. These licensed professionals have many of the same operational responsibilities as the Company’sour executive directors, but their primary responsibility is to oversee resident care. Many of the Company’sour senior housing communities are part of a campus setting, which may include independent living, assisted living and/or memory care. This campus arrangement allows for cross-utilization of certain support personnel and services, including administrative functions that result in greater operational efficiencies and lower costs than freestanding facilities.

The Company

We actively recruitsrecruit qualified personnel to maintain adequate staffing levels at its existing communities and hires new staff for new or acquired communities prior to opening. The Company hasour communities. We have adopted comprehensive recruiting and screening programs for management positions that utilize corporate office team interviews and thorough background and reference checks. The Company offersWe offer system-wide training and orientation for all of itsour employees at the community level through a combination of Company-sponsored seminars and conferences.


Quality Assurance

Quality assurance programs are coordinated and implemented by the Company’sour corporate and regional staff. The Company’sOur quality assurance is targeted to achieve maximum resident and residentresident's family member satisfaction with the care and services delivered by the Company. The Company’sthat we deliver. Our primary focus in quality control monitoring is to create and maintain a safe and supportive environment for our residents and families, which includes routine in-service training and performance evaluations of caregivers and other support employees. The Company hasWe have established a Corporate Quality Assurance Committee, which consists of the Executive Vice-President, Senior Vice-President,Vice President and Vice-PresidentChief Executive Officer, Vice Presidents of Operations, Vice President and Chief People Officer, Quality and Clinical Directors, and Senior Vice President- General Counsel. The purpose of the committee is to monitor and evaluate the processes by which care is delivered to our residents and the appropriateness and quality of care provided within each of our communities. Additional quality assurance measures include:

Resident and Resident’sResidents' Family Input.     On a routine basis, the Company provides residents and their family members the opportunity to provide us with valuable input regarding the day-to-day delivery of services. On-site management at each community has fostered and encouraged active resident councils and resident committees who meet independently. These resident bodies meet with on-site management on a monthly basis to offer input and suggestions as to the quality and delivery of services. Additionally, at each community the Company conducts annual resident satisfaction surveys to further monitor the satisfaction levels
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Table of both residents and their family members. These surveys are sent directly toContents
In 2022, we implemented a third party firm for tabulation, then to the Company’s corporate headquarters for distribution to onsite staff. In each of fiscal 2017 and 2016, the Company achieved 94.6% approval ratings from its residents. For any departmental area of service scoring below 90%, a corrective action plan is developed jointly by on-site, regional and corporate staff for immediate implementation. In addition, the Company ranked third among senior living operators nationally in 2018 according to J.D. Powers 2018 Senior Living Satisfaction Study.  The study measured resident and family overall satisfaction across factors importantsurvey in each of our communities. Working with an outside firm specializing in satisfaction surveys, the survey is designed to them including community staff, conveniencefocus on high priority areas of location, foodsenior living, such as resident care, activities, physical fitness, and beverage, room, buildingdining. The survey also includes comparisons to competitors’ results and grounds, senior serviceindustry averages. In addition to numeric ratings and activities among others.

industry comparisons, there are also several opportunities for general feedback to ensure residents and families could provide input on any topic.

Regular Community Inspections.     Each community is inspected in person, on at least a quarterly basis, by a member of the regional and/or corporate staff.operational leadership team, which is also supplemented by virtual site visits. Included as part of this inspection is the monitoring of the overall appearance and maintenance of the community interiors and grounds. The inspection also includes monitoring staff professionalism and departmental reviews of maintenance, housekeeping, activities, transportation, marketing, administration, and fooddining, and health care services, if applicable. The inspections also include observing residents in their daily activities and the community’s compliance with governmentgovernmental regulations.

Independent Service Evaluations.     The Company engagesWe engage the services of outside professional independent consulting firms to evaluate various components of the communityour communities’ operations. These services include mystery shops, competing community analysis pricing recommendations and product positioning. This providesThese services provide management with valuable and unbiased product and service information. A plan of action regarding any areas requiring improvement or change is implemented based on the information received. At communities where health care is delivered, these consulting service reviews include the on-site handling of medications, recordkeeping and general compliance with all applicable governmental regulations.

Quality Assurance and Regional Support Team.      The Company deploys a support team including senior level community-based resources to provide onboarding, training, and communication of best practices across each of our territories. Each territory designates senior Executive Directors, Wellness Directors, Sales leadership, and Senior Culinary Directors to visit communities across their territory on an ongoing basis. These individuals partner with our Regional Clinical Managers, Regional Operations, and Sales leadership to provide ongoing training and development, complete Quality Assurance reviews on-site, and review the implementation of clinical or resident service programming. In addition, our Director of Program Development and Operations Program Manager work directly with regional leadership on the design and implementation of training programs for our key leadership positions and training materials for ongoing rollout of resident services programming in wellness, memory care, culinary, etc.
Sales and Marketing

Most communities are staffed bywith on-site sales directors and additional marketing/sales staffSales Directors, depending on the community size and occupancy status. The primary focus of the on-site marketing staffSales Director is to createperpetuate occupancy and revenue growth by creating awareness ofabout the Companycommunity and its services among prospective residents and their family members, professional referral sources, and other key decision makers. These efforts incorporate an aggressive marketingare outlined in a strategic plan to includethat includes monthly, quarterly, and annual goals for leasing, new lead generation, prospect follow up, community outreach, and resident and family referrals. Additionally, the marketing plan includes a calendar ofreferrals, and promotional events andincluding a comprehensivemarket-specific media program.  On-site marketing departments performThe Sales Director performs a competing community assessment quarterly.


on a quarterly basis. 

Corporate and regional sales directors monitor the on-site sales departments’Each Sales Director’s effectiveness and productivity are monitored on a weekly basis. Routine detailedTheir compensation is comprised of a variable component tied into both occupancy and rate benchmarks.  A centralized team of sales and marketing department audits are performed on a quarterly basis or more frequently if deemed necessary. Corporate and regional personnel assist in the development ofresources support communities by developing marketing strategies for each communityand campaigns to address the continuously changing resident profile, and maintain a focus on buildingbuild brand awareness, and increasing Internet websiteincrease digital traffic and leads. The marketing strategies developed utilize the implementation of application program interface systems with certainfocus on driving traffic to our website, and Internetnational referral partners, and use of social media platforms. To support this, the production of creative mediacorporate marketing team develops content, marketing collateral and necessarymessaging, manages digital ad buys, and provides ongoing sales and marketing collateral. The Company has also implemented numerous Internet web-based initiatives to attract prospects including certain e-mailtraining, support, and website triggers prompting interactive invitations with on-going follow-ups, as well as a nurturing program to actively engage prospects throughout the marketing/sales cycle. Ongoing sales training of on-site marketing/sales staff is implemented by corporate and regional marketing directors as well as third party professionals.

Governmentbest practices.  

Governmental Regulation

Changes in existing laws and regulations, adoption of new laws and regulations, and new interpretations of existing laws and regulations could have a material effect on the Company’sour operations. Failure by the Companyus to comply with any applicable regulatory requirementsrequirement could have a material adverse effect on the Company’sour business, financial condition, cash flows and results of operations. Accordingly, the Company monitorswe regularly monitor legal and regulatory developments on local, state and national levels.

The health care industry is subject to extensive regulation and frequent regulatory change.changes. At this time, no federal laws or regulations specifically regulate assisted or independent living residences. While a number ofsome states have not yet enacted specific assisted living regulations, certainmany of the Company’sour assisted living communities are subject to regulation, licensing CON and permitting requirements by state and local health care and social service agencies and other governmental regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, training, physical design, patient privacy, required services and the quality thereof, and resident characteristics. The Company believesWe believe that such regulation will increase in the future. In addition, health care providers are receiving increasedexperiencing heightened scrutiny under anti-trust laws in the United States as integration and consolidation of health care delivery increases and affects competition. Moreover, robust state and federal enforcement of fraud
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and abuse laws continues. Because someSome of the Company’sour communities receive a portion of their funds from Medicaid, suchMedicaid. Such communities are also subject to state and federal Medicaid standards thein which noncompliance with which maycould result in the imposition of, among other things, penalties, or sanctions, or suspension, orand exclusion from participation in the Medicaid program. The Company’sOur communities are also subject to various zoning restrictions, local building codes and other ordinances, such as fire safety codes. Failure by the Companyus to comply with any applicable regulatory requirements could have a material adverse effect on the Company’sour business, financial condition and results of operations. Regulation of the assisted living industry is evolving. The Company isalso continually evolving, and we are unable to predict the scope, content or stringency of new regulations and their ultimate effect on itsour business. There can be no assurance that the Company’sour operations will not be materially and adversely affected by regulatory developments.

The Company believesdevelopments in the future.

While we believe that itsour communities are in substantial compliance with applicable regulatory requirements. However,requirements, unannounced surveys or inspections may occur annually or bi-annually, or following a regulator’s receipt of a complaint about a community.community, any of which could result in a citation of deficiency. In the ordinary course of business, one or more of the Company’sour communities could be cited for deficiencies resulting from such inspections or surveys. Mostsurveys from time to time. Although most inspection deficiencies are typically resolved through an agreed uponagreed-upon plan of corrective action relating to the community’s operations, but the reviewing agency typically has the authority to take further action against a licensed or certified community, which could result in the imposition of fines, repayment of amounts previously paid, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. Loss, suspension or modification of a license may also cause us to default under our existing loan or lease agreements and/or trigger cross-defaults. Sanctions may be taken against providers or facilities without regard to the providers’particular provider’s or facilities’facility’s history of compliance. We may also expend considerable resources to respond to federal and state investigations or other enforcement actionactions under applicable laws or regulations. To date, none of the deficiency reports received by us has resulted in a suspension, fine or other disposition that has had a material adverse effect on our revenues. However, any future substantial failure to comply with any applicable legal and regulatory requirements could result in a material adverse effect toon our business, financial condition and results of operations as a whole. In addition, states’ Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. State Medicaid Fraud and Abuse Units may also investigate assisted living communities even if the community or any of itsour residents do not receive federal or state funds.


Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned properties to permit access to the properties by disabled persons. While the Company believeswe believe that itsour communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company.us. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons and the costs of compliance with which could be substantial.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), in conjunction with the federal regulations promulgated thereunder by the U.S. Department of Health and Human Services, has established, among other requirements, standards governing the privacy and security of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. In addition, the Companywe may from time to time be subject to a corrective action plan, and the cost of compliance of whichassociated with complying with any such corrective action plan could be significant.

In addition, the Company iswe are subject to various federal, state and local environmental laws and regulations.regulations, which could require an owner or operator of real estate to investigate and clean up hazardous or toxic substances present at or migrating from properties they own or operate. Such laws and regulations often impose liability whether or not the owner or operator knew of, or was actually responsible for, the presence of hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations andregulations.  Liabilities could exceed the property’s value and the aggregate assets of the owner or operator. The presence of these substances or the failure to remediate such contamination properly may also adversely affect the owner’s ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. In connection with the ownership or operation of itsour properties, the Companywe could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. The Company hasWe have completed Phase I environmental audits of substantially all of the communities in which the Company ownswe own interests, typically at the time of acquisition or refinancing, and such audits have not revealed as of the date of this Annual Report on Form 10-K any material environmental liabilities that exist with respect to these communities.

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Under various U.S. federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at or migrating from such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs. The Company isWe are not aware, as of the date of this Annual Report on Form 10-K, of any environmental liability with respect to any of itsour owned leased or managed communities that the Company believeswe believe would have a material adverse effect on itsour business, financial condition, or results of operations. The Company believesWe believe that itsour communities are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company hasWe have not been notified by any governmental authority, and isare not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of the communities we currently operate.
We are subject to U.S. federal and state laws, regulations, and executive orders relating to healthcare providers’ response to the Company currently operates.

The Company believesCOVID-19 pandemic, which vary based on provider type and jurisdiction, but generally include mandatory requirements for testing of residents and staff, implementation of infection control standards and procedures, restrictions on new admissions or readmissions of residents, required screening of all persons entering a community, restrictions and/or limitations on who may visit residents and how residents may be visited and mandatory notification requirements to residents, families, staff and regulatory bodies related to positive COVID-19 cases. Enhanced or additional penalties may apply for violation of such requirements.

We believe that the structure and composition of government and, specifically, health care regulations will continue to change and, as a result, we regularly monitorsmonitor material developments and changes in the law. The Company expectslaw that impact our business. We expect to modify itsour agreements and operations from time to time as the business and regulatory environments change. While the Company believes itwe believe we will be able to structure all itsour agreements and operations in accordance with applicable law, there can be no assuranceassurances that itsour arrangements will not be successfully challenged.


These requirements include additional penalties that may apply for violation of such requirements.

Competition

Competition

The senior living industry is highly competitive, andcompetitive.  Due to the Company expectsrelatively low barriers of entry into the senior living space, we expect that all segments of the industry will become increasingly competitive in the future. Although there are a number of substantial companies fairly active in the senior living industry and in the markets in which the Company operates,we operate, the industry continues to be very fragmented and characterized by numerous small operators. The CompanyWe primarily competescompete with national operators such as Brookdale Senior Living Inc. and Five Star Quality Care, Inc. and other regional and local independent operators. The Company believesWe believe that the primary competitive factors in the senior living industry are: (i) quality of on-site staff; (ii) location; (iii) reputation forof, and commitment to, a high quality of service; (iv) support service offerings (such as food services); (v) fair pricepricing for services provided; and (vi) physical appearance and amenities associated with the communities. The Company competesWe compete with other companies providing independent living, assisted living, skilled nursing, home health care and other similar service and care alternatives, some of whomwhich may have greater financial resources than the Company.us. Because seniorsprospective residents tend to choose senior housing communities nearin close proximity to their homes, the Company’sour principal competitors are other senior living and long-term care communities in the same geographic areas as the Company’sour communities. The CompanyWe also competescompete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers.

Employees

managers that are critical to our business.

Human Capital Resources
We know that our people are at the center of everything we do.  They work individually and collectively each day to provide safety, wellness, care and service to our residents.  As of December 31, 2017, the Company2022, we employed 7,4263,497 persons (101(88 of whom are employed at the Company’s corporate offices)our Dallas Support Center), of which 4,4132,420 were full-time employees and 3,0131,077 were part-time employees. NoneAdditionally, we had 17 unfilled community leadership positions as of December 31, 2022.
Our Culture
Our culture is the most important connection between all people at Sonida and is rooted in inclusion, respect, accountability, service and deep care for each other and for those we serve.  To create this environment, we focus on attracting, engaging, developing, and retaining the best talent available in each of our markets by maintaining a compelling value proposition for each employee that includes a great work environment, excellent leadership, aligned pay and benefits, career development, and meaningful work. We have built a team with a deep sense of purpose for serving seniors and we believe that our engaged group enhances the resident experience each day.
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Inclusion and Diversity
As we serve a diverse group of residents across several states and communities, we also strive to reflect the same diversity in our Company.  We are proud to be an equal opportunity employer.  Our diversity is exhibited by the composition of our workforce with 83% female and 47% non-white employees.  We will continue to strive each day to maintain our inclusive culture through our efforts in recruiting, education, development, and talent progression.
Talent Acquisition, Development and Retention
In our efforts to attract new members to our team, we believe that a local focus, supported by our central talent team, provides the best results.  We continue to add new spaces to our recruiting landscape to ensure we are connecting with the best and brightest individuals.  For example, we utilize local social media pages to identify individuals for the specific communities and geographic regions we serve. We also utilize employee referral programs to bring great new people into our organization who already know our mission through current employees. With our robust focus on talent acquisition, we continued to see our average time to fill an open role shorten significantly in 2022.
We are proud of our development programs that sponsor our current employees in achieving new levels of education, licensure, and credentials.  Through this approach, we support our employees’ growth while they continue to work with us in new roles, enhancing our service and care and providing these employees with additional earning potential.
Total Rewards
We provide fair, competitive, and aligned compensation to all of our people that is reviewed at least annually for both merit and market-based adjustments.  We also offer benefits that are designed to fit a wide variety of needs.  For example, our health plans allow participants to enter the plan at an affordable premium and participants automatically receive unlimited free telehealth and local retail clinic visits, along with all other benefits of the Company’splans.  This benefit provides our people quick and easy access to care at no cost to them when they need to access it. We provide paid time off to both full-time and part-time employees are currently represented byto ensure they have paid time away from work.  We also offer a labor union401(k) plan that all eligible employees can participate in as they plan for their futures. Our total rewards design includes many other benefits that can be included at the choice of each employee based on his or her needs, which is our overall strategy to providing engaging and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is good.

Executive Officers and Other Key Employees of the Registrant

The following table sets forth certain information concerning each of the Company’s executive officers and other key employees as of February 23, 2018:

Name

Age

Position(s) with the Company

Lawrence A. Cohen

64

Chief Executive Officer and Vice Chairman of the Board

Brett D. Lee

43

Executive Vice President and Chief Operating Officer

Carey P. Hendrickson

55

Senior Vice President and Chief Financial Officer

David R. Brickman

59

Senior Vice President, Secretary and General Counsel

Jeremy D. Falke

44

Senior Vice President – Human Resources

David W. Beathard, Sr.

70

Senior Vice President — Operations

Kevin E. Wilbur

53

Vice President — Operations

Joseph G. Solari

53

Vice President — Corporate Development

Gloria M. Holland

50

Vice President — Finance

Glen H. Campbell

73

Vice President — Asset Management

Christopher H. Lane

46

Vice President — Financial Reporting

Robert F. Hollister

62

Property Controller

Donald S. Beasley

42

Director of Human Resources



Lawrence A. Cohen has served as one offlexible rewards for our directors since November 1996 and as Vice Chairman of the Board since November 1996. He has served as our Chief Executive Officer since May 1999 and was our Chief Financial Officer from November 1996 to May 1999. From 1991 to 1996, Mr. Cohen served as President and Chief Executive Officer of Paine Webber Properties Incorporated. Mr. Cohen serves on the boards of various charitable organizations and is active in several industry associations. Mr. Cohen was a founding member and a former Chairman of the American Seniors Housing Association and serves on the Operator Advisory Board of the National Investment Center for the Seniors Housing & Care Industry. He received an LL.M. in Taxation from New York University School of Law, a JD from St. John’s University School of Law, and a BBA in Accounting from The George Washington University. Mr. Cohen has had positions with businesses involved in senior living for 33 years.

Brett D. Lee joined the Company as Executive Vice President and Chief Operating Officer in August 2017.  Prior to joining the Company, Mr. Lee served as the Chief Executive Officer of the North Texas and Dallas Markets of Tenet Healthcare Corporation. His experience also includes serving in senior leadership positions in four of the nation's top 10 children's hospitals.  Mr. Lee served as Chief Operating Officer at Children's Healthcare of Atlanta, Chief Operating Officer at Riley Hospital for Children in Indianapolis, Vice President of Operations and Clinical Services at Children's Medical Center in Dallas and Vice President of Operations at Cook Children's Medical Center in Fort Worth.  Mr. Lee received a BS in Physical Therapy from the University of Oklahoma College of Allied Health, a Master of Health Science, Health Finance and Management from the Johns Hopkins School of Public Health, a Master of Science in Leadership Development from the University of Pennsylvania, and a Doctorate in Allied Health and Physical Therapy from Massachusetts General Hospital Institute of Health Sciences.

Carey P. Hendrickson joined the Company as Senior Vice President and Chief Financial Officer in May 2014. From 2010 through 2014, he served as the Senior Vice President/Chief Financial Officer and Treasurer of Belo Corp., a television company that owned and operated network-affiliated television stations and their associated websites (“Belo”). Prior to serving in such capacity, Mr. Hendrickson served Belo in various roles including Senior Vice President/Chief Accounting Officer, Vice President/Human Resources, Vice President/Investor Relations and Corporate Communications, and Vice President/Strategic & Financial Planning. He began his career with KPMG LLP and was the director of financial planning for Republic Financial Services before joining Belo in 1992. Mr. Hendrickson received a BBA in Accounting from Baylor University and a Master of Business Administration in Finance from the University of Texas in Arlington.

David R. Brickman is currently the Senior Vice President, Secretary, and General Counsel of the Company. He served as Vice President and General Counsel of the Company and its predecessors since July 1992 and has served as Secretary of the Company since May 2007. From 1989 to 1992, Mr. Brickman served as in-house counsel with LifeCo Travel Management Company, a corporation that provided travel services to U.S. corporations. Mr. Brickman earned a Juris Doctor and Masters of Business Administration from the University of South Carolina and a Masters in Health Administration from Duke University. He currently serves on the Board of Advisors for the Southern Methodist University Corporate Counsel Symposium. He is also a member of the National Center for Assisted Living In-house Counsel Roundtable Task Force, as well as the Long-Term Care Risk Legal Forum. Mr. Brickman has either practiced law or performed in-house counsel functions for 31 years.

Jeremy D. Falke joined the Company as Senior Vice President – Human Resources.  Mr. Falke held various positions within Tenet Healthcare Corporation (“Tenet”) from November 2004 to February 2018, serving most recently as the Vice President, Talent, Culture and Performance Systems in Dallas. In this role, he was responsible for all talent planning, development, and cultural programming and transformation for an organization with over 75 acute-care hospitals and 450 outpatient facilities, employing more than 125,000 people.  Prior to this role, Mr. Falke served as the Senior Director, Strategic Operations, Analytics and Reporting in Dallas and as the Chief Human Resources Officer for Creighton University Medical Center, which was then owned by Tenet in Omaha, Nebraska. Mr. Falke received a Bachelor of Science in Business Management from University of Phoenix in Scottsdale, and a Masters of Business Administration with a concentration in Healthcare Management from the University of Nebraska in Omaha.



David W. Beathard, Sr. is currently the Senior Vice President — Operations of the Company. He served as Vice President — Operations of the Company and its predecessors from August 1996 to June 2013. Mr. Beathard joined Life Care Services Corporation in 1977 where he served in various roles including Vice President and Director of Operations Management. From 1992 to 1996, he owned and operated a consulting firm, which provided operational, marketing, and feasibility consulting regarding senior housing communities. Mr. Beathard has served as an Advisory Board Member of the Texas Assisted Living Association. He earned a BA degree from Miami University where he also attended graduate school with a focus in business administration. Mr. Beathard has been active in the operational, sales and marketing, and construction oversight aspects of senior housing for 43 years.

Kevin E. Wilbur joined the Company in February 2000 as an Executive Director and served in that capacity until being promoted to a District Manager role and then to a Regional Manager of Operations role. He was promoted to his current position of Vice President — Operations in September 2016. Prior to joining the Company in 2000, Mr. Wilbur was employed by Lantis Enterprises as an Executive Director. He is a graduate of the Nebraska College of Business and also attended Bellevue University. Mr. Wilbur has been active in the operational and marketing aspects of senior housing for over 22 years.

Joseph G. Solari joined the Company as Vice President — Corporate Development in September 2010. Mr. Solari has more than 19 years of experience originating, structuring, negotiating and executing the acquisition, sale and divestiture of healthcare real estate and real estate operating companies. Prior to joining the Company, from 2007 to 2009, Mr. Solari was Managing Director, Acquisitions for Ventas, Inc., where he was responsible for the firm’s real estate investment activities in the seniors housing and skilled nursing industries. Prior to Ventas, Inc., from 1999 to 2007, Mr. Solari spent eight years in the healthcare investment banking group of Houlihan Lokey, where he was responsible for the origination and execution of merger and acquisition, private placement and financial restructuring engagements for the firm’s healthcare clients, with particular focus on facility-based, healthcare services companies. Mr. Solari earned his Masters in Business Administration degree from Virginia Commonwealth University.

Gloria M. Holland has served as Vice President — Finance of the Company since June 2004. From 2001 to 2004, Ms. Holland served as Assistant Treasurer and a corporate officer for Aurum Technology, Inc., a privately held company that provided technology and outsourcing to community banks. From 1996 to 2001, Ms. Holland held positions in Corporate Finance and Treasury at Brinker International, an owner and operator of casual dining restaurants. From 1989 to 1996, Ms. Holland was a Vice President in the Corporate Banking division of NationsBank and predecessor banks. Ms. Holland received a BBA in Finance from the University of Mississippi in 1989.

Glen H. Campbell has served as Vice President — Asset Management of the Company since September 1997. From 1990 to 1997 Mr. Campbell served as Vice President of Development for Greenbrier Corporation, an assisted living development and management company. From 1985 to 1990 Mr. Campbell served as Director of Facility Management for Retirement Corporation of America. Mr. Campbell has been active in the design and development of retirement communities for 45 years.

Christopher H. Lane, a Certified Public Accountant, joined the Company in December 2008 and currently serves as Vice President — Financial Reporting. Prior to joining the Company, Mr. Lane served as a Senior Manager in the financial services audit practice of KPMG LLP. Mr. Lane earned a Masters in Accounting from Texas Tech University and is a member of the American Institute of Certified Public Accountants, Texas Society of Certified Public Accountants and Institute of Management Accountants.

Robert F. Hollister, a Certified Public Accountant, has served as Property Controller for the Company and its predecessors since April 1992. From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of Kavanaugh Securities, Inc., a National Association of Securities Dealers broker dealer. Mr. Hollister is a member of the American Institute of Certified Public Accountants.



Donald S. Beasley, joined the Company in August 2011 as Director of Employee Relations and has served as the Director of Human Resources since May, 2013. Prior to joining the Company, Mr. Beasley served as Vice President and Director of Human Resources at ASAlliances Biofuels as well as Carillon, Inc, a large senior housing provider. He has also held several positions within Motorola, Inc. serving their supply chain/logistics business as well as Corporate Human Resources. Mr. Beasley earned a bachelor’s degree in Psychology and Master of Business Administration in HR, and is currently certified as a Senior Professional in Human Resources as well as Senior Certified Professional by the Society for Human Resource Management.

Subsidiaries

Capital Senior Living Corporation is the parent company of several direct and indirect subsidiaries. Although Capital Senior Living Corporation and its subsidiaries are referred to collectively for ease of reference in this Form 10-K as the Company, these subsidiaries are separately incorporated and maintain their legal existence separate and apart from the parent, Capital Senior Living Corporation.



ITEM 1A.

RISK FACTORS.


ITEM 1A.    RISK FACTORS.
Our business involves various risks and uncertainties. When evaluating our business, the following information should be carefully considered in conjunction with the other information contained in our periodic filings with the SEC.Securities and Exchange Commission (the “SEC”). Additional risks and uncertainties not known to us currently or that currently we deem to be immaterial also may impair our business operations. Immediately below is a summary of the principal factors that might cause our future operating results to differ materially from those currently expected. The risk factors summarized below are not the only risks facing us. Additional discussion of the risks summarized in the “Risk Factors Summary,” as well as other risks that may affect our business and operating results, can be found below under the heading “Risk Factors,” and should be carefully considered and evaluated before making an investment decision regarding our business. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer. Negative events are likely to decrease our revenue, increase our costs, makenegatively impact our financial results poorer and/or decrease our financial strength and may cause our stock price to decline.

Risk Factors Summary
Risks Related to Our Business, Industry,Liquidity and Operations

Indebtedness

•If we are unable to successfully implement our business plans and strategies, our consolidated results of operations, financial position, liquidity and ability to continue as a going concern could be negatively affected.
•We have significant debt and our failure to generate cash flow sufficient to cover required interest and principal payments could result in defaults of the related debt.

•Our failure to comply with financial covenants and other restrictions contained in our debt instruments could result in the acceleration of the related debt or in the exercise of other remedies.
•We may require additional financing and/or refinancing actions in the future and may issue equity securities.
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•Increases in market interest rates have significantly increased the costs of our variable rate debt obligations, which has affected our liquidity and earnings.
•The phasing out of London Inter-Bank Offer Rate (“LIBOR”) may increase the interest costs of our debt obligations, which could affect our results of operations and cash flow.
•We may need additional capital to fund our operations, capital expenditure plans, and strategic priorities, and we may not be able to obtain it on terms acceptable to us, or at all.

Risks Related to Our Business, Operations and Strategy
•We have incurred losses from operations in each of the last two fiscal years and may do so in the future.
•We largely rely on private pay residents and circumstances that adversely affect the ability of the seniors to pay for our services could have a material adverse effect on us.
•The senior living services industry is very competitive and some competitors may have substantially greater financial resources than us.
•Termination of resident agreements and resident attrition could affect adversely our revenues and earnings.
•We have identified a material weakness in our internal control over financial reporting as of December 31, 2022. If we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
•There is an inherent risk of liability in the provision of personal and health care services, not all of which may be covered by insurance.
•Damage from catastrophic weather and other natural events have resulted in losses and adversely affected certain of our residents.
•The geographic concentration of our communities could leave us vulnerable to an economic downturn, regulatory changes, acts of nature, or the effects of climate change in those areas, which could negatively impact our financial condition, revenues, results of operations, and cash flow.
•We rely on information technology in our operations, and failure to maintain the security and functionality of our information technology and computer systems, or to prevent a cybersecurity attack, breach or other unauthorized access, could adversely affect our business, reputation and relationships with our residents, employees and referral sources and may subject us to remediation costs, government inquiries and liabilities under HIPAA and data and consumer protection laws, any of which could materially and adversely impact our revenues, results of operations, cash flow and liquidity.
•Because we do not presently have plans to pay dividends on our common stock, holders of our common stock must look solely to appreciation of our common stock to realize a gain on their investment.
Risks Related to the COVID-19 Pandemic
•COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses, and operating results at our communities. Because we are unable to predict the full nature and extent of the impact of COVID-19 at this time, COVID-19 may continue to have a significant adverse effect on our business, financial condition, liquidity, and results of operations.
Risks Related to Human Capital
•We rely on the services of key executive officers and the transition of management or loss of these officers or their services could have a material adverse effect on us.
•A significant increase in our labor costs could have a material adverse effect on us.
•We are subject to risks related to the provision for employee health care benefits and ongoing health care reform legislation.

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Risks Related to Regulatory, Compliance and/or Legal Matters
•We are subject to government regulations and compliance, some of which are burdensome and some of which may change to our detriment in the future.
•Changes in federal, state and local employment-related laws and regulations, or our failure to comply with these laws and regulations, could have an adverse effect on our financial condition, results of operations and cash flow.
•We may be subject to liability for environmental damages.

Risks Related to Our Corporate Organization and Structure
•Anti-takeover provisions in our governing documents, governing law and material agreements may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management.
•A substantial majority of the voting power of our issued and outstanding securities is held by a small group of stockholders.
•The issuance of shares of our Series A Preferred Stock reduced the relative voting power of holders of our common stock, and the conversion of those shares into shares of our common stock would dilute the ownership of common stockholders and may adversely affect the market price of our common stock.
•Our Series A Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to the rights of, holders of our common stock, which could adversely affect our liquidity and financial condition.
•We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.

Risks Related to Other Market Factors
•Various factors, including general economic conditions such as rising inflation, could adversely affect our financial
performance and other aspects of our business.
•Future offerings of equity securities by us may adversely affect the market price of our common stock.
•The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future.
•Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business, results of operations, cash flow, and the market price of our common stock.
Risk Factors
Risks Related to Our Liquidity and Indebtedness
If we are unable to successfully implement our business plans and strategies, our consolidated results of operations, financial position, liquidity, and ability to continue as a going concern could be negatively affected.
As noted elsewhere in this Annual Report on Form 10-K, due to the current inflationary environment, interest rates and continued impact of the COVID-19 pandemic on our financial position and our upcoming debt maturities, management has concluded that there is substantial doubt about our ability to continue as a going concern. We have taken, and intend to take, actions to improve our liquidity position and to address the uncertainty about our ability to operate as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, we may be unsuccessful in executing our business plans or achieving the projected results, which could adversely impact our financial results and liquidity. Those plans include various cost-cutting, efficiency, and profitability initiatives. There are no assurances such initiatives will prove to be successful or the cost savings, profitability, or other results we achieve through those plans will
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be consistent with our expectations. As a result, our results of operations, financial position, and liquidity could be negatively impacted. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.
We have significant debt and our failure to generate cash flow sufficient to cover required interest and principal payments could result in defaults of the related debt.
As of December 31, 2017,2022, we had mortgage and other indebtedness, excluding deferred loan costs, totaling approximately $967.3$676.3 million. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings,refinancing activities, other financings, and/or the sales of assets sufficient to cover required interest and principal payments. Any payment or other default could cause the applicable lender to foreclose upon the communities securing the indebtedness with a consequent loss of income and asset value to us. Further, because some of our mortgages contain cross-default and cross-collateralization provisions, a payment or other default by us with respect to one community could affect a significant number of our other communities.

We have significant lease obligations and our failure to generate cash flows sufficient to cover these lease obligations could result in defaults under the lease agreements.

As of December 31, 2017, we leased 46 communities with future lease obligations totaling approximately $433.3 million, with minimum lease obligations of $63.6 million in fiscal 2018. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings, other financings or the sales of assets sufficient to cover these required operating lease obligations. Any payment or other default under any such lease could result in the termination of the lease, with a consequent loss of income and asset value to us. Further, because our leases contain cross-default provisions, a payment or other default by us with respect to one leased community could affect all of our other leased communities with related lessors. Certain of our leases contain various financial and other restrictive covenants, which could limit our flexibility in operating our business. Failure to maintain compliance with the lease obligations as set forth in our lease agreements could have a material adverse impact on us. The termination of a significant portion of our facility lease agreements could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

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

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

indebtedness.

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

•require us to meet specified financial tests, at the subsidiary company level, which include, but are not limited to, tangible net worth and liquidity requirements;

•require us to meet specified financial tests at the community level, which include, but are not limitedlevel;

•require us to lease coverage tests;purchase interest rate derivative instruments;
•require us to maintain the physical condition of the community and

meet certain minimum spending levels for capital and leasehold improvements; and

•require consent for changes in control of us.


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

During the first quarter of 2023, the Company elected not to make principal and interest payments due in February and March of 2023 related to certain non-recourse mortgage loan agreements covering four of the Company’s properties, with outstanding debt amount under such agreements totaling $70.0 million as of December 31, 2022. Therefore, the Company is in default on these loans. The Company is currently engaged in active discussion with Protective Life Insurance Company, the lender of such debt, in order to resolve this matter. However, we cannot give any assurance that a mutually agreeable resolution will be reached. See “Note 16–Subsequent Events” in the Notes to Consolidated Financial Statements.
We willmay require additional financing and/or refinancingsrefinancing actions in the future and may issue equity securities.

Our ability to obtain such financing or refinancing on terms acceptable to us couldwould have a material adverse effect on our business, financial condition, cash flows, and results of operations. Our ability to meet our long-term capital requirements, including the repayment of certain long-term debt obligations, will depend, in part, on our ability to obtain additional financing or refinancings on acceptable terms from available financing sources, including through the use of mortgage financing, joint venture arrangements, by accessing the debt and/or equity markets and possibly through operating leases or other types of financing, such as lines of credit. Turmoil in the financial markets can severely restrict the availability of funds for borrowing and may make it more difficult or costly for us to raise capital. Further, any decreases in the appraised values of our communities, including due to adverse changes in real estate market conditions, or their performance, may result in available mortgage refinancing amounts that are less than the communities' maturing indebtedness. There can be no assurance that financing or refinancings will be available or that, if available, will be on terms acceptable to us. Moreover, raising additional funds through the issuance of additional equity securities could cause existing stockholders to experience further dilution and could adversely affect the market price of our common stock. Disruptions in the financial markets may have a significant adverse effect on the market value of our common stock and other adverse effects on us and our business. Our inability to obtain additional financing or refinancings on terms acceptable to us could delay or eliminate some or all of our growth plans,
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necessitate the sales of assets at unfavorable prices or both, and would have a material adverse effect on our business, financial condition, cash flows, and results of operations.

Increases in market interest rates and/or the Consumer Price Index (“CPI”) couldhave significantly increaseincreased the costs of our floatingvariable rate debt and lease obligations, which could adversely affecthas affected our liquidity and earnings.

Our floatingvariable rate debt and lease obligations and any future indebtedness, and lease obligations, if applicable, exposes us to interest rate and CPI risk. Therefore, any increase in prevailing interest rates or CPI couldsuch as the current environment would increase our future interest and/or lease payment obligations, which could in the future have a material adverse effect on our business, financial condition, cash flows, and results of operations.

As of December 31, 2022, we had approximately $137.6 million of long-term variable rate debt outstanding which is indexed to the London Interbank Offer Rate ("LIBOR") or Secured Overnight Financing Rate ("SOFR"), plus an applicable margin. Accordingly, our annual interest expense related to long-term variable rate debt is directly affected by movements in LIBOR and SOFR. The LIBOR and SOFR steadily increased throughout 2022, ending the year more than 400 basis points higher than as of December 31, 2021. All of our long-term variable rate debt is subject to interest rate cap agreements and include provisions that obligate us to enter into additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements. The costs of obtaining additional interest rate cap derivatives may offset the benefits of our existing interest rate cap agreements.
The phasing out of London Inter-Bank Offered Rate ("LIBOR") may increase the interest costs of our debt obligations, which could affect our results of operations and cash flow.
The interest rates for certain of our variable-rate debt obligations are calculated based on LIBOR plus a spread. LIBOR is regulated by the United Kingdom's Financial Conduct Authority, which intends to phase out the LIBOR tenors by June 30, 2023. Since LIBOR is being discontinued, the terms of such variable-rate debt agreements may provide that the lender will have the right to choose an alternative index based on comparable information. It is unclear whether alternative and comparable index rates will be established and adopted by our lenders and other financial institutions to replace LIBOR and interest rates on any such variable-rate debt obligations may increase, which would adversely affect our results of operations and cash flow.
We cannot assuremay need additional capital to fund our operations, capital expenditure plans, and strategic priorities, and we may not be able to obtain it on terms acceptable to us, or at all.
Funding our capital expenditure plans, pursuing an acquisition, or funding investments to support our strategy may require additional capital. Financing may not be available to us or may be available to us only on terms that are unfavorable. In addition, certain of our outstanding indebtedness restrict, among other things, our (or our subsidiaries') ability to incur additional debt. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon some or all of our plans or opportunities. Further, if additional funds are raised through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock.
Risks Related to Our Business, Operations and Strategy
We have incurred losses from operations in each of the last two fiscal years and may do so in the future.
We generated net income in 2021 that primarily resulted from a non-cash gain recognized on the extinguishment of debt. We incurred net losses in fiscal year 2022. The Company currently has limited resources and substantial debt obligations. Given our history of losses and current industry conditions, it is not certain that we will be able to effectively manage our growth.

We intend to expand ourachieve and/or sustain profitability or positive cash flows from operations directly or indirectly, throughin the acquisition of existing senior housing communities and/orfuture, which could adversely affect the expansion of sometrading price of our existing senior housing communities. The success of our growth strategy will depend, in large part, oncommon stock and our ability to implementfund our operations and fulfill our debt obligations.

We largely rely on private pay residents and circumstances that adversely affect the ability of the seniors to pay for our services could have a material adverse effect on us.
Approximately 90.0% of our total resident revenues from communities that we operated were attributable to private pay sources and approximately 10.0% of our resident revenues from these planscommunities were attributable to reimbursements from Medicaid, in each case, during fiscal year 2022. We expect to continue to rely primarily on the ability of residents to pay for our services from their own or family financial resources. Unfavorable economic conditions in the housing, financial and credit markets, rising interest rates, unemployment, decreased consumer confidence, inflation, or other circumstances that adversely affect the ability of seniors to effectively operate these communities. If we are unable to managepay for our growth effectively,services could have a material adverse effect on our business, financial condition, cash flows, and results of operationsoperations.
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The senior living services industry is very competitive and some competitors may be adversely affected.

have substantially greater financial resources than us.

The senior living services industry is highly competitive, and we expect that all segments of the industry will become increasingly competitive in the future. We cannot assure thatcompete with other companies providing independent living, assisted living, home health care and other similar services and care alternatives. In addition, expanded use of telemedicine and home healthcare by seniors, for which regulatory barriers have been relaxed during the pandemic, may result in additional competition for our services. We also compete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high-quality professional and non-professional employees and managers. Although we will attempt to, or be able to, acquire additionalbelieve there is a need for senior housing communities.

The acquisitioncommunities in the markets where we operate residences, we expect that competition will increase from existing competitors and new market entrants, some that may have substantially greater financial resources than us. In addition, some of existingour competitors operate on a not-for-profit basis or as charitable organizations and have the ability to finance capital expenditures on a tax-exempt basis or through the receipt of charitable contributions, neither of which are available to us. Furthermore, if the development of new senior housing communities or other businesses involves a number of risks. Existing communities availableoutpaces the demand for acquisition frequently serve or target different markets than those presently served by us. We may also determine that renovations of acquired communities and changes in staff and operations management personnel are necessary to successfully integrate those communities or businesses into our existing operations. The costs incurred to reposition or renovate newly acquiredin the markets in which we have senior housing communities, those markets may become saturated. Regulation in the independent and assisted living industry is not be recovered by us. In undertaking acquisitions, we also may be adversely impacted by unforeseen liabilities attributable to the prior operatorssubstantial. Consequently, development of new senior housing communities could outpace demand. An oversupply of those communities or businesses, against whom we may have little or no recourse. The success ofin our acquisition strategy will be determined by numerous factors, including our abilitymarkets could cause us to identify suitable acquisition candidates; the competition for those acquisitions; the purchase price; the requirement to make operational or structural changesexperience decreased occupancy, reduced operating margins and improvements; the financial performance of the communities or businesses after acquisition; our ability to finance the acquisitions; and our ability to integrate effectively any acquired communities or businesses into our management, information, and operating systems. Additionally, there is competition among potential acquirers of communities in the senior housing industry, including real estate investment trusts (“REITs”) and private equity firms, and there can be no assurance that we will be able to successfully complete acquisitions, which could limit our ability to grow our business effectively. We cannot assure that our acquisition of senior housing communities or other businesses will be completed at the rate currently expected, if at all, or if completed, that any acquired communities or businesses will be successfully integrated into our operations which could have an adverse impact on our liquidity, revenues, results of operations, and cash flows.

lower profitability.

If we are unable to renovate, reposition, or redevelop our communities in accordance with our plans, our anticipated revenues, results of operations, and cash flows could be adversely affected.

We are currently working on projects that will renovate, reposition, or redevelop a number of our existing senior housing communities. These projects are in various stages of development and are subject to a number of factors, some of which we have little or no control. Our ability to successfully renovate, reposition, or redevelop our senior housing communities will depend on a number of factors, including, but not limited to, our ability to acquire suitable sites at reasonable prices; our success in obtaining necessary zoning, licensing, and other required governmental permits and authorizations; and our ability to control construction costs and accurately project completion schedules. We anticipate that the renovation, repositioning, or redevelopment of existing senior housing communities may involve a substantial commitment of capital for a period of time of two years or more until completion and are operating and producing revenue. In addition, we may incur substantial costs prior to achieving stabilized occupancy for each project and cannot assure you that the costs will not be greater than we have anticipated. Our failure to achieve our renovation, repositioning, and redevelopment plans could adversely impact our anticipated revenues, results of operations, and cash flows.

Termination of resident agreements and resident attrition could affect adversely our revenues and earnings.

State regulations governing assisted living facilities require written resident agreements with each resident. Most of these regulations also require that each resident have the right to terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, the resident agreements signed by us allow residents to terminate their lease upon 0 to 30 days’ notice. Thus, we cannot contract with residents to stay for longer periods of time, unlike typical apartment leasing arrangements that involve lease agreements with specified leasing periods of up to a year or longer. Our resident agreements generally provide for termination of the lease upon death or allow a resident to terminate their lease upon the need for a higher level of care not provided at the community. In addition, the advanced age of our average resident means that the resident turnover rate in our senior living facilities may be difficult to predict. If a large number of residents elected to or otherwise terminate their resident agreements at or around the same time thenand/or the living spaces we lease remain unoccupied for a long period of time, including as a result of the COVID-19 pandemic, our occupancy revenues, cash flows and earnings could be adversely affected.

We largely rely on private pay residents and circumstances thathave identified a material weakness in our internal control over financial reporting as of December 31, 2022. If we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the ability of the elderly to pay for our services could have a material adverse effect on us.

Approximately 94.4%value of our total revenues from communitiescommon stock.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that we operated were attributable to private pay sources and approximately 5.6% of our revenues from these communities were attributable to reimbursements from Medicaid, in each case, during fiscal 2017. We expect to continue to rely primarily on the ability of residents to pay for our services from their own or family financial resources. Unfavorable economic conditions in the housing, financial, and credit markets, inflation, or other circumstances that adversely affect the ability of the elderly to pay for our services could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

The senior living services industry is very competitive and some competitors may have substantially greater financial resources than us.

The senior living services industry is highly competitive, and we expect that all segments of the industry will become increasingly competitive in the future. We compete with other companies providing independent living, assisted living, home health care and other similar services and care alternatives. We also compete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers. Although we believe there is a needreasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. As disclosed in previous filings for senior housing communitiesthe year ended December 31, 2021, and for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022, we identified a material weakness in our internal control over financial reporting.Due to challenges in hiring and retaining adequate accounting staffing levels, this material weakness has not been remediated during the markets where wequarter ended and the year ended December 31, 2022.Our financial statement close process controls, which relate to all financial statement accounts, did not operate residences, we expect that competition will increase from existing competitorseffectively to ensure account reconciliations and new market entrants, somejournal entries were performed or reviewed at the appropriate level of whom may have substantially greater financial resources than us. In addition, someprecision and on a timely basis. These control deficiencies could result in a material misstatement of our competitors operate on a not-for-profit basisaccounts or as charitable organizationsdisclosures that would not be prevented or detected, and have the ability to finance capital expenditures on a tax-exempt basis or through the receipt of charitable contributions, neither of which are available to us. Furthermore, if the development of new senior housing communities outpaces the demand for those communities in the markets in whichaccordingly, we have senior housing communities, those markets may become saturated. Regulation in the independent and assisted living industry is not substantial. Consequently, development of new senior housing communities could outpace demand. An oversupply of those communities in our markets could cause us to experience decreased occupancy, reduced operating margins and lower profitability.


We rely on the services of key executive officers and the loss ofdetermined that these officers or their services could havecontrol deficiencies constitute a material adverse effect on us.

weakness.

We depend onhave developed a plan for remediation of the servicesmaterial weakness, including developing and maintaining appropriate management review and process level controls.Control weaknesses are not considered remediated until new internal controls have been operational for a period of time, have been tested and management concludes that these controls are operating effectively. We will continue to monitor the effectiveness of our executive officers forremediation measures in connection with our management. The loss of some of our executive officers and the inability to attract and retain qualified management personnel could affect our ability to manage our business and could adversely affect our business, financial condition, cash flows, and results of operations.

A significant increase in our labor costs could have a material adverse effect on us.

We compete with other providers of senior living services with respect to attracting and retaining qualified management personnel responsible for the day-to-day operations of each of our communities and skilled personnel responsible for providing resident care. A shortage of nurses or trained personnel may require us to enhance our wage and benefits package in order to compete in the hiring and retention of these personnel or to hire more expensive temporary personnel. We also will be dependent on the available labor pool of semi-skilled and unskilled employees in eachfuture assessments of the markets in which we operate. No assurance can be given that our labor costs will not increase, or that, if they do increase, they can be matched by corresponding increases in rates charged to residents. Any significant failure by us toeffectiveness of internal control our labor costs or to pass on any increased labor costs to residents through rate increases could have a material adverse effect on our business,over financial condition, cash flows,reporting and resultsdisclosure controls and procedures.

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We are subject to risks related to the provision for employee health care benefits and recent health care reform legislation.

We use a combination of insurance and self-insurance for employee health care plans. We record expenses under these plans based on estimates of the costs of expected claims, administrative costs and stop-loss premiums. These estimates are then adjusted to reflect actual costs incurred. Actual costs under these plans are subject to variability depending primarily upon participant enrollment and demographics, the actual costs of claims and whether stop-loss insurance covers these claims. In the event that our cost estimates differ from actual costs, we could incur additional unplanned health care costs which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.

In March 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) was passed and signed into law. This legislation expands health care coverage to many uninsured individuals and expands health care coverage to those already insured under existing plans. The health care reform legislation includes, among other things, guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and health care benefits. Provisions of the health care reform legislation become effective at various dates over the next several years. The United States Department of Health and Human Services, National Association of Insurance Commissioners, Department of Labor and Treasury Department continue to issue necessary enabling regulations and guidance with respect to the health care reform legislation. Due to the breadth and complexity of the health care reform legislation, the lack of implementing regulations and interpretative guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact this legislation will have over the coming years; however, this legislation could have a material adverse effect on our business, financial condition, cash flows, and results of operations.


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There is an inherent risk of liability in the provision of personal and health care services, not all of which may be covered by insurance.

The provision of personal and health care services in the long-term care industry entails an inherent risk of liability. In recent years, participants in the long-term care industry have become subject to an increasing number of lawsuits alleging negligence or related legal theories, many of which involve large claims and result in the incurrence of significant defense costs. Moreover, senior housing communities offer residents a greater degree of independence in their daily living. This increased level of independence may subject the resident and, therefore, us to risks that would be reduced in more institutionalized settings. We currently maintain insurance in amounts we believe are comparable to those maintained by other senior living companies based on the nature of the risks and our historical experience and industry standards, and westandards. We believe that thisour insurance coverage is adequate. However, we may become subject to claims in excess of our insurance or claims not covered by our insurance, such as claims for punitive damages, terrorism and natural disasters. A claim against us not covered by, or in excess of, our insurance limits could have a material adverse effect upon us.

our business, financial condition, cash flows, and results of operations.

In addition, our insurance policies must be renewed annually. Based upon poor loss experience and the impact of the COVID-19 pandemic, insurers for the long-term care industry have become increasingly wary of liability exposure. A number of insurance carriers have stopped writing coverage to this market or reduced the level of coverage offered, and those remaining have increased premiums and deductibles substantially. The COVID-19 pandemic may also adversely affect our ability to obtain insurance coverage or increase the costs of doing so. Therefore, we cannot assure that we will be able to obtain liability insurance in the future or that, if that insurance is available, it will be available on acceptable economic terms.

Damage from catastrophic weather and other natural events could result in losses and adversely affect certain of our residents.
A certain number of our properties are located in areas that have experienced and may experience in the future catastrophic weather and other natural events from time to time, including snow or ice storms, windstorm, tornados, hurricanes, fires, earthquakes, flooding or other severe weather. These events could result in some of our communities losing access to electricity, gas, water and other utilities for a period of time, and could also result in increased electricity and other utility expenses. Damage to facilities or loss of power or water could adversely impact our residents and result in a decline in occupancy at our communities. We maintain insurance policies, including coverage for business interruption, designed to mitigate financial losses resulting from such adverse weather and natural events. However, there can be no assurance that adverse weather or natural events will not cause substantial damages or losses to our communities that could exceed our insurance coverage. In the event of a loss in excess of insured limits, such loss could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
Damage to facilities or loss of power or water could adversely impact our residents and result in a decline in occupancy at our communities.
The geographic concentration of our communities could leave us vulnerable to an economic downturn, regulatory changes, acts of nature, or the effects of climate change in those areas, which could negatively impact our financial condition, revenues, results of operations, and cash flow.
We have a high concentration of communities in various geographic areas, including the states of Texas, Indiana, Ohio and Wisconsin, which we estimate represented approximately 24%, 18%, 20%, and 10%, respectively, of our resident revenues for the year ended December 31, 2022. As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental regulations, acts of nature, and other factors that may result in a decrease in demand for senior living services in these areas could have an adverse effect on our financial condition, revenues, results of operations, and cash flow. Given the location of our communities, we are particularly susceptible to revenue loss, cost increase, or damage caused by severe weather conditions including winter storms or natural disasters such as hurricanes, wildfires, earthquakes, or tornados. Any significant loss due to such an event may not be covered by insurance and may lead to an increase in the cost of insurance or unavailability on acceptable terms. Climate change may also have effects on our business by increasing the cost of property insurance or making coverage unavailable on acceptable terms. To the extent that significant changes in the climate occur in areas where our communities are located, we may experience increased frequency of severe weather conditions or natural disasters or other changes to weather patterns, all of which may result in physical damage to or a decrease in demand for properties affected by these conditions. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition, revenues, results of operations, or cash flow may be adversely affected. In addition, government regulation intended to mitigate the impact of climate change, severe weather patterns, or natural disasters could result in additional required capital expenditures to comply with such regulation without a corresponding increase in our revenues.
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We rely on information technology in our operations, and failure to maintain the security and functionality of our information technology and computer systems, or to prevent a cybersecurity attack, breach or other unauthorized access, could adversely affect our business, reputation and relationships with our residents, employees and referral sources and may subject us to remediation costs, government inquiries and liabilities under HIPAA and data and consumer protection laws, any of which could materially and adversely impact our revenues, results of operations, cash flow, and liquidity.
We rely upon the proper function and availability of our information technology and computer systems, including hardware, software, applications and electronic data storage, to communicate with our residents and patients, their doctors and other healthcare providers, and our employees and vendors and to store, process, safeguard and transmit our business information, including proprietary business information, private health information and personally identifiable information of our residents and employees. We have taken steps and expended significant resources to protect the cybersecurity and physical security of our information technology and computer systems and have developed and implemented policies and procedures to comply with HIPAA and other applicable privacy laws, rules and regulations.  However, there can be no assurance that our security measures, policies and procedures and disaster recovery plans will prevent damage to, or interruption or breach of, our information systems or other unauthorized access to private information.
The cybersecurity risks to our Company and our third-party vendors are heightened by, among other things, the frequently changing techniques used to illegally or fraudulently obtain unauthorized access to systems, advances in computing technology and cryptography and the possibility that unauthorized access may be difficult to detect, which could lead to us or our vendors being unable to anticipate these techniques or implement adequate preventive measures. In addition, components of our information systems that we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security or functionality of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business or communicate, through computer viruses, hacking, fraud or other forms of deceiving our employees or contractors such as email phishing attacks. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our cybersecurity or to investigate and remediate any cybersecurity vulnerabilities, attacks, or incidents.
In addition, we rely on software support of third parties to secure and maintain our information systems and data. Our inability, or the inability of these third parties, to continue to maintain and upgrade our information systems could disrupt or reduce the efficiency of our operations. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.
Failure to maintain the security and functionality of our information systems, or to prevent a cybersecurity attack or other unauthorized access to our information systems, could expose us to a number of adverse consequences, including: (i) interruptions to our business and operations; (ii) the theft, destruction, loss, misappropriation or release of sensitive information, including proprietary business information and personally identifiable information of our residents, patients, and employees; (iii) significant remediation costs; (iv) negative publicity that could damage our reputation and our relationships with our residents, patients, employees, and referral sources; (v) litigation and potential liability under privacy, security and consumer protection laws, including HIPAA, or other applicable laws, rules or regulations; and (vi) government inquiries that may result in sanctions and other criminal or civil fines or penalties. Any of the foregoing could materially and adversely impact our revenues, results of operations, cash flow, and liquidity.
Because we do not presently have plans to pay dividends on our common stock, holders of our common stock must look solely to appreciation of our common stock to realize a gain on their investment.
It is the policy of our board of directors to retain any future earnings to finance the operation and expansion of our business. Accordingly, we have not and do not currently anticipate declaring or paying cash dividends on your common stock in the foreseeable future. The payment of cash dividends on our common stock in the future will be at the sole discretion of our board of directors and will depend on, among other things, our earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements and other factors deemed relevant by our board of directors. Accordingly, holders of our common stock must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.
Risks Related to the COVID-19 Pandemic
COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses, and operating results at our communities. Because we are unable to predict the full nature and extent of the impact of COVID-19 at this time, COVID-19 may continue to have a significant adverse effect on our business, financial condition, liquidity, and results of operations.
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We face risks related to an epidemic, pandemic or other health crisis. COVID-19 was declared a public health emergency in the United States in response to the outbreak and the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from COVID-19. The United States broadly continues to recover from the pandemic caused COVID-19, which has significantly disrupted the nation’s economy, the senior living industry, and our business.
In an effort to protect our residents and employees and slow the spread of COVID-19 and in response to quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, we previously restricted or limited access to our communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, the COVID-19 pandemic caused a decline in the occupancy levels at our communities that has negatively impacted our revenues and operating results, which depend significantly on such occupancy levels. For example, from March 2020 through February 2021, our occupancy decreased 760 basis points. Potential residents and their families may be more cautious, or temporarily delay their decision, regarding moving into senior living communities due to the pandemic, and such caution may persist for some time. We cannot predict with reasonable certainty whether demand for our senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fee revenue we are able to collect from our residents. Our sales and marketing efforts to increase demand may not be successful. In addition, expanded use of telemedicine and home healthcare by seniors, for which regulatory barriers have been relaxed during the pandemic, may result in less demand for our services.
As of December 31, 2022 and 2021, all of our senior living communities were open for new resident move-ins. Although vaccines are now widely available, we cannot predict the severity of ongoing impact of COVID-19 on our business. If the situation surrounding the spread of COVID-19 worsens, including the risk of transmission of highly contagious variants of the COVID-19 virus, we may have to impose or revert to restricted or limited access to our communities, which could negatively impact our revenues and operating results depending upon the extent and duration of such restricted or limited access.
In addition, the COVID-19 outbreak has required us to incur significant additional operating costs and expenses in order to care for our residents. Further, residents at certain of our senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents at such communities and has resulted in reduced occupancies at such communities. Since March 2020, we have incurred incremental direct costs to prepare for and respond to the COVID-19 pandemic. Operating expense for the years ended December 31, 2022 and 2021 includes $0.4 million and $1.9 million, respectively, of incremental and direct costs as a result of the COVID-19 pandemic including costs for acquisition of additional personal protective equipment, cleaning and disposable food service supplies, testing of our residents and employees, enhanced cleaning and environmental sanitation costs, and increased labor expense. We are unable to reasonably predict the total amount of costs we will ultimately incur related to the pandemic and such costs may continue to be significant.
Further, grants received by us from the CARES Act Provider Relief Fund are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for and respond to COVID-19. Such grants will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. The U.S. Department of Health and Human Services continues to evaluate and provide regulation and guidance regarding grants made under the CARES Act Provider Relief Fund. We cannot provide assurance that additional restrictions on the permissible uses or terms and conditions of the grants will not be imposed by U.S. Department of Health and Human Services. The program requires us to report to the U.S. Department of Health and Human Services on our use of the grants, and our reporting is subject to audit.
The COVID-19 pandemic has also caused substantial volatility in the market prices and trading volumes in the equity markets, including our stock. Our stock price and trading volume may continue to be subject to wide fluctuations as a result of the pandemic and may decline in the future.
The ultimate impacts of COVID-19 on our business, results of operations, cash flow, liquidity, and stock price will depend on many factors. Some factors cannot be foreseen, including the duration, severity and geographic concentrations of the pandemic and any resurgence of the disease or the emergence of new variants; 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 and efficacy of COVID-19 infection and antibody testing, therapeutic agents and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our preparation and response efforts, including increased supplies, labor, litigation, and other expenses; the impact of COVID-19 on our ability to complete financings, re-financings and/or other transactions (including dispositions) or to generate sufficient cash
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flow to cover required debt service payments and to satisfy financial and other covenants in our debt agreements; increased regulatory requirements and enforcement actions resulting from COVID-19, including those that may limit our collection efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.
Risks Related to Human Capital
We rely on the services of key executive officers and the transition of management or loss of these officers or their services could have a material adverse effect on us.
We depend on the services of our executive officers for our management. We have recently undergone changes in our senior management and may experience further changes in the future. The transition of management, loss of any of our executive officers or our inability to attract and retain qualified management personnel in the future, could affect our ability to manage our business and could adversely affect our business, financial condition, cash flows, and results of operations.
A significant increase in our labor costs or labor shortages could have a material adverse effect on us.
We compete with other providers of senior living services with respect to attracting and retaining qualified management personnel responsible for the day-to-day operations of each of our communities and skilled personnel responsible for providing resident care. We rely upon the quality of our staff as a means to differentiate our services from other providers.  A shortage of nurses or trained personnel may require us to enhance our wage and benefits package in order to compete in the hiring and retention of these personnel or to hire more expensive temporary personnel. We also will be dependent on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate.
Historically, labor costs have comprised of approximately two-thirds of our total operating expenses. We began to experience pressures associated with the intensely competitive labor environment during 2021, which continued throughout 2022. The United States’ unemployment rate remained at or below 4.0% each month during 2022, and many states experienced record low unemployment rates. Labor pressures have resulted in higher-than-typical associate turnover and wage growth, and we have experienced difficulty in filling open line-level positions timely. To cover existing open positions, during 2021 and continuing into 2022, we needed to rely on more expensive premium labor, primarily contract labor and overtime. In our same-story community portfolio the labor component of our operating expense increased approximately $9.5 million, or 10.2%, during 2022 compared to 2021. These increases primarily resulted from merit and market wage rate adjustments, more hours worked with higher occupancy during 2022, and an increase in the use of premium labor, primarily overtime. For 2023, we expect to continue to experience labor cost pressure as a result of the continuing labor conditions previously described and an anticipated increase in hours worked as our occupancy levels grow. Continued increased competition for, or a shortage of, nurses and other employees and general inflationary pressures have required and may require that we enhance our pay and benefits package to compete effectively for such employees.
As such, no assurance can be given that our labor costs will not increase, or that, if they do increase, they can be matched by corresponding increases in rates charged to residents. Any significant failure by us to control our labor costs or to pass on any increased labor costs to residents through rate increases could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We are subject to governmentrisks related to the provision for employee health care benefits and future health care reform legislation.
We use a combination of insurance and self-insurance for employee health care plans. We record expenses under these plans based on estimates of the costs of expected claims, administrative costs, and stop-loss premiums. These estimates are then adjusted to reflect actual costs incurred. Actual costs under these plans are subject to variability depending primarily upon participant enrollment and demographics, the actual costs of claims and whether stop-loss insurance covers these claims. In the event that our cost estimates differ from actual costs, we could incur additional unplanned health care costs which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
In addition, the Patient Protection and Affordable Care Act (the “Affordable Care Act”) expanded health care coverage to millions of previously uninsured people beginning in 2014 and has resulted in significant changes to the United States health care system. This comprehensive health care legislation has resulted and will continue to result in extensive rule making by regulatory authorities, and also may be altered, amended, repealed, or replaced. It is difficult to predict the full impact of the Affordable Care Act due to the complexity of the law and implementing regulations, as well our inability to foresee how participants in the health care industry will respond to the choices available to them under the law. The provisions of the legislation and other regulations implementing the provisions of the Affordable Care Act or any amended or replacement legislation may increase our costs, adversely affect our revenues, expose us to expanded liability or require us to revise the ways in which we conduct our business.
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In addition to its impact on the delivery and payment for healthcare, the Affordable Care Act and the implementing regulations have resulted and may continue to result in increases to our costs to provide health care benefits to our employees. We also may be required to make additional employee-related changes to our business as a result of provisions in the Affordable Care Act or any amended or replacement legislation impacting the provision of health insurance by employers, which could result in additional expense and adversely affect our results of operations and cash flow.
Risks Related to Regulatory, Compliance and/or Legal Matters
We are subject to governmental regulations and compliance, some of which are burdensome and some of which may change to our detriment in the future.

Federal and state governments regulate various aspects of our business. The development and operation of senior housing communities and the provision of health care services are subject to federal, state and local licensure, certification and inspection laws that regulate, among other matters, the number of licensed beds, the provision of services, the distribution of pharmaceuticals, billing practices and policies, equipment, staffing (including professional licensing), operating policies and procedures, fire prevention measures, environmental matters and compliance with building and safety codes. Failure to comply with these laws and regulations could result in the denial of reimbursement, the imposition of fines, temporary suspension of admission of new residents, suspension or decertificationloss of certification from the Medicaid program, restrictions on the ability to acquire new communities or expand existing communities and, in extreme cases, the revocation of a community’s license or closure of a community. We believe that such regulation will increase in the future, and we are unable to predict the content of new regulations or their effect on our business, any of which could materially adversely affect us.

our business, financial condition, cash flows, and results of operations.

Various states, including several of the states in which we currently operate, control the supply of licensed beds and assisted living communities through CONa "Certification of Need" requirement or other programs. In those states, approval is required for the addition of licensed beds and some capital expenditures at those communities. To the extent that a CONCertification of Need or other similar approval is required for the acquisition or construction of new communities, the expansion of the number of licensed beds, services or existing communities, we could be adversely affected by our failure or inability to obtain that approval, changes in the standards applicable for that approval and possible delays and expenses associated with obtaining that approval. In addition, in most states, the reduction of the number of licensed beds or the closure of a community requires the approval of the appropriate state regulatory agency and, ifagency. If we were to seek to reduce the number of licensed beds at, or to close, a community, we could be adversely affected by a failure to obtain or a delay in obtaining that approval.

Federal and state anti-remuneration laws, such as “anti-kickback” laws, govern some financial arrangements among health care providers and others who may be in a position to refer or recommend patients to those providers. These laws prohibit, among other things, some direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of health care items or services. Federal anti-kickback laws have been broadly interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary, are sometimes vague and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties and exclusion of health care providers or suppliers from participation in the Medicaid program. There can be no assurance that those laws will be interpreted in a manner consistent with our practices.


Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned communities to create access to the properties by disabled persons. Although weWe believe that our communities are substantially in compliance with present requirements or are exempt therefrom,therefrom. However, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by us. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons and the costs of compliance with which could be substantial.

The Health Insurance Portability and Accountability Act of 1996,

HIPAA, in conjunction with the federal regulations promulgated thereunder by the U.S. Department of Health and Human Services, has established, among other requirements, standards governing the privacy of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. HIPAA is a complex set of regulations and many unanswered questions remain with respect to the manner in which HIPAA applies to businesses such as those operated by us.

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In addition, some states have begun to enact more comprehensive privacy laws and regulations addressing consumer rights to data protection or transparency. For example, the California Consumer Privacy Act became effective in 2020, and we expect additional federal and state legislative and regulatory efforts to regulate consumer privacy protection in the future. Compliance with such legislative and regulatory developments could be burdensome and costly, and the failure to comply could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
An increasing number of legislative initiatives have been introduced or proposed in recent years that would result in major changes in the health care delivery system on a national or a state level. Among the proposals that have been introduced are price controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of government health insurance plans that would cover all citizens and increase payments by beneficiaries. We cannot predict whether any of the above proposals or other proposals will be adopted and, if adopted, no assurances can be given that their implementation will not have a material adverse effect on our business, financial condition, or results of operations.

Changes in federal, state and local employment-related laws and regulations, or our failure to comply with these laws and regulations could have an adverse effect on our financial condition, results of operations, and cash flow.

We are subject to a wide variety of federal, state and local employment-related laws and regulations, including, for example, those that govern occupational health and safety requirements, wage and hour requirements, equal employment opportunity obligations, leaves of absence and reasonable accommodations, employee benefits and the right of employees to engage in protected concerted activity (including union organizing). Because labor represents a large portion of our operating expenses, changes in federal, state and local employment-related laws and regulations could increase our cost of doing business. Furthermore, any failure to comply with these laws can result in significant protracted litigation, government investigation, penalties or other damages that could have an adverse effect on our financial condition, results of operations, and cash flow.
We may be subject to liability for environmental damages.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by those parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and liabilitycontaminants. Liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of the substances may be substantial, and the presence of the substances, or the failure to properly remediate the property, may adversely affect the owner’s ability to sell or lease the property or to borrow using the property as collateral. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of the substances at the disposal or treatment facility, whether or not the facility is owned or operated by the person. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. If we become subject to any of these claims, the costs involved could be significant and could have a material adverse effect on our business, financial condition, cash flows and results of operations.

Damage from catastrophic weather and other natural events could result in losses.

A certain number of our properties are located in areas that have experienced and may experience in the future catastrophic weather and other natural events from time to time, including snow or ice storms, windstorm, tornados, hurricanes, fires, earthquakes, flooding or other severe weather. The Company maintains insurance policies, including coverage for business interruption, designed to mitigate financial losses resulting from such adverse weather and natural events; however, there can be no assurance that adverse weather or natural events will not cause substantial damages or losses to our communities that could exceed our insurance coverage. In the event of a loss in excess of insured limits, such loss could have a material adverse effect on our business, financial condition, cash flows, and results of operations.   


We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including medical records, financial transactions and maintenance of records, which may include personally identifiable information of residents and other customers and payroll data. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing confidential information, such as personally identifiable information relating to health and financial accounts. Although we have taken steps to protect the security of the data maintained in our information systems, it is possible that our security measures will not be able to prevent the systems’ improper functioning, or the improper disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information; however, no instances of these potential threats have been identified by the Company. The Company maintains cyber and data privacy-related insurance coverage which provides liability protection associated with network security, privacy and sensitive electronic-data, and privacy breach expenses. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect our business, financial condition, or results of operations.

Risks Related to Our Common Stock

Corporate Organization and Structure

Anti-takeover provisions in our governing documents, governing law, and material agreements may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management.

Certain provisions of our amendedAmended and restated certificateRestated Certificate of incorporationIncorporation and our amendedAmended and restated by-lawsRestated By-laws may discourage, delay, or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including: a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms; removal of directors only for cause, and only with the affirmative vote of at least a majority of the voting interest of stockholders entitled to vote; right of our directors to issue preferred stock from time to time with voting, economic and other rights superior to those of our common stock without the consent of our stockholders; provisions in our amended and restated certificate of incorporation and amended and restated by-laws limiting the right of our stockholders to call special meetings of stockholders; advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; requirement for two-thirds stockholder approval for amendment of our by-laws and certain provisions of our certificateCertificate of incorporation;Incorporation; and no provision in our amendedAmended and restated certificateRestated Certificate of incorporationIncorporation for cumulative voting
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in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election.

  Further, the Investor Rights Agreement prohibits certain change of control transactions without the prior written consent of Conversant Fund A and the existence of a majority stockholder, such as Conversant, may also have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in the best interests of our company.

Several of our leases, loan documents and other material agreements also require approval in case ofthe event we undergo a change of control of our company.Company. These provisions may have the effect of delaying or preventing a change of control of our companythe Company even if this change of control would benefit our stockholders.

In addition to the anti-takeover provisions described above, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a person beneficially owning, directly or indirectly, 15% or more of our outstanding common stock from engaging in a business combination with us for three years after the person acquired the stock. However, this prohibition does not apply if (A) our directors approve in advance the person’s ownership of 15% or more of the shares or the business combination or (B) the business combination is approved by our stockholders by a vote of at least two-thirds of the outstanding shares not owned by the acquiring person.



A substantial majority of the voting power of our issued and outstanding securities is held by a small group of stockholders.

Because

In November 2021, we do not presently have plansissued 41,250 shares of our Series A Preferred Stock to pay dividends onaffiliates of Conversant Capital LLC. The holders of our common stock, stockholders must look solelySeries A Preferred Stock are generally entitled to appreciationvote with the holders of our common stock to realizeon all matters submitted for a gainvote of holders of shares of common stock (voting together with the holders of shares of common stock as one class) on their investment.

It isan as-converted basis. As of December 31, 2022, the policyConversant Investors collectively owned a majority of our Board of Directors to retain any future earnings to finance the operation and expansionvoting power of the Company’s business. Accordingly,issued and outstanding securities.

Pursuant to the Company has notInvestor Rights Agreement, Conversant Fund A is entitled to designate four individuals to be appointed to the Company’s board of directors, including the Chairperson, and does not currently anticipate declaring or paying cash dividends on your commonSilk is entitled to designate two individuals to be appointed to the Company’s board of directors, in each case so long as they and their respective permitted transferees and affiliates maintain minimum aggregate holdings of our stock as described in further detail in the foreseeable future. The paymentInvestor Rights Agreement. Notwithstanding the fact that all directors are subject to fiduciary duties to us and to applicable law, the interests of cash dividends inthese stockholders and their respective director designees may differ from the future will be at the sole discretioninterests of our Boardsecurity holders as a whole or of Directorsour other directors.
Additionally, the consent of the holders of a majority of the outstanding shares of Series A Preferred Stock is required in order for us to take certain actions, including issuances of securities that are senior to, or equal in priority with, the Series A Preferred Stock, significant acquisitions, change of control transactions and will depend on, among other things,incurrence of indebtedness in excess of a certain amount. As a result, the Company’s earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreementsholders of Series A Preferred Stock have the ability to influence the outcome of certain matters affecting our governance and other factors deemed relevant bycapitalization.
The issuance of shares of our BoardSeries A Preferred Stock reduced the relative voting power of Directors. Accordingly, stockholders must look solely to appreciationholders of our common stock, to realize a gain on their investment. This appreciationand the conversion of those shares into shares of our common stock would dilute the ownership of common stockholders and may not occur.

Theadversely affect the market price of our common stock.

The holders of our Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, which reduces the relative voting power of the holders of our common stock. In addition, the conversion of our Series A Preferred Stock into common stock would dilute the ownership interest of existing holders of our common stock, and any conversion of the Series A Preferred Stock would increase the number of shares of our common stock available for public trading, which could adversely affect prevailing market prices of our common stock.
Our Series A Preferred Stock has fluctuated substantially overrights, preferences and privileges that are not held by, and are preferential to the past several yearsrights of, our common stockholders, which could adversely affect our liquidity and financial condition.
The holders of our Series A Preferred Stock have the right to receive a payment on account of the distribution of assets on any voluntary or involuntary liquidation, dissolution, or winding up of our business before any payment may be made to holders of any other class or series of capital stock.
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In addition, dividends on the Series A Preferred Stock accrue and are cumulative at the rate of 11.0% per annum, compounding quarterly. Any declaration of dividends is at the discretion of the Company’s Board of Directors. If the Board does not declare a dividend in respect of any dividend payment date, the amount of such accrued and unpaid dividend is added to the liquidation preference and compounds quarterly thereafter. During the year ended December 31, 2022, $2.3 million of accrued and unpaid dividends was added to the liquidation preference of the Series A Preferred Stock, which will be payable under the redemption features.
The holders of our Series A Preferred Stock also have certain redemption rights, including the right to require us to repurchase all or any portion of the Series A Preferred Stock upon prior written notice of certain change of control events for a repurchase price equal to the greater of (i) the proceeds that would have been received in respect of the shares of Series A Preferred Stock in such change of control if they were converted into common stock immediately prior to such change of control and (ii) an amount in cash equal to 100% of the then-current liquidation preference thereof plus all accrued but unpaid dividends.
These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to the holders of our Series A Preferred Stock could also limit our ability to obtain additional financing, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between the holders of our Series A Preferred Stock and holders of our common stock.
We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.
We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries. As a result, we are dependent on loans, distributions and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and have no obligation to make funds available to us.
Risks Related to Other Market Factors
Various factors, including general economic conditions such as rising inflation, could adversely affect our financial
performance and other aspects of our business.
General economic conditions, such as inflation, the consumer price index, commodity costs, fuel and other energy costs, competition in the labor market, costs of salaries, wages, benefits and insurance, interest rates and tax rates, affect our facility operating, general and administrative, and other expense. We have no control or limited ability to control such factors. Current global economic conditions and uncertainties, the potential for failures or realignments of financial institutions and the related impact on available credit may affect us and our business partners, landlords, counterparties and residents or prospective residents in an adverse manner including, but not limited to, reducing access to liquid funds or credit increasing the cost of credit, limiting our ability to manage interest rate risk, increasing the risk that certain of our business partners, landlords or counterparties would be unable to fulfill their obligations to us, and other impacts which we are unable to fully anticipate. Our non-labor operating expenses have historically comprised of approximately one-third of our total operating expenses and are subject to inflationary pressures. The United States consumer price index increased 6.5% during 2022, with food and energy prices increasing above 10%. Despite our mitigation efforts and with higher occupancy, for 2022 our non-labor operating expense in our same-store community portfolio increased approximately $4.0 million, or 6.8%, compared to the prior year. For 2023, we expect to continue to fluctuate substantially in the future.

Our stock price may continue to be subject to significant fluctuations as a result of a variety of factors, which are described throughout this Annual report on Form 10-K, including those factors discussed under this section entitled “Risk Factors.” Some of these factors are beyond our control. We may fail to meet the expectations of our stockholders or securities analysts at some point in the future, and our stock price could decline as a result.

experience inflationary pressures.

Future offerings of equity securities by us may adversely affect the market price of our common stock.

In

We have increased, and may again in the future, we may attempt to increase, our capital resources by offering additional equity securities. Additional equity offerings may dilute the economic and voting rights of our existing stockholders and/or reduce the market price of our common stock. Our decision to issue equity securities in a future offering will depend on market conditions and other factors, some of which are beyond our control, wecontrol. We cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their holdings in our Company.  

Further, pursuant to the Registration Rights Agreement between the Company and the Conversant Investors in compliance with certain agreements to which the Company is a party, we are required to register the resale of shares of common stock that are either outstanding or issuable upon conversion of Series A Preferred Stock and the exercise of outstanding warrants. The resale of a substantial number of shares of common stock in the public market, or the perception that such resale might occur, could cause the market price of our common stock to decline. Any shares sold in a registered resale will be freely tradable without restriction under the Securities Act. While we cannot
29
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predict the size of future resales or distributions of our common stock, if there is a perception that such resales or distributions could occur, or if the holders of our securities registered for resale sell a large number of the registered securities, the market price for our common stock could be adversely affected.
The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future.
Our stock price has been, and may continue to be, subject to significant fluctuations as a result of a variety of factors, which are described throughout this Annual Report on Form 10-K, including those factors discussed under this section entitled “Risk Factors.” Some of these factors are beyond our control. We may fail to meet the expectations of our stockholders or securities analysts at some point in the future, and our stock price could decline as a result.  This volatility may prevent you from being able to sell your common stock at or above the price you paid for your common stock.

ITEM 1B.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.

ITEM 2.    PROPERTIES.

The

Our executive and administrative offices of the Company are located at 14160 Dallas Parkway,16301 Quorum Drive, Suite 300, Dallas,160A, Addison, Texas 75254,75001, and consist of approximately 26,0006,500 square feet. The leasesublease on the premises currently extends through September 2020. The Company believes that itsMarch 31, 2023.
Effective April 1, 2023, the Company's corporate office facilities are adequate to meet its requirements through at least fiscal 2018 and that suitable additional spaceoffices will be available, as needed, to accommodate further physical expansion of corporate operations. The Company also leases executive office space in New York, New York pursuant to a two-year lease agreement.

located at 14755 Preston Road, Suite 810 Dallas, Texas 75254.

As of December 31, 2017, the Company2022, we owned or leased and managed the senior housing communities referred to in Part I, Item 1 above under the caption “Operating Communities.”


ITEM 3.

ITEM 3.    LEGAL PROCEEDINGS.

The Company has

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

us.

ITEM 4.

ITEM 4.    MINE SAFETY DISCLOSURES.

Not applicable.


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PART II


ITEM 5.

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a) Market PriceInformation and Holders of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

Market Information and Holders

The Company’s shares of common stock are listed for trading on the New York Stock Exchange (“NYSE”)NYSE under the symbol “CSU”. The following table sets forth, for the periods indicated, the high and low sales prices for the Company’s common stock, as reported on the NYSE. At“SNDA.” As of February 23, 2018,28, 2023, there were approximately 21341 known registered stockholders of record of the Company’s common stock.

 

 

2017

 

 

2016

 

Year

 

High

 

 

Low

 

 

High

 

 

Low

 

First Quarter

 

$

17.66

 

 

$

13.09

 

 

$

20.71

 

 

$

14.58

 

Second Quarter

 

 

16.08

 

 

 

13.21

 

 

 

20.85

 

 

 

15.89

 

Third Quarter

 

 

15.30

 

 

 

11.60

 

 

 

19.92

 

 

 

15.70

 

Fourth Quarter

 

 

16.72

 

 

 

12.09

 

 

 

17.89

 

 

 

12.65

 

Dividends

It is the policy of the Company’s Board of Directors to retain all future earnings to finance the operation and expansion of the Company’s business. Accordingly, the Company did not declare or pay cash dividends on its common stock during fiscal 2017 or 2016 and does not anticipate declaring or paying cash dividends on the common stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of the Company’s Board of Directors and will depend on, among other things, the Company’s earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements, and other factors deemed relevant by the Board of Directors.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table presents information relating to the Company’s equity compensation plans as of December 31, 2017:

2022:

Plan Category

Number of Securities to


be Issued Upon


Exercise of Outstanding


Options, Warrants and


Rights

Weighted-Average


Exercise Price of the


Outstanding


Options, Warrants


and Rights

Number of Securities


Remaining Available for


Future Issuance Under


Equity Compensation Plans


(Excluding Securities


Reflected in First Column)

Equity compensation plans approved by

security holders

— 

—

$

— 

$

—

545,214 

1,053,077

Equity compensation plans not approved

by security holders

— 

—

— 

—

—

Total

— 

—

$

— 

$

—

545,214 

1,053,077


Performance Graph

The following Performance Graph shows the cumulative total return for the five-year period ended December 31, 2017, in the value of $100 invested in: (1) the Company’s common stock; (2) the Standard & Poor’s Broad Market Index (the “S&P 500”); and (3) the common stock of the Peer Group (as defined below) of companies, whose returns represent the arithmetic average of such companies. The values with each investment as of the beginning of each year are based on share price appreciation and the reinvestment of any dividends on the respective ex-dividend dates.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Capital Senior Living Corporation, the S&P 500 Index,

and a Peer Group

The preceding graph assumes $100 invested at the beginning of the measurement period, including reinvestment of any dividends, in the Company’s common stock, the S&P 500, and the Peer Group and was plotted using the following data:

 

 

Cumulative Total Returns

 

 

 

12/12

 

 

12/13

 

 

12/14

 

 

12/15

 

 

12/16

 

 

12/17

 

Capital Senior Living Corporation

 

 

100.00

 

 

 

128.36

 

 

 

133.28

 

 

 

111.61

 

 

 

85.87

 

 

 

72.18

 

S&P 500

 

 

100.00

 

 

 

132.39

 

 

 

150.51

 

 

 

152.59

 

 

 

170.84

 

 

 

208.14

 

Peer Group

 

 

100.00

 

 

 

107.51

 

 

 

140.38

 

 

 

71.75

 

 

 

48.83

 

 

 

37.53

 

The Company’s Peer Group, which was selected in good faith on an industry basis, consists of Brookdale Senior Living, Inc. and Five Star Quality Care, Inc.

(b) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

Not applicable.


(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

The following information is provided pursuant to Item 703 of Regulation S-K. The information set forth in the table below reflects information regarding the aggregate shares repurchased by the Company pursuant to its share repurchase program (as described below) as of December 31, 2017.    

2022.
Period
Total Number of
Shares Purchased(1)
Average
Price
Paid per
Share		Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs (2)
Total at September 30, 202232,941 $104.10 32,941 $6,570,222 
October 1 – October 31, 2022— — — 6,570,222 
November 1 – November 30, 2022— — — 6,570,222 
December 1 – December 31, 2022— — — 6,570,222 
Total at December 31, 202232,941 $104.10 32,941 $6,570,222 

Period

 

Total Number of

Shares Purchased

 

 

Average

Price

Paid per

Share

 

 

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

 

 

Approximate Dollar

Value of Shares

that May Yet Be

Purchased Under the

Plans or Programs (1)

 

Total at September 30, 2017

 

 

494,115

 

 

$

6.94

 

 

 

494,115

 

 

$

6,570,222

 

October 1 – October 31, 2017

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,570,222

 

November 1 – November 30, 2017

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,570,222

 

December 1 – December 31, 2017

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,570,222

 

Total at December 31, 2017

 

 

494,115

 

 

$

6.94

 

 

 

494,115

 

 

$

6,570,222

 

(1)

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company(1)Does not include shares withheld to satisfy tax liabilities due upon the vesting of restricted stock, all of which have been reported in Form 4 filings relating to purchase up to $10.0 million of the Company’s common stock. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. All shares that have been acquired by the Company under this program were purchased in open-market transactions.


ITEM 6.

SELECTED FINANCIAL DATA.

The following table presents selected financial data of the Company which has been derived from the audited consolidated financial statements of the Company. The selected financial data should be readaverage price paid per share for such share withholding is based on the closing price per share on the vesting date of the restricted stock or, if such date is not a trading day, the trading day immediately prior to such vesting date.


(2)On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. All shares that have been acquired by the Company under this program were purchased in conjunction with “Management’sopen-market transactions. The Company may evaluate whether to acquire additional shares of common stock under this program at its discretion.
ITEM 6.    RESERVED.
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Table of Contents
Not applicable.
ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations (“MD&A”) is intended to help provide an understanding of our business and theresults of operations. This MD&A should be read in conjunction with our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report.

 

 

At and for the Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

 

(In thousands, except per share and other data)

 

Consolidated Statements of Operations and

   Comprehensive Loss Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

466,997

 

 

$

447,448

 

 

$

412,177

 

 

$

383,925

 

 

$

350,362

 

Income from operations

 

 

7,842

 

 

 

14,390

 

 

 

18,835

 

 

 

13,900

 

 

 

11,250

 

Net loss

 

 

(44,168

)

 

 

(28,017

)

 

 

(14,284

)

 

 

(24,126

)

 

 

(16,504

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share

 

$

(1.50

)

 

$

(0.97

)

 

$

(0.50

)

 

$

(0.83

)

 

$

(0.58

)

Diluted net loss per share

 

$

(1.50

)

 

$

(0.97

)

 

$

(0.50

)

 

$

(0.83

)

 

$

(0.58

)

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (excluding restricted cash)

 

$

17,646

 

 

$

34,026

 

 

$

56,087

 

 

$

39,209

 

 

$

13,611

 

Working capital (deficit)(1)

 

 

(22,954

)

 

 

638

 

 

 

26,726

 

 

 

13,113

 

 

 

(5,892

)

Total assets(1)

 

 

1,182,671

 

 

 

1,145,781

 

 

 

1,019,033

 

 

 

891,370

 

 

 

745,549

 

Long-term debt, excluding current portion(1)

 

 

938,206

 

 

 

882,504

 

 

 

754,949

 

 

 

592,884

 

 

 

467,376

 

Shareholders’ equity

 

$

80,433

 

 

$

116,918

 

 

$

135,746

 

 

$

141,174

 

 

$

157,950

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communities (at end of period)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned or leased

 

 

129

 

 

 

129

 

 

 

121

 

 

 

117

 

 

 

109

 

Joint ventures & managed

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

Total

 

 

129

 

 

 

129

 

 

 

121

 

 

 

117

 

 

 

112

 

Resident capacity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owned or leased

 

 

16,523

 

 

 

16,523

 

 

 

15,416

 

 

 

15,149

 

 

 

13,939

 

Joint ventures & managed

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

674

 

Total

 

 

16,523

 

 

 

16,523

 

 

 

15,416

 

 

 

15,149

 

 

 

14,613

 

(1)

Working capital (deficit), total assets, and long-term debt, excluding current portion, for fiscal 2017, 2016 and 2015 excludes $9,398, $9,841 and $8,532, respectively, in debt issuance costs, net of accumulated amortization, and fiscal 2014 was revised from amounts previously reported to reflect the impact of reclassifying $6,331 in debt issuance costs, net of accumulated amortization, from other assets to notes payable. This revision was due to the Company’s adoption of ASU 2015-03, Interest—Imputation of Interest- Simplifying the Presentation of Debt Issuance Costs, during the fourth quarter of fiscal 2015 which required current and retrospective application to the Company’s Consolidated Balance Sheets for all periods presented.


ITEM 7.

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

Certain information containedReport on Form 10-K. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the risks, uncertainties and other factors described under “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” in this report constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. The Company cautions readers that forward-looking statements, including, without limitation, those relating to the Company’s future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actualAnnual Report on Form 10-K. Actual results tomay differ materially from those indicatedprojected in the forward-lookingsuch statements due to several important factors herein identified. These factors include the Company’s ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions,as a result of such risks, of downturn in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations, among others,uncertainties and other risks and factors identified from time to time in the Company’s reports filed with the SEC.

factors.


Overview

The following discussion and analysis addresses (i) the Company’s results of operations on a historical consolidated basis for the years ended December 31, 2017, 2016,2022 and 2015,2021, and (ii) liquidity and capital resources of the Company, and should be read in conjunction with the Company’s historical consolidated financial statements and the selected financial data contained elsewhere in this report.

Annual Report on Form 10-K.

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

As of December 31, 2017,2022, the Company operated 12972 senior housing communities in 2318 states with an aggregate capacity of approximately 16,5008,000 residents, including 8362 senior housing communities whichthat the Company owned and 46 senior housing10 communities that the Company leased.

third-party managed.


Corporate Events and Transactions

Corporate Name Change
On November 9, 2021, the Company filed a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, with the Delaware Secretary of State to effect the change of the Company’s name from "Capital Senior Living Corporation" to “Sonida Senior Living, Inc.” effective as of November 15, 2021. In addition, the Company’s board of directors adopted an amendment to the Company’s Second Amended and Restated Bylaws to reflect the Company’s new legal name, effective as of November 15, 2021.
In conjunction with the Name Change, the ticker symbol of the Company’s common stock on the New York Stock Exchange changed from "CSU" to “SNDA.” The CUSIP number for the Company’s common stock following the effectiveness of the Name Change remained unchanged.
Investment Agreement
On October 1, 2021, the Company entered into an Amended and Restated Investment Agreement (the "A&R Investment Agreement") with Conversant Dallas Parkway (A) LP (“Conversant Fund A”) and Conversant Dallas Parkway (B) LP ("Conversant Fund B" and, together with Conversant Fund A, the “Conversant Investors”), affiliates of Conversant Capital LLC, which amended and restated in its entirety the Investment Agreement that the Company entered into with the Conversant Investors on July 22, 2021 (the “Original Investment Agreement”).Pursuant to the A&R Investment Agreement, (i) the Conversant Investors purchased from the Company, and the Company sold to the Conversant Investors, in a private placement (the “Private Placement”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), 41,250 shares of newly designated Series A convertible preferred stock, par value $0.01 per share (the “Series A Preferred Stock”), at a price per share equal to $1,000; and 1,650,000 shares of common stock, par value $0.01 per share, at a price per share equal to $25; (ii) the Conversant Investors received 1,031,250 warrants, each evidencing the right to purchase one share of common
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stock at a price per share of $40 and with an exercise expiration date of five years after the Closing Date; (iii) the Company amended the terms of its previously announced rights offering under the Original Investment Agreement to allow the holders of record of its outstanding shares of common stock at the close of business on September 10, 2021 the right to purchase at $30 per share, 1.1 shares of common stock for each share of common stock held (the “Rights Offering”), in each case as more fully described in the A&R Investment Agreement.
In addition, pursuant to the A&R Investment Agreement, the Conversant Investors agreed to partially backstop the Amended Rights Offering up to $50.5 million through the purchase of additional shares of the Company's common stock at $30 per share.In consideration for the backstop commitments of the Conversant Investors, the Company paid to the Conversant Investors, as a premium, 174,675 shares of common stock. On or after the closing date under the A&R Investment Agreement, the Company may from time to time request additional investments from the Conversant Investors in shares of Series A Preferred Stock for investment in accretive capital expenditures and acquisitions post-closing up to an aggregate amount equal to $25.0 million, subject to certain conditions.
Simultaneously with the entry into the Original Investment Agreement, the Company and the Conversant Investors entered into a $17.3 million secured promissory note (the “Promissory Note”) to provide interim debt financing which was scheduled to mature in July 2022 and was subsequently amended.The Promissory Note was amended to reduce the aggregate indebtedness outstanding by $1.3 million, resulting in an amended secured promissory note in the amount of $16.0 million.The Promissory Note was fully repaid upon closing of the transactions contemplated by the A&R Investment Agreement and the Company recognized a $1.0 million loss on extinguishment of the Promissory Note. See "Note 8–Notes Payable" in the Notes to Consolidated Financial Statements.
The transactions contemplated by the A&R Investment Agreement were subject to stockholder approval, which was received on October 22, 2021. The Rights Offering expired on October 27, 2021 with subscription rights to purchase 1,133,941 shares exercised.The transactions contemplated by the A&R Investment Agreement closed (the “Closing”) on November 3, 2021 and resulted in net proceeds to the Company of $141.4 million after paying customary transaction and closing costs of approximately $13.4 million.The Conversant Investors and Arbiter Partners QP, LP (“Arbiter”) backstopped the Rights Offering, pursuant to which they purchased an additional 1,160,806 shares of common stock and 114,911 shares of common stock, respectively, and received a backstop fee of 174,675 shares of common stock and 17,292 shares of common stock, respectively.
At the Closing, the Company, the Conversant Investors and Silk Partners LP (“Silk”) entered into an Investor Rights Agreement (the "Investor Rights Agreement"), pursuant to which, among other things, the Company's board of directors was reconstituted to consist of four new directors designated by the Conversant Investors, two new directors designated by Silk and three continuing directors.
At the Closing, all outstanding performance-based stock-based compensation held by the Company's officers and other key employees, including restricted shares were converted at target award levels to time-based restricted stock awards that are scheduled to vest on the applicable scheduled vesting dates or the relevant award termination date applicable to such performance shares.See “Note 10–Stock-Based Compensation" in the Notes to Consolidated Financial Statements.
COVID-19 Pandemic
The United States broadly continues to recover from the pandemic caused by COVID-19, which significantly disrupted the nation’s economy, the senior living industry, and the Company’s business. The COVID-19 pandemic caused a decline in the occupancy levels at the Company’s communities, which negatively impacted the Company’s revenues and operating results, that depend significantly on such occupancy levels. In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company had previously restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As of December 31, 2022, all of the Company's senior living communities were open for new resident move-ins. Although vaccines are now widely available, we cannot predict the duration of the ongoing impact of the pandemic on our business. If the COVID-19 pandemic worsens, including the transmission of highly contagious variants of the COVID-19 virus, the Company may have to impose or revert to restricted or limited access to its communities.
The COVID-19 pandemic has required the Company to incur significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents, including increased costs and expenses relating to supplies and personal protective equipment, testing of the Company’s residents and employees, labor and specialized disinfecting and cleaning services, which has increased the costs of caring for the residents and resulted in reduced occupancy at such communities. During the years ended December 31, 2022 and 2021, the Company incurred $0.4 million and $1.9 million, respectively, in direct costs related to the COVID-19 pandemic.
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In April 2022 and January 2021, the Company accepted $9.1 million and $8.7 million of cash, respectively, through grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phases 4 and 3 General Distribution, respectively, which was expanded by the Coronavirus Aid, Relief and Economic Security Act of 2020 (the "CARES Act") to provide grants or other funding mechanisms to eligible healthcare providers for healthcare-related expenses or lost revenues attributable to COVID-19. Both the Phase 4 and Phase 3 Provider Relief Funds were recorded as other income in the years ended December 31, 2022 and 2021, respectively. The CARES Act Provider Relief Funds are grants that do not have to be repaid provided we satisfy the terms and conditions of the CARES Act. In addition, during the years ended December 31, 2022 and 2021 the Company received approximately $1.2 million and $0.6 million, respectively, in relief from various state agencies.
CARES Act Provider Relief Funds are subject to the terms and conditions of the program, including stringent restrictions that funds may only be used to reimburse COVID-19-related expenses or lost revenue that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. While we intend to pursue additional funding that may become available, there can be no assurances that we will qualify for, or receive, any additional relief funds in the future.
The Company elected to utilize the CARES Act payroll tax deferral program to delay payment of a portion of its payroll taxes incurred from April 2020 through December 2020. The Company repaid one-half of the deferral amount in December 2021 and the other half became due on December 31, 2022. The Company has submitted applications to enter into payment plans for the remaining amounts due. In conjunction with the deferral and payment plan applications, the Company accrued penalties and interest of $0.7 million and $0.4 million, respectively, which were included in accrued expenses on the Company’s Consolidated Balance Sheets. As of December 31, 2022 and December 31, 2021, the Company had $4.8 million and $3.7 million, respectively, in deferred payroll taxes, which is included in accrued expenses in the Company’s Consolidated Balance Sheets.
We cannot, at this time, predict with reasonable certainty the continued impact that the COVID-19 pandemic will ultimately have on our business, results of operations, cash flow and liquidity, and our response efforts may delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impact of the COVID-19 pandemic will depend on many factors, many of which cannot be foreseen, including: (i) the duration, severity and geographic concentrations of the COVID-19 pandemic and any resurgence, additional waves and highly contagious variants and strains of the disease; (ii) the impact of COVID-19 on the nation’s economy and debt and equity markets at large and the local economies in our markets; (iii) the development and availability of COVID-19 infection and antibody testing, therapeutic agents and vaccines and the prioritization of such resources among businesses and demographic groups, including within the geographic areas in which the Company operates and derives material revenue; (iv) governmental financial and regulatory relief efforts that may become available to businesses and individuals; (v) concerns over, and the perceptions of, the safety of senior living communities during and after the pandemic; (vi) changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; (vii) the impact of the COVID-19 pandemic on our residents’ and their families’ ability to afford our resident fees, including those related to changes in unemployment rates, consumer confidence and equity markets; (viii) changes in the acuity levels of our new residents; (ix) the disproportionate impact of the COVID-19 pandemic on seniors generally and those residing in our communities; (x) the duration and costs of our preparation and response efforts, including increased supplies, labor, litigation and other expenses; (xi) the impact of the COVID-19 pandemic on our ability to (1) complete equity and debt financings, refinancings or other transactions (including dispositions) and (2) generate sufficient cash flow to cover required debt service payments and to satisfy financial and other covenants in our debt documents; (xii) increased regulatory requirements and enforcement actions resulting from the COVID-19 pandemic, including those that may limit our collection efforts for delinquent accounts; and (xiii) the frequency and magnitude of legal actions and liability claims that may arise due to the COVID-19 pandemic and our associated response efforts.

Going Concern Uncertainty and Related Strategic Cash-Preservation Initiatives

We have taken, and continue to take, actions to improve our liquidity position and to address the uncertainty about our ability to continue as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, we may be unsuccessful in executing our business plans or achieving the projected results, which could adversely impact our financial results and liquidity. Those plans include various cost-cutting, efficiency and profitability initiatives. There are no assurances such initiatives will prove to be successful or the cost savings, profitability or other results we achieve through those plans will be consistent with our expectations. As a result, our results of operations, financial position and liquidity could be negatively impacted. In particular, if we are unable to extend or refinance our indebtedness prior to scheduled maturity dates, our liquidity and financial condition could be adversely impacted. Even if we are able to extend or refinance such indebtedness, the terms of the new financing may not be as favorable to us as the terms of the existing financing. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.
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Accounting Standards Codification (“ASC”) 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within 12 months after the date the financial statements are issued. Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
In complying with the requirements under ASC 205-40 to complete an evaluation without considering mitigating factors, the Company considered several conditions or events including: (1) the continued impact of the COVID-19 pandemic, the current inflationary environment, and the impact of elevated interest rates on the Company’s operations and financial results; (2) approximately $15.7 million of principal payments and $30.1 million of scheduled interest payments due in the next 12 months (excluding $32.0 million of Fannie Mae debt - see "Note 8–Notes Payable" in the Notes to Consolidated Financial Statements); (3) recurring operating losses and projected operating losses for fiscal periods through March 31, 2024; (4) the Company’s available working capital balance; and (5) events of non-compliance with certain of our mortgage agreements, as noted in "Note 16–Subsequent Events". The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the 12-month period following the date the fiscal year 2022 financial statements are issued.
As discussed below, the Company has implemented plans that encompass short-term cash preservation measures, initiatives to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its fiscal year 2022 financial statements are issued, in addition to creating sustained cash flow generation thereafter. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) net cash generated from operations; (2) COVID-19 or related relief grants from various state agencies; and (3) debt modifications, refinancings and extensions to the extent available on acceptable terms.

Strategic and Cash Preservation Initiatives

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

•Upon its management team transition in September 2022, the Company promptly implemented new strategic and operational plans to accelerate margin recovery, including the following:

◦Design and execution of a comprehensive resident rate review program to align revenues with the significant increase in the operating cost environment.

◦Implementation of a global purchasing organization function to leverage scaled purchasing to lower unit operating costs.

◦Use of several internally developed and external programs to provide alternative mitigants to a challenging labor environment.

•We have adopted a comprehensive cash optimization strategy aimed at improving working capital management.

•The Company is engaged in active discussions with certain of its lenders in regards to potential modifications of certain mortgage debt on more favorable terms, which does not preclude a potential ownership transfer on select communities based on various financial metrics.

•Through recently integrated systems and revised process workflows, the Company has implemented additional proactive spending reductions, including reduced discretionary spending and more stringent, return-based capital spending.

•The Company received approximately $2.0 million in various state grants during January and February of 2023. See "Note 16–Subsequent Events" in the Notes to Consolidated Financial Statements.

•Under the terms of the A&R Investment Agreement, the Company may request that the Conversant Investors make additional investments in shares of Series A Preferred Stock (up to an aggregate amount equal to $25.0 million) that can be used for future investment in accretive capital expenditures and acquisitions, subject to certain conditions.
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While the Company’s plans are designed to provide it with adequate liquidity to meet its obligations for at least the 12-month period following the date its financial statements are issued, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control, and no assurances can be given that certain options will be available on terms acceptable to the Company, or at all. Accordingly, management could not conclude that it was probable that the plans will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the 12-month period following the date the financial statements are issued. In addition, it is probable that the Company will not be able to comply with some of the financial covenants and other restrictions contained in our debt instruments, which would in turn trigger an event of default under our loan agreements. An event of default, subject to cure provisions in certain instances, would give the respective lenders the right to accelerate the related debt and to declare all amounts outstanding to be immediately due and payable, or foreclose on collateral securing the outstanding indebtedness. We cannot assure that we could pay these debt obligations if they became due prior to their stated dates.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.
Significant Financial and Operational Highlights

Operations
The Company primarily derives its revenue primarily by providing senior living housing and healthcare services to seniors. During the elderly. When comparing fiscal 2017 to fiscal 2016,year ended December 31, 2022, the Company generated total revenuesresident revenue of approximately $467.0$208.7 million compared to total revenuesresident revenue of approximately $447.4$190.2 million respectively,in the prior year representing an increase of approximately $19.5 million, or 4.4%. The increase in revenues primarily results from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016 which resulted in an increase in revenue of approximately $15.3 million and we experienced an increase in revenue at our same-store communities of approximately $4.3$18.5 million. The increase in revenue at our same-storewas primarily due to increased occupancy, increased average rent rates, and the acquisition of two new communities in early 2022.
Weighted average occupancy for the years ended December 31, 2022 and 2021 for the 60 communities owned by the Company during fiscal 2017both periods was negatively83.3% and 79.0%, respectively, reflecting continued occupancy recovery following the onset of the COVID-19 pandemic. The average monthly rental rate for these owned communities for the year ended December 31, 2022 was higher by 270 basis points when compared to the year ended December 31, 2021.
During the year ended December 31, 2022, the Company continued to be impacted by Hurricane Harveythe senior living industry's workforce challenges related to limited staff availability, which resulted in the full evacuationuse of our residents at two ofovertime, shift bonuses, and contract labor to properly support our senior housingliving communities and residents.
2022 Mortgage Refinance
In March 2022, the Company completed the refinancing of certain existing mortgage debt with Ally Bank (the “Refinance Facility”) for ten of its communities. The Refinance Facility includes an initial term loan of $80 million. In addition, $10 million is available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements and up to an additional uncommitted $40 million may be available in the lender's discretion to fund future growth initiatives. On December 13, 2022, the Company entered into an agreement with Ally Bank to amend the Refinance Facility by adding two additional subsidiaries of the Company (which own the two Indiana properties acquired during the first quarter of 2022) as borrowers. The amendment increased the principal by $8.1 million to $88.1 million, with an additional $10 million still available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements. See "Note 8–Notes Payable" in Notes to Consolidated Financial Statements.
Indiana Acquisition
On February 1, 2022, the Company completed the acquisition of two senior living communities located in southeast Texas. BothIndiana for a combined purchase price of $12.3 million. The communities consist of a total of 157 independent living units. The purchase price for these communities are undergoing repairswas funded at the time of acquisition with cash on hand and remain fully vacatedsubsequently financed in December 2022, as described in the "2022 Mortgage Refinance" paragraph above.
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Management Services
On December 31, 2020, the Company entered into property management agreements with affiliates of Ventas, Inc. (collectively, "Ventas") pursuant to which resulted in a decrease of approximately $3.5 million in our same-store revenue during fiscal 2017.    



Excluding the two senior housing communities impacted by Hurricane Harvey, the weighted average financial occupancy rate for each of our consolidated and same-storeCompany agreed to manage certain communities for Ventas, and Ventas agreed to pay the fiscal years endedCompany a management fee based on gross revenues of the applicable communities, and other customary terms and conditions. The Company managed seven communities on behalf of Ventas as of December 31, 20172020, and 2016 was 86.8% and 87.9%, respectively. Although each of our consolidated and same-store occupancies declined, we achieved an increase in average monthly rental rates at our consolidated and same-store communities when comparing fiscal 2017 to fiscal 2016 of 3.3% and 2.8%, respectively. The increase in average monthly rental rates during fiscal 2017 was primarily the result of our recent senior housing community acquisitions, annual rent increases for our existing residents, and the capital improvements we have invested in our communities for unit conversions which enable us to provide a broader range of senior living services at higher levels of care.

On December 15, 2017,November 2021 the Company announced the expansion of the Ventas relationship with three additional managed communities in Arkansas effective December 1, 2021. As of December 31, 2022, the Company managed ten communities on behalf of Ventas.

On August 9, 2022, the Company received a notice of intent from Welltower to transition the management of four properties to a new operator. The transition was completed supplemental mortgage financingon October 20, 2022. As of approximately $4.1 million fromDecember 31, 2022, the Company did not manage any communities on behalf of Welltower.
Other Significant Transactions
Transactions Involving Certain Fannie Mae atLoans
The CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a fixed interest ratefinancial hardship related to the COVID-19 pandemic to obtain forbearance of 5.71% on one community located in Oneonta, New York. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in June 2025.

their loans for up to 90 days. On November 30, 2017,May 7, 2020, the Company completed supplemental mortgage financing of approximately $3.0 million from Fannie Mae at a fixed interest rate of 5.49% on one community located in Rocky River, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaultedentered into forbearance agreements with the original existing mortgage debt maturing in January 2023.

The Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. Both of these communities remain fully vacated and are undergoing repairs. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Through December 31, 2017, we have incurred approximately $3.9 million in clean-up and physical repair costs and we expect to incur additional repair costs which we believe are probable of being recovered through insurance proceeds. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. The Company received payments from our insurance underwriters during fiscal 2017 totaling approximately $2.7 million of which approximately $2.2 million related to Business Interruption through December 31, 2017, which has been included as a reduction to operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in fiscal 2017. Based upon our initial assessment of the physical damages and insurance coverage, the Company currently estimates insurance proceeds will be sufficient to reimburse the Company for all damages and repair costs to fully restore the communities to their condition prior to the incident.  

Effective January 31, 2017, the Company acquired the underlying real estate associated with four of the senior housing communities previously leased from Ventas, Inc. (“Ventas”) for an acquisition price of $85.0 million (the “Four Property Lease Transaction”). The Company obtained interest only, bridge financing from Berkadia Commercial Mortgage LLC, (“Berkadia”) for $65.0 millionas servicer of 23 of its Fannie Mae loans covering 20 of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, withCompany's properties. On May 9, 2020, the balance of the acquisition price paid from the Company’s existing cash resources. For additional information refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements.

Facility Leases

As of December 31, 2017, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for 5-20 years at the Company’s option. Under these lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. No new facility leases were entered into by the Company during fiscal 2017.



As of December 31, 2017, the Company leased 7 senior housing communities (collectively the “Ventas Lease Agreements”) from Ventas, Inc. (“Ventas”). Effective January 31, 2017, the Company closed the Four Property Lease Transaction and acquired from Ventas the underlying real estate associated with four of its operating leases for a total acquisition price of $85.0 million. The Company obtained interim, interest only, bridge financing from Berkadia for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with the balance of the acquisition price paid from the Company’s existing cash resources. For additional information refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements. Prior to the Four Property Lease Transaction, the Company previously leased 11 senior housing communities from Ventas.

During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until September 30, 2025, with two five-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2016, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. During fiscal 2017, the Company executed amendments to the master lease agreements with Ventas to decrease the Special Project Funds for leasehold improvements from $28.5 million to approximately $17.0 million due to the Four Property Lease Transaction and extend the date for completion of the leasehold improvements to June 30, 2018. The initial lease rates under each of the Ventas Lease Agreements ranged from 6.75% to 8% and are subject to certain conditional escalation clauses which will be recognized when probable or incurred. The Company initially incurred $11.4 million in lease acquisition and modification costs related to the Ventas Lease Agreements, of which a portion of these costs were written-off upon closing the Four Property Lease Transaction leaving $8.7 million in lease acquisition and modification costs associated with the remaining properties. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statement of Operations and Comprehensive Loss. The Company accounts for five of the Ventas Lease Agreements as an operating lease and two as a capital lease and financing obligation.

As of December 31, 2017, the Company leased 15 senior housing communities (collectively the “HCP Lease Agreements”) from HCP, Inc. (“HCP”). During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with HCP to facilitate up to $3.3 million of leasehold improvements for one community within the HCP lease portfolio and extend the initial lease terms for nine communities until October 31, 2020, with two 10-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with HCP for the remaining six communities in the HCP lease portfolio until April 30, 2026, with one 10-year renewal extension available at the Company’s option. The initial lease rates under the HCP Lease Agreements ranged from 7.25% to 8% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The Company incurred $1.6 million in lease acquisition and modification costs related to the HCP Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the HCP Lease Agreements as an operating lease.

As of December 31, 2017, the Company leased 24 senior housing communities (collectively the “Welltower Lease Agreements”) from Welltower, Inc., formerly Health Care REIT, Inc. (“Welltower”). The Welltower Lease Agreements each have an initial term of 15 years, with one 15-year renewal extension available at the Company’s option. The initial lease rates under the Welltower Lease Agreements ranged from 7.25% to 8.5% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The initial terms on the Welltower Lease Agreements expire on various dates through April 2026. The Company incurred $2.1 million in lease acquisition costs related to the Welltower Lease Agreements. These deferred lease acquisition costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the Welltower Lease Agreements as an operating lease.


The following table summarizes each of the Company’s facility lease agreements as of December 31, 2017 (dollars in millions):

Landlord

 

Initial Date of Lease

 

Number of

Communities

 

 

Value of

Transaction

 

 

Current Expiration and Renewal Term

 

Initial

Lease

Rate(1)

 

 

Lease

Acquisition

and

Modification

Costs(2)

 

 

Deferred

Gains / Lease

Concessions(3)

 

Ventas

 

September 30, 2005

 

 

4

 

 

$

61.4

 

 

September 30, 2025 (4)

(Two five-year renewals)

 

 

8

%

 

$

7.7

 

 

$

4.2

 

Ventas

 

January 31, 2008

 

 

1

 

 

 

5.0

 

 

September 30, 2025 (4)

(Two five-year renewals)

 

 

7.75

%

 

 

0.2

 

 

 

—

 

Ventas

 

June 27, 2012

 

 

2

 

 

 

43.3

 

 

September 30, 2025 (4)

(Two five-year renewals)

 

 

6.75

%

 

 

0.8

 

 

 

—

 

HCP

 

May 1, 2006

 

 

3

 

 

 

54.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

8

%

 

 

0.3

 

 

 

12.8

 

HCP

 

May 31, 2006

 

 

6

 

 

 

43.0

 

 

April 30, 2026 (6)

(One 10-year renewal)

 

 

8

%

 

 

0.2

 

 

 

0.6

 

HCP

 

December 1, 2006

 

 

4

 

 

 

51.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

8

%

 

 

0.7

 

 

 

—

 

HCP

 

December 14, 2006

 

 

1

 

 

 

18.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

7.75

%

 

 

0.3

 

 

 

—

 

HCP

 

April 11, 2007

 

 

1

 

 

 

8.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

7.25

%

 

 

0.1

 

 

 

—

 

Welltower

 

April 16, 2010

 

 

5

 

 

 

48.5

 

 

April 30, 2025 (15 years)

(One 15-year renewal)

 

 

8.25

%

 

 

0.6

 

 

 

0.8

 

Welltower

 

May 1, 2010

 

 

3

 

 

 

36.0

 

 

April 30, 2025 (15 years)

(One 15-year renewal)

 

 

8.25

%

 

 

0.2

 

 

 

0.4

 

Welltower

 

September 10, 2010

 

 

12

 

 

 

104.6

 

 

September 30, 2025 (15 years)

(One 15-year renewal)

 

 

8.50

%

 

 

0.4

 

 

 

2.0

 

Welltower

 

April 8, 2011

 

 

4

 

 

 

141.0

 

 

April 30, 2026 (15 years)

(One 15-year renewal)

 

 

7.25

%

 

 

0.9

 

 

 

16.3

 

Subtotal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12.4

 

 

 

37.1

 

Accumulated amortization through December 31, 2017

 

 

 

 

 

 

(7.2

)

 

 

—

 

Accumulated deferred gains / lease concessions recognized through December 31, 2017

 

 

 

—

 

 

 

(24.2

)

Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2017

 

 

$

5.2

 

 

$

12.9

 

(1)

Initial lease rates are measured against agreed upon fair market values and are subject to conditional lease escalation provisions as set forth in each respective lease agreement.

(2)

Lease acquisition and modification costs are being amortized over the respective lease terms.

(3)

Deferred gains of $34.5 million and lease concessions of $2.6 million are being recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss as a reduction in facility lease expense over the respective initial lease term. Lease concessions of $0.6 million relate to the transaction with HCP on May 31, 2006, and $2.0 million relate to the transaction with Welltower on September 10, 2010.

(4)

Effective June 17, 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate leasehold improvements for 10 of the leased communities, of which the underlying real estate associated with four of its operating leases was acquired by the Company upon closing the Four Property Lease Transaction on January 31, 2017, and extend the lease terms through September 30, 2025, with two five-year renewal extensions available at the Company’s option.


(5)

On November 11, 2013, the Company executed an amendment to the master lease agreement associated with nine of its leased communities with HCP to facilitate leasehold improvements for one of the leased communities and extend the respective lease terms through October 31, 2020, with two 10-year renewal extensions available at the Company’s option.

(6)

On April 24, 2015, the Company exercised its right to extend the lease terms with HCP through April 30, 2026, with one 10-year renewal extension remaining available at the Company’s option.

Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company was in compliance with all of its lease covenants at December 31, 2017 and 2016.

Debt Transactions

On December 15, 2017, the Company completed supplemental mortgage financing of approximately $4.1 million from Fannie Mae at a fixed interest rate of 5.71% on one community located in Oneonta, New York. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in June 2025.

On December 1, 2017, the Company renewed certain insurance policies and entered into a financeforbearance agreement totaling approximately $3.5 million. The finance agreement has a fixed interest rate of 3.04% with the principal being repaid over an 11-month term.

On November 30, 2017, the Company completed supplemental mortgage financing of approximately $3.0 million from Fannie Mae at a fixed interest rate of 5.49% on one community located in Rocky River, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in January 2023.

On May 31, 2017, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.6 million. The finance agreement has a fixed interest rate of 2.76% with the principal being repaid over an 11-month term.

On January 31, 2017, in conjunction with the Four Property Lease Transaction, the Company obtained $65.0 million of mortgage debt from Berkadia. The new mortgage loan is interest-only and has a three-year term with an initial variable interest rate of LIBOR plus 4.00%.

The Company issued standby letters of credit with Wells Fargo Bank (“Wells Fargo”), totaling approximately $3.9 million,as servicer of one Fannie Mae loan covering one of the Company's properties. On May 20, 2020, the Company entered into forbearance agreements with KeyBank National Association ("KeyBank"), as servicer of three Fannie Mae loans covering two of the Company's properties. The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the benefitmonths of Hartford Financial Services (“Hartford”) associatedApril, May, and June 2020 and Fannie Mae agreed to forbear in exercising its rights and remedies during such three-month period. During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.

On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one-month extension of the forbearance agreements between the Company and Fannie Mae covering 23 of the Company's properties. The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less any payments made during the forbearance period.
On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less any payments made during the forbearance period, for five of the Company's properties with forbearance agreements. The Company elected not to pay $3.8 million on the loans for the remaining 18 properties as of that date as it initiated a process intended to transfer the operations and ownership of such properties to Fannie Mae. Therefore, the Company was in default on such loans, which were non-recourse loans.
As a result of the default, Fannie Mae filed a motion with the administration of workers compensation.

United States District Court (the "District Court") requesting that a receiver be appointed over the 18 properties, which was approved by the District Court. The Company issued standby lettersagreed to continue to manage the 18 communities, subject to earning a management fee, until management of creditthe communities was transitioned to a successor operator or legal ownership of the properties was transferred to Fannie Mae or its designee. Management fees earned from the properties were recognized as revenue when earned. In conjunction with JPMorgan Chase Bank (“Chase”), totaling approximately $6.7 million,the receivership order, the Company was required to obtain approval from the receiver for all payments and received reimbursements from Fannie Mae for reasonable operating expenses incurred on behalf of any of the benefit18 communities under the receivership order. As a result of Welltower, on certain leases between Welltowerthe events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default. In addition, the Company concluded that it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae were forfeited and the Company.

Company no longer had control of the properties in accordance with ASC 610-20.

During the year ended December 31, 2021, Fannie Mae completed the transition of legal ownership of 16 of the Company's properties and the Company recorded a gain on extinguishment of debt of $200.9 million, which is included in gain on extinguishment of debt in the Company's Consolidated Statement of Operations and Comprehensive Income (Loss). As of December 31, 2022, two properties remained for which the legal ownership had not been transferred back to Fannie Mae. As of December 31, 2022, the Company included $31.8 million of outstanding debt in current portion of notes payable, net of deferred loan costs of $0.2 million. As of December 31, 2022 and December 31, 2021, the accrued interest related to the remaining two properties was $4.1 million and $2.7 million, respectively, and was included in accrued expenses on the Company’s Consolidated Balance Sheets. As of December 31, 2022, the Company did not manage any properties on behalf of Fannie Mae.
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On January 11, 2023, Fannie Mae completed the transfer of ownership of the two remaining properties. See "Note 16–Subsequent Events" in the Notes to Consolidated Financial Statements.
Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements
On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company (“Protective Life”), related to loans (the "Protective Life Loans") covering ten of the Company's properties. These amendments allowed the Company to defer principal and interest payments for April, May, and June 2020 and to defer principal payments for July 2020 through March 2021. The Company issued standby lettersmade all required debt service payments in July, August, and September 2020. On October 1, 2020, the Company entered into further amendments to its loan agreements with Protective Life. These amendments allowed the Company to defer interest payments for October, November, and December 2020, and to extend the deferral period of creditprincipal payments through September 1, 2021, with Chase, totaling approximately $2.9such deferral amounts being added to principal due at maturity in either 2025, 2026, or 2031, depending upon the loan. As of December 31, 2022, the Company had deferred payments of $7.2 million forrelated to the benefitProtective Life Loans, of HCPwhich $2.6 million was included in accrued expenses in the Company’s Consolidated Balance Sheets. The remaining $4.6 million is included in notes payable, net of deferred loan costs and current portion on certain leases between HCPthe Company’s Consolidated Balance Sheets.
Other Debt Related Transactions
On May 20, 2020, the Company entered into an agreement with Healthpeak (the “Healthpeak Forbearance”), effective from April 1, 2020, to defer a percentage of rent payments that would otherwise have been payable during the remainder of the lease term ending on October 31, 2020. As of December 31, 2022, the Company had deferred $1.6 million in rent payments pursuant to the Healthpeak Forbearance, which is included in notes payable, net of deferred loan costs and current portion on the Company.

Company’s Consolidated Balance Sheets. The interest accrued on the deferred rent payments was $0.1 million as of December 31, 2022 and was included in accrued expenses in the Company’s Consolidated Balance Sheets.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related notes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes the following are our most critical accounting policies and/or typically require management’s most difficult, subjective, and complex judgments.



Revenue Recognition

Resident revenue is recognized at estimated net realizable amounts, based on historical experiences, due from residents in the period to which the rental and other services are provided. Additionally, substantially all community fees received from residents are non-refundable and are recorded initially by the Company as deferred revenue. The deferred amounts are amortized over the respective residents’ initial lease term which is consistent with the contractual obligation associated with the estimated stay of the resident.

Revenues from the Medicaid program accounted for approximately 5.6% of the Company’s revenue in fiscal 2017, 5.5% of the Company’s revenue in fiscal 2016, and 4.6% of the Company’s revenue in fiscal 2015. During fiscal 2017, 2016, and 2015, 41, 40, and 34, respectively, of the Company’s communities were providers of services under Medicaid programs. Accordingly, these communities were entitled to reimbursement under the foregoing program at established rates that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fiscal 2017, 2016, or 2015.

Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program.

Purchase Accounting

In determining the allocation of the purchase price of senior housing communities acquired to net tangible and identified intangible assets acquired and liabilities assumed, if any, the Company makes estimates of fair value using information obtained as a result of pre-acquisition due diligence, leasing activities and/or independent appraisals. The Company assigns the purchase price for senior living communities to assets acquired and liabilities assumed based on their estimated fair values which are determined in accordance with the provisions of ASC 805, Business Combinations. The determination of fair value involves the use of significant judgments and estimates which is generally assessed as follows:

The Company allocates the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimated remaining lives of the buildings, not to exceed 40 years. The Company determines the allocated values of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciates such values over the assets’ estimated remaining useful lives as determined at the acquisition date. The Company determines the value of land by considering the sales prices of similar properties in recent transactions.

The fair value of acquired lease-related intangibles reflects the estimated fair value of existing resident in-place leases as represented by the cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the property acquired was vacant. The Company amortizes any acquired resident in-place lease intangibles to depreciation and amortization expense over the estimated remaining useful life of the respective resident operating leases.

Credit Risk and Allowance for Doubtful Accounts

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $4.9 million and $4.3 million at December 31, 2017 and 2016, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.


Self-Insurance Liability Accruals

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements at December 31, 2017.

Lease Accounting

The Company determines whether to account for its leases as operating, capital or financing leases depending on the underlying terms of each lease agreement. This determination of classification requires significant judgment relating to certain information, including the estimated fair value and remaining economic life of the community, the Company’s cost of funds, minimum lease payments and other lease terms. The lease rates under the Company’s lease agreements are subject to certain conditional escalation clauses which are recognized when probable or incurred and are based on changes in the consumer price index or certain operational performance measures. As of December 31, 2017 and 2016, the Company leased 46 and 50 communities, respectively, two of which the Company classified as capital lease and financing obligations with the remaining classified as operating leases. The Company incurs lease acquisition costs and amortizes these costs over the term of the respective lease agreement. Certain leases entered into by the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. No new communities were leased by the Company during fiscal 2017 or 2016. Effective January 31, 2017, the Company acquired from Ventas the underlying real estate associated with four of its operating leases. For additional information refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements.

Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives.

Employee Health and Dental Benefits, Workers’ Compensation, and Insurance Reserves

The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the Company’s corporate office and theits senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims, andas well as claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for outstanding losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred atas of December 31, 2017;2022; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.

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


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Long-Lived Assets

and Impairment

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that theyindicate the carrying amount of an asset group may not be impairedrecoverable, or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments and other publicly available information. information to determine whether impairment indicators exist.
If an indicator of impairment is identified, 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. Projecting future cash flows involves predicting unknown future circumstances and events and requires significant management judgments and estimates, which include historic operating results, approved budgets, future demographic factors, expected growth rates, estimated asset holding periods, and other factors. If this comparison indicates that the carrying amount of an asset group is not recoverable, we estimate fair value of the asset group and record an impairment loss when the carrying amount exceeds fair value.  
During 2022 and 2021, the Company evaluated the carrying value of aits long-lived asset is considered impaired whendepreciable assets and operating lease right-of-use assets and determined that the anticipatedcarrying amount of these assets exceeded the undiscounted cash flows from suchfor certain of its communities. Estimated fair values were determined for these properties and impairment charges were recorded for all communities for which carrying values exceeded fair values. The following is a summary of asset is separately identifiableimpairment expense for these assets.
Years Ended December 31,
(in millions)20222021
Property and equipment, net$1.6 $6.5 
Total$1.6 $6.5 
During the fourth quarter of 2022, the Company recorded a non-cash impairment charge of $1.6 million to its "Property and is less than itsequipment, net", which related to one owned community. The impairment charge resulted from: a) the management's commitment to a plan to sell the community shortly after the balance sheet date, but before the issuance of this Annual Report on Form 10-K; and b) the agreed-upon selling price being below the community's carrying value. amount. In complying with the requirements under ASC 360, Property, Plant, and Equipment, management evaluated the significance of the asset in relation to the overall asset group, as well as the facts and circumstances surrounding the sale of this particular asset, and determined that event, a loss is recognized based onno additional testing of the amountasset group under the held-and-used impairment approach was necessary at the balance sheet date.
During the fourth quarter of 2021, the Company recorded non-cash impairment charges of $6.5 million to property and equipment, net for one owned community. Due to recurring net operating losses, the Company concluded the assets related to this community had indicators of impairment and the carrying value exceeds thewas not recoverable. The fair market value, generally based on discounted cash


flows, of the long-lived asset. The Company does not believe there are any indicators of impairment that would require an adjustment to the carrying value of the property and equipment, ornet of this community was determined using an income capitalization approach considering stabilized facility operating income and market capitalization rates of 8.25%. This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their remaining useful livesfair value.


New Accounting Pronouncements
See “Note 3–Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for a discussion of new accounting pronouncements.
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Results of Operations
The following table includes our Consolidated Statements of Operations and Comprehensive Income (Loss) data in thousands of dollars and expressed as a percentage of total revenues for the years ended December 31, 20172022 and 2016.

Income Taxes

Income taxes are computed using2021.

Years Ended December 31,
20222021
(in thousands)$%$%
Revenues:
    Resident revenue$208,703 87.5 $190,213 81.0 
    Management fees2,359 1.0 3,603 1.5 
    Managed community reimbursement revenue27,371 11.5 40,902 17.4 
Total revenues$238,433 100.0 %$234,718 100.0 %
Expenses:  
Operating expenses171,635 72.0 157,269 67.0 
General and administrative expenses30,286 12.7 32,328 13.8 
Depreciation and amortization expense38,448 16.1 37,870 16.1 
Long-lived asset impairment1,588 0.7 6,502 2.8 
Managed community reimbursement expense27,371 11.5 40,902 17.4 
Total expenses269,328 113.0 %274,871 117.1 %
Other income (expense):  
Interest income235 0.1 6 — 
Interest expense(33,025)(13.9)(37,234)(15.9)
    (Loss) gain on extinguishment of debt, net(641)(0.3)199,901 85.2 
Loss on settlement of backstop— — (4,600)(2.0)
Other income10,011 4.2 8,270 3.5 
Income (loss) before benefit (provision) for income taxes(54,315)(22.8)126,190 53.8 
Provision for income taxes(86)— (583)(0.2)
Net (loss) income and comprehensive (loss) income$(54,401)53.6 %$125,607 53.5 %

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Revenues
Resident revenue for the year ended December 31, 2022 was $208.7 million as compared to $190.2 million for the year ended December 31, 2021, an increase of $18.5 million, or 9.7%. The increase in revenue was primarily due to increased occupancy, increased average rent rates, and the acquisition of two new communities in early 2022.
Management fee revenue for the year ended December 31, 2022 decreased by $1.2 million as compared to the year ended December 31, 2021, primarily as a result of managing fewer communities in 2022.
Managed community reimbursement revenue for the year ended December 31, 2022 was $27.4 million as compared to $40.9 million for the year ended December 31, 2021, representing a decrease of $13.5 million, or 33.1%. The decrease was primarily a result of transitioning sixteen Fannie Mae communities to other operators during the year ended December 31, 2021.
Expenses
Total expenses were $269.3 million during fiscal year 2022 compared to $274.9 million during fiscal year 2021, representing a decrease of $5.6 million. This decrease was primarily the result of a decrease in long-lived asset impairment of $4.9 million, a decrease of $2.0 million in general and liability methodadministrative expenses, and currenta decrease of $13.5 million in managed community reimbursement expense in 2022 as compared to 2021. These decreases were partially offset by $14.4 million increase in operating expenses.
Operating expenses for the year ended December 31, 2022 were $171.6 million as compared to $157.3 million for the year ended December 31, 2021, an increase of $14.4 million or 9.1%. The increase is primarily due to increases of $9.9 million
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in labor and employee-related expenses including premium labor and contract labor, $1.3 million in utilities, $1.2 million in food costs, $0.6 million in supplies, and $0.6 million in promotion and marketing expenses.
General and administrative expenses for the year ended December 31, 2022 were $30.3 million as compared to $32.3 million for year ended December 31, 2021, a decrease of $2.0 million, or 6.3%. The decrease is primarily due to a $2.3 million decrease in bonuses and a $1.3 million decrease in employee insurance and workers' compensation, partially offset by $1.5 million increase in non-cash stock-based compensation expense. Non-cash stock-based compensation expense included in general and administrative expenses was $4.3 million and $2.8 million for the years ended December 31, 2022 and 2021, respectively.
The $0.6 million increase in depreciation and amortization expense is primarily due to the acquisition of the two Indiana communities during the first quarter of 2022.
During the year ended December 31, 2022, the Company recorded a non-cash impairment charge of $1.6 million related to the management's commitment to a plan to sell the community shortly after the balance sheet date, and the agreed-upon selling price being below the community's carrying amount, compared to $6.5 million of non-cash impairment charges recorded during the year ended December 31, 2021, in relation to one owned community with decreased cash flow estimates as a result of recurring net operating losses.
Managed community reimbursement expense for the year ended December 31, 2022 was $27.4 million as compared to $40.9 million for the year ended December 31, 2021, a decrease of $13.5 million, or 33.1%. The decrease was primarily a result of transitioning sixteen Fannie Mae communities to other operators during the year ended December 31, 2021.
Other income and expense.
Interest income generally reflects interest earned on the investment of cash balances and escrow funds or interest associated with certain income tax refunds or property tax settlements. Interest income increased by $0.2 million compared to the prior year primarily due to more active cash management and increased investment in money market accounts.
Interest expense for the year ended December 31, 2022 was $33.0 million as compared to $37.2 million for the year ended December 31, 2021, a decrease of $4.2 million, or 11.3%, due to lower overall borrowings in 2022, partially offset by increased interest rates associated with the Company’s variable rate mortgages.
Loss on extinguishment of debt for the year ended December 31, 2022 was $0.6 million as compared to a gain on extinguishment of debt of $199.9 million for the year ended December 31, 2021, a decrease of $200.5 million, or 100.3%. The 2022 loss was incurred in conjunction with the refinancing of debt during the first quarter of 2022. The 2021 gain is related to the derecognition of notes payable and liabilities as a result of transition of legal ownership of sixteen communities to Fannie Mae, the holder of the non-recourse debt related to such properties.
Other income for the year ended December 31, 2022 was $10.0 million as compared to other income of $8.3 million for the year ended December 31, 2021. Both such periods include cash received for CARES Act funding for healthcare-related expenses or lost revenues attributable to COVID-19 of $9.1 million and $8.7 million, respectively.
Provision for income taxes.
Provision for income taxes are recorded based on amounts refundablefor the year ended December 31, 2022 was $0.1 million, or payable in the current year. Deferred0.16% of net income before income taxes, are recorded based on the estimated future tax effectscompared to a provision for income taxes of $0.6 million, or 0.46% of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxablebefore income intaxes, for the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.year ended December 31, 2021. The effective tax rates for fiscal 2017the years ended December 31, 2022 and 20162021 differ from the statutory tax rates due to state income taxes, permanent tax differences and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax, (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. DuringThe Company consolidated 16 Texas communities at each of fiscal 2017 and 2016, the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes.

The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state income tax audits for years prior to 2014.

Recently Issued Accounting Guidance

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations – Clarifying the Definition of a Business. ASU 2017-01 provides guidance in accounting for business combinations when determining if the transaction represents acquisitions or disposals of assets or of a business. Under ASU 2017-01, when determining whether an integrated set of assets and activities constitutes a business, entities must compare the fair value of gross assets acquired to the fair value of a single identifiable asset or group of similar identifiable assets. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in the single identifiable assets or group of similar identifiable assets, the integrated set of assets and activities is not characterized as a business. ASU 2017-01 is applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted. Management does not expect the adoption of ASU 2017-01 to have a material impact on the Company’s financial position, results of operations or cash flows.


In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). ASU 2016-18 requires an entity to include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. Management does not expect the adoption of ASU 2016-18 to have a material impact on the Company’s cash flows.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance in Accounting Standards Codification (“ASC”) 230, which often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and has resulted in diversity in practice in how certain cash receipts and cash payments are classified. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. Management does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s cash flows.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the provisions of ASU 2016-09 on January 1, 2017, and incorporated the provisions of this update into its consolidated financial statements upon adoption. Upon adoption, the Company elected to change its accounting policy to account for forfeitures as they occur. This change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of $0.2 million. Additionally, the adoption of ASU 2016-09 resulted in the Company recording an adjustment of $5.3 million, which resulted in an increase to the Company’s deferred tax asset valuation allowance, to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized to additional paid in capital. Excess tax benefits for share-based payments are now included in net operating activities rather than net financing activities within the Company’s Consolidated Statements of Cash Flows. As a result of the adoption of ASU 2016-09, these reporting changes have been applied prospectively and prior periods have not been adjusted.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. The Company has evaluated the impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. Based on our assessment, we do not believe it will have a significant impact on the Company’s consolidated financial statements. The Company is planning to adopt the standard under the modified retrospective adoption.


Results of Operations

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

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

$

 

 

%

 

 

$

 

 

%

 

 

$

 

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Resident revenue

 

$

466,997

 

 

 

100.0

%

 

$

447,448

 

 

 

100.0

%

 

$

412,177

 

 

 

100.0

%

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (exclusive of facility lease

   expense and depreciation and amortization

   expense shown below)

 

 

290,662

 

 

 

62.2

 

 

 

273,899

 

 

 

61.2

 

 

 

248,736

 

 

 

60.3

 

General and administrative expenses

 

 

23,574

 

 

 

5.0

 

 

 

23,671

 

 

 

5.3

 

 

 

20,351

 

 

 

4.9

 

Facility lease expense

 

 

56,432

 

 

 

12.1

 

 

 

61,718

 

 

 

13.8

 

 

 

61,213

 

 

 

14.9

 

Loss on facility lease termination

 

 

12,858

 

 

 

2.8

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Provision for bad debts

 

 

1,748

 

 

 

0.4

 

 

 

1,727

 

 

 

0.4

 

 

 

1,192

 

 

 

0.3

 

Stock-based compensation expense

 

 

7,682

 

 

 

1.6

 

 

 

11,645

 

 

 

2.6

 

 

 

8,833

 

 

 

2.1

 

Depreciation and amortization expense

 

 

66,199

 

 

 

14.2

 

 

 

60,398

 

 

 

13.5

 

 

 

53,017

 

 

 

12.9

 

Total expenses

 

 

459,155

 

 

 

98.3

 

 

 

433,058

 

 

 

96.8

 

 

 

393,342

 

 

 

95.4

 

Income from operations

 

 

7,842

 

 

 

1.7

 

 

 

14,390

 

 

 

3.2

 

 

 

18,835

 

 

 

4.6

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

73

 

 

 

0.0

 

 

 

67

 

 

 

0.0

 

 

 

53

 

 

 

0.0

 

Interest expense

 

 

(49,471

)

 

 

(10.6

)

 

 

(42,207

)

 

 

(9.4

)

 

 

(35,732

)

 

 

(8.7

)

Write-off of deferred loan costs and prepayment

   premium

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,766

)

 

 

(0.7

)

(Loss) Gain on disposition of assets, net

 

 

(123

)

 

 

(0.0

)

 

 

(65

)

 

 

(0.0

)

 

 

6,225

 

 

 

1.5

 

Other income

 

 

7

 

 

 

0.0

 

 

 

233

 

 

 

0.0

 

 

 

1

 

 

 

0.0

 

Loss before provision for income taxes

 

 

(41,672

)

 

 

(8.9

)

 

 

(27,582

)

 

 

(6.2

)

 

 

(13,384

)

 

 

(3.3

)

Provision for income taxes

 

 

(2,496

)

 

 

(0.5

)

 

 

(435

)

 

 

(0.1

)

 

 

(900

)

 

 

(0.2

)

Net loss and comprehensive loss

 

$

(44,168

)

 

 

(9.4

)%

 

$

(28,017

)

 

 

(6.3

)%

 

$

(14,284

)

 

 

(3.5

)%

Year Ended December 31, 2017 Compared2022 and 2021, which contributes to the Year Ended December 31, 2016

Revenues

Resident revenue was $467.0 million for the year ended December 31, 2017, compared to $447.4 million for the year ended December 31, 2016, representing an increase of $19.5 million, or 4.4%. The increase in resident revenue primarily results from an increase of $15.3 million from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016 and an increase of $4.3 million due to a 2.8% increase in average monthly rental rates at the Company’s same-store communities which was primarily the result of annual rent increases for our existing residents and recent capital improvements we have invested in our communities for unit conversions which enable us to provide a broader range of senior living services at higher levels of care. The increase in resident revenue at our same-store communities was negatively impacted by Hurricane Harvey which resulted in the full evacuation of our residents at two of our communities located in southeast Texas. Both of these communities are undergoing repairs and remain fully vacated which resulted in a decrease in our same-store resident revenue of approximately $3.5 million.


Expenses

Total expenses were $459.2 million during fiscal 2017 compared to $433.1 million during fiscal 2016, representing an increase of $26.1 million, or 6.0%. This increase is primarily the result of a $16.8 million increase in operating expenses, a $12.9 million loss on facility lease termination, and a $5.8 million increase in depreciation and amortization expense, slightly offset by a $5.3 million decrease in facility lease expense and a $4.0 million decrease in stock-based compensation expense.

The increase in operating expenses primarily results from an increase of $11.6 million from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016 and an increase of $5.2 million at the Company’s same-store communities primarily due to increased wages and benefits to employees for annual merit increases and incremental costs, including increased labor costs for additional staffing required for newly licensed memory care and assisted living units, to support changes in occupancy with more of our residents at higher levels of care. The increase in operating expenses at our same-store communities included a reduction of $2.2 million for insurance proceeds the Company received to cover Business Interruption through December 31, 2017, for the period the two communities located in southeast Texas were unoccupied due to Hurricane Harvey.

The $12.9 million loss on facility lease termination is due to the Four Property Lease Transaction that closed on January 31, 2017, whereby the Company acquired the underlying real estate associated with four of the senior housing communities previously leased from Ventas. For additional information, refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements.

The increase in depreciation and amortization expense primarily results from an increase of $3.4 million from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016 and an increase of $8.7 million due to an increase in depreciable assets at the Company’s same-store communities, partially offset by a decrease in in-place lease amortization of $6.3 million from senior housing communities acquired by the Company prior to fiscal 2016.

The decrease in facility lease expense primarily results from the Four Property Lease Transaction that closed on January 31, 2017.

The decrease in stock-based compensation expense results from the accelerated vesting of restricted stock awards for severance benefits associated with the passing of the Company’s Chief Operating Officer in the fourth quarter of fiscal 2016, the Company granting fewer shares of restricted stock to certain employees of the Company during fiscal 2017.

Other income and expense

Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements.

Interest expense increased $7.3 million in fiscal 2017 when compared to fiscal 2016 primarily due to an increase of $2.0 million from a full year of activity for the additional mortgage debt associated with the senior housing communities acquired by the Company during fiscal 2016 and an increase of $5.2 million at the Company’s same-store communities due to the Four Property Lease Transaction that closed on January 31, 2017, additional mortgage debt for supplemental loans obtained by the Company during fiscal 2017, and a full year of activity for certain refinancings and supplemental loans obtained by the Company during fiscal 2016.

Other income in fiscal 2016 represents payments received by the Company associated with certain legal settlements.


Provision for income taxes

Provision for income taxes for fiscal 2017 was $2.5 million, or 6.0% of loss before income taxes, compared to a provision for income taxes of $0.4 million, or 1.6% of loss before income taxes, for fiscal 2016. The effective tax rates for fiscal 2017 and 2016 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During each of fiscal 2017 and 2016, the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes. The increase in provision for income taxes for fiscal 2017 was attributable to an increase of $0.2 million for higher state income taxes with the remaining $1.9 million due to recent tax legislation changes associated with the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017.      

Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, adjustments to the deferred tax asset valuation allowance of $5.9 million and $8.6 million were recorded during fiscal 2017 and 2016, respectively, to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized.

Net loss and comprehensive loss

As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $(44.2 million) for the fiscal year ended December 31, 2017, compared to net loss and comprehensive loss of $(28.0 million) for the fiscal year ended December 31, 2016.

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

Revenues

Resident revenue was $447.4 million for the fiscal year ended December 31, 2016, compared to $412.2 million for the fiscal year ended December 31, 2015, representing an increase of $35.3 million, or 8.6%. The increase in resident revenue primarily results from an increase of $31.0 million from the senior housing communities acquired by the Company during fiscal 2016 and a full year of activity for the senior housing communities acquired by the Company during fiscal 2015 and an increase of $6.8 million due to a 2.0% increase in average monthly rental rates at the Company’s same-store communities, slightly offset by a decrease of $2.6 million due to the Company’s sale of one of its senior housing communities located in Wichita, Kansas, (the “Sedgwick Sale Transaction”) and the Company’s sale of four senior housing communities located in Oklahoma City, Oklahoma, Shreveport, Louisiana, Southfield, Michigan, and Winston-Salem, North Carolina (the “Four Property Sale Transaction”), each of which closed in fiscal 2015.

Expenses

Total expenses were $433.1 million during fiscal 2016 compared to $393.3 million during fiscal 2015, representing an increase of $39.7 million, or 10.1%. This increase in expenses is primarily the result of a $25.2 million increase in operating expenses, a $7.4 million increase in depreciation and amortization expense, a $3.3 million increase in general and administrative expenses, a $2.8 million increase in stock-based compensation expense, a $0.5 million increase in provision for bad debts, and a $0.5 million increase in facility lease expense.

The increase in operating expenses primarily results from an increase of $21.2 million from the senior housing communities acquired by the Company during fiscal 2016, a full year of activity for the senior housing communities acquired by the Company during fiscal 2015, and an increase of $6.0 million at the Company’s same-store communities primarily due to increased wages and benefits to employees for annual merit increases as well as the incremental costs to support changes in occupancy mix with more of our residents at higher levels of care, partially offset by a decrease of $2.0 million due to the Sedgwick Sale Transaction and Four Property Sale Transaction each of which closed in fiscal 2015.



•

The increase in depreciation and amortization expense primarily results from an increase of $11.1 million from senior housing communities acquired by the Company during fiscal 2016 and a full year of activity for the senior housing communities acquired by the Company during fiscal 2015 and an increase of $4.0 million due to an increase in depreciable assets at the Company’s same-store communities, partially offset by a decrease in in-place lease amortization of $7.4 million from senior housing communities acquired by the Company prior to the fourth quarter of fiscal 2015 and a decrease of $0.3 million due to the Sedgwick Sale Transaction and Four Property Sale Transaction each of which closed in fiscal 2015.

The increase in general and administrative expenses primarily results from an increase of $1.8 million in employee insurance benefits and claims paid, which resulted in higher health insurance costs to the Company, an increase of $1.1 million for severance benefits associated with the passing of the Company’s Chief Operating Officer in the fourth quarter of fiscal 2016, and an increase of $0.4 million in wages and benefits for existing employee annual merit increases and additional employees hired during fiscal 2016.

The increase in stock-based compensation expense results from the accelerated vesting of restricted stock awards for severance benefits associated with the passing of the Company’s Chief Operating Officer in the fourth quarter of fiscal 2016, the Company granting additional shares of restricted stock and restricted stock units to certain employees and directors of the Company during fiscal 2016, some of which required accelerated expense recognition, and a full year of amortization for restricted stock awards and units granted during fiscal 2015.

The increase in facility lease expense primarily results from contingent annual rental rate escalations for certain existing facility leases.

Other income and expense

Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements.

Interest expense increased $6.5 million in fiscal 2016 when compared to fiscal 2015 primarily due to an increase of $5.0 million from the additional mortgage debt associated with the senior housing communities acquired by the Company during fiscal 2016 and a full year of interest for the senior housing communities acquired by the Company during fiscal 2015 and an increase of $1.7 million at the Company’s consolidated same-store communities due to additional mortgage debt added by the Company associated with supplemental loans that occurred during fiscal 2016 and a full year of activity for certain refinancing’s and supplemental loans that occurred during fiscal 2015, slightly offset by a decrease of $0.2 million due to the Sedgwick Sale Transaction and Four Property Sale Transaction each of which closed in fiscal 2015.

Write-off of deferred loan costs and prepayment premiums in fiscal 2015 is primarily attributable to the early repayment of certain mortgage debt on the Company’s owned senior housing communities due to scheduled maturities and the opportunity to replace interim variable interest rate debt with long-term fixed interest rate financing.

Gain on disposition of assets in fiscal 2015 is primarily attributable to the Sedgwick Sale Transaction, slightly offset with final closing cost adjustments associated with the Four Property Sale Transaction.

Other income in fiscal 2016 primarily represents payments received by the Company associated with certain legal settlements.



Provision for income taxes

Provision for income taxes for fiscal 2016 was $0.4 million, or 1.6% of loss before provision for income taxes, compared to a provision for income taxes of $0.9 million, or 6.7% of loss before provision for income taxes, for fiscal 2015. The effective tax rates for fiscal 2016 and 2015 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. During fiscal 2015, the Company incurred $0.3 million in additional income taxes due to the taxable gain realized from the Four Property Sale Transaction. For income tax purposes, in conjunction with the Sedgwick Sale Transaction that closed in fiscal 2015 the Company executed a like-kind exchange and acquired a replacement property shortly after the sale which resulted in deferral of the gain without the Company incurring any current federal or state income tax liabilities. The Company is impacted by the TMT, which effectively imposes tax on modified gross revenues for communities within the State of Texas. During fiscal 2016 and 2015, the Company consolidated 38 and 37 Texas communities, respectively, and the TMT increased the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies and future expectations of income. Based upon this evaluation, adjustments toAt year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its net deferred tax assetassets. The valuation allowance of $8.6 million and $5.0 million were recorded during fiscal 2016 and 2015, respectively, to reducereduces the Company’s net deferred tax assets to the amount that is more“more likely than notnot” (i.e., a greater than 50% likelihood) to be realized.

41
Table of Contents
Net lossincome (loss) and comprehensive loss

income (loss).

As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $(28.0 million)$54.4 million for the fiscal year ended December 31, 2016,2022, compared to net lossincome and comprehensive lossincome of $(14.3 million)$125.6 million for the fiscal year ended December 31, 2015.

Quarterly Results

The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2017 and 2016. This information has been prepared on the same basis as the audited consolidated financial statements of the Company appearing elsewhere in this report and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company and the related notes thereto.

2021.

 

 

2017 Calendar Quarters

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

 

(In thousands, except per share amounts)

 

Total revenues

 

$

115,990

 

 

$

116,718

 

 

$

117,318

 

 

$

116,971

 

(Loss) Income from operations

 

 

(9,610

)

 

 

4,691

 

 

 

4,513

 

 

 

8,248

 

Net loss and comprehensive loss

 

 

(21,842

)

 

 

(7,835

)

 

 

(8,132

)

 

 

(6,359

)

Net loss per share, basic

 

$

(0.75

)

 

$

(0.27

)

 

$

(0.28

)

 

$

(0.22

)

Net loss per share, diluted

 

$

(0.75

)

 

$

(0.27

)

 

$

(0.28

)

 

$

(0.22

)

Weighted average shares outstanding, basic

 

 

29,288

 

 

 

29,478

 

 

 

29,512

 

 

 

29,531

 

Weighted average shares outstanding, fully diluted

 

 

29,288

 

 

 

29,478

 

 

 

29,512

 

 

 

29,531

 


 

 

2016 Calendar Quarters

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

 

(In thousands, except per share amounts)

 

Total revenues

 

$

109,173

 

 

$

111,034

 

 

$

111,436

 

 

$

115,805

 

Income from operations

 

 

4,153

 

 

 

5,793

 

 

 

3,686

 

 

 

758

 

Net loss and comprehensive loss

 

 

(5,984

)

 

 

(4,446

)

 

 

(7,077

)

 

 

(10,510

)

Net loss per share, basic

 

$

(0.21

)

 

$

(0.15

)

 

$

(0.24

)

 

$

(0.36

)

Net loss per share, diluted

 

$

(0.21

)

 

$

(0.15

)

 

$

(0.24

)

 

$

(0.36

)

Weighted average shares outstanding, basic

 

 

28,751

 

 

 

28,926

 

 

 

28,959

 

 

 

29,000

 

Weighted average shares outstanding, fully diluted

 

 

28,751

 

 

 

28,926

 

 

 

28,959

 

 

 

29,000

 


Liquidity and Capital Resources

In addition to approximately $17.6$16.9 million of unrestricted cash balances on hand as of December 31, 2017,2022, the Company’s principal sources of liquidity are expected to be cash flows from operations, supplemental debt financings, additionalCOVID-19 or related relief grants from various state agencies, proceeds from debt refinancings, equity issuances, and/or proceeds from the sale of owned assets. During November 2021, the Company raised net proceeds of $141.4 million from the private placement of Series A Preferred Stock and common stock to the Conversant Investors and the sale of common stock pursuant to the Rights Offering, and the A&R Investment Agreement allows, subject to certain conditions, for an additional $25 million equity investment by the Conversant Investors to fund future growth initiatives (as more fully described in the A&R Investment Agreement). In March and December 2022 the Company completed the refinancing of certain existing mortgage debt. See "Note 8–Notes Payable" in the Notes to Consolidated Financial Statements.
The Company expectshas implemented plans, which include strategic and cash-preservation initiatives, designed to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its fiscal year 2022 financial statements are issued. While the Company’s plans are designed to provide it with adequate liquidity to meet its obligations for at least the 12-month period following the date its financial statements are issued, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control, and no assurance can be given that certain options will be available on terms acceptable to the Company, or at all. If the Company is unable to successfully execute all of the planned initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash flows from operations, supplemental debt financings, additional proceeds from debt refinancings,equivalents and proceeds from the saleother sources of assets toliquidity may not be sufficient to fund its short-term working capital requirements. The Company’s long-term capital requirements, primarilyoperations for acquisitions and other corporate initiatives, could be dependent on its abilitythe 12-month period following the date the financial statements are issued. See “Note 2–Going Concern Uncertainty" in the Notes to access additional funds through joint ventures and the debt and/or equity markets. Consolidated Financial Statements.
The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio, including supplemental debt financings, debt refinancings, equity issuances, purchases and sales of assets reorganizations and other transactions. There can be no assurance that the Company will continue to generate cash flows at or above current levels, or that the Company will be able to obtain the capital necessary to meet the Company’s short and long-term capital requirements.

Changes

Recent changes in the current economic environment, and other future changes, could result in decreases in the fair value of assets, slowing of transactions, and the tightening of liquidity and credit markets. These impacts could make securing debt for acquisitions or refinancings for the Company its joint ventures, or buyers of the Company’s properties more difficult or on terms not acceptable to the Company. Additionally, the Company may be more susceptible to being negatively impacted byThe Company’s actual liquidity and capital funding requirements depend on numerous factors, including its operating or performance deficits based on the exposure associated with certain lease coverage requirements.

results, its capital expenditures for community investment, and general economic conditions, as well as other factors described in “Item 1A. Risk Factors.”

In summary, the Company’s cash flows were as follows (in thousands):

 

 

Year Ended

December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Net cash provided by operating activities

 

$

55,594

 

 

$

52,279

 

 

$

48,895

 

Net cash used in investing activities

 

 

(124,940

)

 

 

(201,049

)

 

 

(161,427

)

Net cash provided by financing activities

 

 

52,966

 

 

 

126,709

 

 

 

129,410

 

(Decrease) Increase in cash and cash equivalents

 

$

(16,380

)

 

$

(22,061

)

 

$

16,878

 

 Years Ended December 31,
 20222021
Net cash used in operating activities$(2,578)$(28,795)
Net cash used in investing activities(36,904)(10,443)
Net cash (used in) provided by financing activities(22,652)99,415 
(Decrease) increase in cash and cash equivalents$(62,134)$60,177 

Operating Activities

The Company had net cash provided by operating activities of $55.6 million, $52.3 million, and $48.9 million in fiscal 2017, 2016, and 2015, respectively. activities.

The net cash provided byused in operating activities for fiscal 2017the year ended December 31, 2022 primarily results from net non-cash chargesloss of $96.0 million, a decrease in other assets of $4.1 million, an increase in other liabilities of $5.0 million, and an increase in accounts payable of $2.8 million, and in increase in accrued expenses of $1.7$54.4 million, partially offset by net lossincreases in operating assets and liabilities of $(44.2 million), an increase in accounts receivable of $8.2$3.2 million and a decrease in deferred resident revenuenet positive non-cash activity of $1.9 million.$48.6 million. The net cash provided byused in operating activities for fiscal 2016the year ended December 31, 2021, primarily results from net non-cash chargesincome of $82.1 million, an increase in accrued expenses of $4.8 million and an increase in accounts payable of $1.7$125.6 million, partially offset by net lossdecreases in operating assets and liabilities of $(28.0 million), an increase in accounts receivable of $2.5$9.4 million an increase in other assets of $2.2 million, an increase in prepaid expenses of $2.0 million, and a decrease in deferred resident revenue of $1.1 million. The net cash provided by operating activities for fiscal 2015 primarily results from net non-cash charges of $63.8 million, a decrease in prepaid expenses$145.0 million.
42
Table of $2.4 million, an increase in accounts payable and accrued expenses of $3.0 million, and an increase in deferred resident rent and customer deposits of $0.5 million, partially offset by net loss of $(14.3 million), an increase in accounts receivable of $2.9 million, an increase in property tax and insurance deposits of $2.2 million, and an increase in other assets of $1.3 million.

Contents

Investing Activities

The Company had net cash used in investing activities of $124.9 million, $201.0 million, and $161.4 million in fiscal 2017, 2016, and 2015, respectively. activities.

The net cash used in investing activities for fiscal 2017the year ended December 31, 2022 primarily results from capital expenditures of $40.0 million associated with ongoing capital renovationsimprovements and refurbishments at the Company’s senior housing communities of $24.6 million and the acquisition of senior housingtwo communities by the Companyin Indiana for an aggregate purchase price of $85.0$12.3 million. The net cash used in investing activities for fiscal 2016the year ended December 31, 2021 primarily results from ongoing capital expenditures of $62.4 millionimprovements and acquisitions ofrefurbishments at the Company’s senior housing communities by the Company of $138.8$10.4 million.
Financing activities.
The net cash used in investingfinancing activities for fiscal 2015the year ended December 31, 2022 primarily results from capital expendituresrepayments of $42.4notes payable of $102.4 million, deferred loan costs of $2.4 million, purchase of derivative assets of $2.7 million, and acquisitionspreferred stock dividends of senior housing communities by the Company of $162.5$3.0 million, partially offset by $88.1 million of proceeds from the Sedgwick Sale Transaction and Four Property Sale Transactionrefinancing of $43.5 million.    

Financing Activities

The Company had net cash provided by financing activitiescertain of $53.0 million, $126.7 million, and $129.4 millionour mortgage debt, See "Note 8–Notes Payable" in fiscal 2017, 2016, and 2015, respectively.the Notes to Consolidated Financial Statements. The net cash provided by financing activities for fiscal 2017the year ended December 31, 2021 primarily results from notes payable$141.4 million in net proceeds of $77.2from the transactions contemplated by the A&R Investment Agreement and Rights Offering, and $23.1 million of proceeds from debt which $65.0includes the $16.0 million is relatedproceeds from the Promissory Note (See "Note 5–Significant Transactions" in the Notes to new mortgage debt associated with the acquisition of senior housing communities by the Company, approximately $7.1 million related to supplemental mortgage debt obtained on the Company’s existing owned senior housing communities, and approximately $5.1 million related to insurance premium financing,Consolidated Financial Statements), partially offset by repayments of notes payable of $20.1$65.0 million, paymentswhich includes paying off the amounts owed to Fifth Third Bank and the Promissory Note.

Debt Covenants
Certain of our debt agreements contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum debt service coverage ratios, in each case on capital lease and financing obligations of $2.9 million, and deferred financing charges paid of $1.2 million associated with the acquisition of senior housing communitiesa multi-community basis. The debt service coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee, divided by the Company.debt (principal and interest). Furthermore, our debt is secured by our communities and if an event of default has occurred under any of our debt, subject to cure provisions in certain instances. The net cash provided by financing activitiesrespective lender would have the right to declare all of the related outstanding amounts of indebtedness immediately due and payable, to foreclose on our mortgaged communities and/or pursue other remedies available to such lender. We cannot provide assurance that we would be able to pay the debts if they became due upon acceleration following an event of default.
Except for fiscal 2016 primarily results from notes payable proceedsthe non-compliance with Fannie Mae mortgages for the two properties in the process of $150.8 million, of which approximately $101.5 million is relatedtransitioning back to newFannie Mae, and certain mortgage debt associatedloan agreements with Protective Life (See "Note 16–Subsequent Events" in the acquisition of senior housing communities byNotes to Consolidated Financial Statements), the Company approximately $44.4 million related to supplemental mortgage debt obtained on existing senior housing communities, and approximately $4.9 million related to insurance premium financing, partially offset by repaymentswas in compliance with all aspects of notes payable of $17.7 million, purchases of treasury stock of $2.5 million, deferred financing charges paid of $2.5 million, and payments on capital lease and financing obligations of $1.3 million. The net cash provided by financing activities for fiscal 2015 primarily results from notes payable proceeds of $250.9 million, of which approximately $118.1 million is related to new mortgage debt associated with the acquisition of senior housing communities by the Company, approximately $2.2 million related to insurance premium financing, and the remaining $130.6 million resulted from supplemental financings, mortgage refinancings, or new mortgage debt obtained on existing unencumbered senior housing communities, partially offset by repayments of notes payable of $115.9 million, deferred financing charges paid of $3.8 million, payments on capital lease and financing obligations of $1.0 million, and additions to restricted cash of $0.9 million.

Disclosures About Contractual Obligations

The following table provides the amounts due under specified contractual obligations for the periods indicatedits outstanding indebtedness as of December 31, 2017 (in thousands):

 

 

Less Than

One

Year

 

 

One to

Three Years

 

 

Three to

Five Years

 

 

More Than

Five Years

 

 

Total

 

Long-term debt, including interest expense(1)

 

$

66,705

 

 

$

196,492

 

 

$

249,901

 

 

$

718,234

 

 

$

1,231,332

 

Operating and capital leases(2)

 

 

64,391

 

 

 

126,246

 

 

 

100,584

 

 

 

144,241

 

 

 

435,462

 

Total contractual cash obligations

 

$

131,096

 

 

$

322,738

 

 

$

350,485

 

 

$

862,475

 

 

$

1,666,794

 

(1)

Amounts due associated with our variable rate mortgage debt is projected by applying the variable interest rates effective at December 31, 2017.

2022.

(2)

Reflects future minimum lease commitments under the Company’s various property and equipment lease agreements at current rental rates.

Impact of Inflation

Long-term debt relates to the aggregate maturities

The continuation of the Company’s notes payable. As of December 31, 2017, the Company leases its corporate headquarters in Dallas, an executive office in New York, 46 senior housing communities and certain equipment used at the Company’s communities.


Impact of Inflation

To date, inflation has not had a significant impact on the Company. However, inflationcurrent inflationary environment could affect the Company’s future revenues and results of operations because of, among other things, the Company’s dependence on senior residents, many of whom rely primarily on fixed incomes to pay for the Company’s services. As a result, during inflationary periods, the Company may not be able to increase resident service fees to account fully for increased operating expenses. In structuring its fees, the Company attempts to anticipate inflation levels, but there can be no assuranceassurances that the Company will be able to anticipate fully or otherwise respond to any future inflationary pressures.

Our non-labor operating expenses have historically comprised of approximately one-third of our total operating expenses and are subject to inflationary pressures. The United States consumer price index increased 6.5% during 2022, with food and energy prices increasing above 10%. We mitigated a portion of the increase in food costs with the scale benefit of a higher number of residents, along with appropriate product substitution. Despite our mitigation efforts and with higher occupancy, for 2022 our non-labor operating expense in our same-store community portfolio increased approximately $4.0 million, or 6.8%, compared to the prior year. For 2023, we expect to continue to experience inflationary pressures.
Historically, labor costs have comprised of approximately two-thirds of our total operating expenses. We began to experience pressures associated with the intensely competitive labor environment during 2021, which continued throughout 2022. The United States’ unemployment rate remained at or below 4.0% each month during 2022, and many of states experienced record low unemployment rates. Labor pressures have resulted in higher-than-typical associate turnover and wage growth, and we have experienced difficulty in filling open positions timely. To cover existing open positions, during 2021 and continuing into 2022, we needed to rely on more expensive premium labor, primarily contract labor and overtime. In our same-store community portfolio, the labor component of our operating expense increased approximately $9.5 million, or 10.2% during 2022 compared to 2021. The increase primarily resulted from merit and market wage rate adjustments, more hours worked with higher occupancy during 2022, and an increase in the use of premium labor, primarily contract labor and overtime.
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For 2023, we expect to continue to experience labor cost pressures as a result of the continuing labor conditions previously described and an anticipated increase in hours worked as our occupancy levels grow. Continued increased competition for, or a shortage of, nurses and other employees and general inflationary pressures have required and may require that we enhance our pay and benefits package to compete effectively for such employees.

ITEM 7A.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company’s primary market risk is exposure to changes in interest rates on debt and lease instruments. As of December 31, 2017, the Company had $967.3 million in outstanding debt comprised of various fixed and variable interest rate debt instruments of $890.8 million and $76.5 million, respectively. In addition, as of December 31, 2017, the Company had $433.3 million in future facility lease obligations with contingent rent increases on certain leases based on changes in the consumer price index or certain operational performance measures.

Changes in interest rates would affect the fair market value of the Company’s fixed interest rate debt instruments, but would not have an impact on the Company’s earnings or cash flows. Fluctuations in interest rates on the Company’s variable interest rate debt instruments, which are tied to LIBOR, would affect the Company’s earnings and cash flows but would not affect the fair market values of the variable interest rate debt. Each percentage point increase in interest rates would impact the Company’s annual interest expense by approximately $0.8 million based on the Company’s outstanding variable interest rate debt as of December 31, 2017. Increases in the consumer price index could have an effect on future facility lease expense if the leased community exceeds the contingent rent escalation thresholds set forth in each of the Company’s lease agreements.

The following table summarizes information on the Company’s debt instruments outstanding as of December 31, 2017. The table presents the principal due and weighted average interest rates by expected maturity date for the Company’s debt instruments by fiscal year.

Principal Amount, which excludes deferred loan costs, and Average Interest Rate by Expected Maturity Date at December 31, 2017 ($ in thousands):

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

 

Total

 

 

Fair

Value

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate debt

 

$

21,168

 

 

$

17,742

 

 

$

18,482

 

 

$

72,706

 

 

$

106,161

 

 

$

654,568

 

 

$

890,827

 

 

$

852,495

 

Average interest rate

 

 

4.6

%

 

 

4.6

%

 

 

4.6

%

 

 

4.6

%

 

 

4.6

%

 

 

4.6

%

 

 

 

 

 

 

 

 

Variable rate debt

 

 

253

 

 

 

11,252

 

 

 

65,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,505

 

 

 

76,505

 

Average interest rate

 

 

5.5

%

 

 

5.4

%

 

 

5.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

967,332

 

 

$

929,000

 

Not applicable.

ITEM 8.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of the Company are included underin Item 15 of this Annual Report on Form 10-K.

ITEM 9.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

The Company had no disagreements on accounting or financial disclosure matters with its independent accountants to report under this Item 9.


ITEM 9A.

CONTROLS AND PROCEDURES.

Effectiveness

ITEM 9A.    CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures

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

Based upon the controls evaluation and the material weakness described below, the Company’s CEOChief Executive Officer and CFOPrincipal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

ineffective.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fiscal quarter ended December 31, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Internal Controls Over Financial Reporting

Management’s Report Onon Internal Control Over Financial Reporting

Management of the Company, including the Chief Executive Officer and the ChiefPrincipal Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013 framework). Based on our assessment and the material weakness described below, we believe that, as of December 31, 2017,2022, the Company’s internal control over financial reporting is effectiveineffective based on those criteria.

The effectiveness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not
44
Table of Contents
be prevented or detected on a timely basis.Our financial statement close process controls, which relate to all financial statement accounts, did not operate effectively to ensure account reconciliations and journal entries were performed or reviewed at the appropriate level of precision and on a timely basis. Thesecontrol deficiencies could result in a material misstatement of our accounts or disclosures that would not be prevented or detected on a timely basis, and accordingly, we determined that these control deficiencies constitute a material weakness.
Remediation Plan
As disclosed in previous filings for the years ended December 31, 2020 and 2021, and for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, we previously identified a material weakness in our internal control over financial reportingreporting.Due to challenges in maintaining necessary accounting staffing levels, this material weakness has not been remediated as of December 31, 2017, has been audited by Ernst & Young LLP,2022, as disclosed above, and our expected timeline for completing the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report which is included as partremediation of this Annual Reportmaterial weakness has extended beyond our original estimates.
We have developed a plan for remediation of the material weakness, including developing and maintaining appropriate management review and process level controls.Control weaknesses are not considered remediated until new internal controls have been operational for a period of time, are tested and management concludes that these controls are operating effectively. We will continue to monitor the effectiveness of our remediation measures in connection with our future assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures.We will make any changes to the design of our plan and take such other actions that we deem appropriate given the circumstances. We expect to complete the remediation process by the end of the fourth quarter of 2023.
The establishment of effective internal controls over financial reporting and disclosure controls and procedures is the responsibility of the Company.As a non-accelerated filer, the Company is not required to obtain an attestation on Form 10-K. The Ernst & Young LLP report is on page F-33 of this report.

internal controls over financial reporting.

ITEM 9B.

OTHER INFORMATION.

ITEM 9B.    OTHER INFORMATION.
None.

ITEM 9C.    DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
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Table of Contents
PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.*
ITEM 11.    EXECUTIVE COMPENSATION.*
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.*
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.*
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.*

None.


PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE.*

*Information required by Items 10, 11, 12, 13 and 14 will be set forth in our proxy statement, which will be filed with the SEC within 120 days after December 31, 2022.

ITEM 11.

EXECUTIVE COMPENSATION.*

46

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.*

Table of Contents

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.*

PART IV

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES.*


*

Information required by Items 10, 11, 12, 13 and 14 will be set forth in the definitive proxy statement relating to the 2018 Annual Meeting of Stockholders of Capital Senior Living Corporation, which will be filed with SEC pursuant to Regulation 14A under the Exchange Act. This definitive proxy statement relates to a meeting of stockholders involving the election of directors and the portions therefrom required to be set forth in this Form 10-K by Items 10, 11, 12, 13 and 14 are incorporated herein by reference pursuant to General Instruction G(3) to Form 10-K.


PART IV

ITEM 15.

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this Report:

Annual Report on Form 10-K:

(1)

Financial Statements:

(5)Financial Statements:

The response to this portion of Item 15 is submitted as a separate section of this Report.Annual Report on Form 10-K. See “Index to Financial Statements” at page F-1.

(2)

Financial Statement Schedules:

(2)Financial Statement Schedules:

All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

(3)

Exhibits:

(3)Exhibits:

The following documents are filed as a part of this report.Annual Report on Form 10-K. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this reportAnnual Report on Form 10-K have been omitted.

Exhibit

Number

Description

3.1

Exhibit
Number

Description

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

3.1.1

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

3.2

3.1.2

Second Amendment to Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on December 14, 2020.)

3.1.3
Third Amendment to Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 4, 2021.)
3.1.4
Fourth Amendment to Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 10, 2021.)
3.2
Second Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on March 8, 2013.)

4.1

3.2.1

Amendment to the Second Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 10, 2021.)

3.3
Certificate of Designation, Rights and Privileges of Series A Convertible Preferred Stock, par value $0.01, of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 4, 2021.)
4.1
2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation.Corporation (Incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-8 filed by the Company with the Securities and Exchange Commission on May 31, 2007.)

4.2

First Amendment to 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation.Corporation (Incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8 filed by the Company with the Securities and Exchange Commission on May 31, 2007.)

4.3

Amended and Restated Second Amendment to the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation, as amended.amended (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on May 22, 2015.)

10.1

4.4

Employment Agreement, dated as of November 26, 1996, by2019 Omnibus Stock and between Incentive Plan for Capital Senior Living Inc. and David R. BrickmanCorporation (Incorporated by reference to Exhibit 10.1210.1 to the Registration Statement No. 333-33379Company’s Current Report on Form S-18-K filed by the Company with the Securities and Exchange Commission.)Commission on May 15, 2019)

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Table of Contents

10.2

4.5

Amendment No. 1 to the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 4, 2021.)

*4.6
Description of the Company’s securities
10.1
Agreement of Limited Partnership of Triad Senior Living II, L.P., dated September 23, 1998 (Incorporated by reference to Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.)

10.3

10.2

Agreement of Limited Partnership of Triad Senior Living III, L.P., dated November 10, 1998 (Incorporated by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.)


Exhibit

Number

Description

10.4

10.3

Agreement of Limited Partnership of Triad Senior Living IV, L.P., dated December 22, 1998 (Incorporated by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.)

10.5

10.4

Employment Agreement, dated May 26, 1999, by and between Lawrence A. Cohen and Capital Senior Living Corporation (Incorporated by reference to the Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed by the Company with the Securities and Exchange Commission.)

10.6

Second Amended and Restated Agreement of Limited Partnership of Triad Senior Living I, L.P. (Incorporated by reference to the Exhibit 10.78 to the Company’s Annual Report on Form 10-K, dated March 30, 2000, filed by the Company with the Securities and Exchange Commission.)

10.6.1

10.5

Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of Triad Senior Living I, LP. (Incorporated by reference to the Exhibit 10.105 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, filed by the Company with the Securities and Exchange Commission.)

10.7

10.5.1

First Amendment to Triad II Partnership Agreement (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, dated August 15, 2000, filed by the Company with the Securities and Exchange Commission.)

10.8

10.6

Second Amendment to the Employment Agreement of Lawrence A. Cohen, dated January 27, 2003 by and between Lawrence A. Cohen and Capital Senior Living Corporation (Incorporated by reference to Exhibit 10.106 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.)

10.9

Second Amendment to the Employment Agreement of David R. Brickman, dated January 27, 2003 by and between David R. Brickman and Capital Senior Living Corporation (Incorporated by reference to Exhibit 10.109 to the Company’s Annual Report on Form 10-K, dated March 26, 2003, filed by the Company with the Securities and Exchange Commission.)

10.10

Master Lease Agreement, dated June 30, 2005, between Ventas Amberleigh, LLC and Capital Senior Management 2, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, dated June 30, 2005, filed by the Company with the Securities and Exchange Commission on July 11, 2005.)

10.11

Schedule identifying substantially identical agreements to Exhibit 10.10 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A, dated June 30, 2005, filed by the Company with the Securities and Exchange Commission on July 11, 2005.)

10.12

10.7

Master Lease Agreement, dated October 18, 2005, between Ventas Georgetowne, LLC and Capital Senior Management 2, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated October 18, 2005, filed by the Company with the Securities and Exchange Commission.)

10.13

Master Lease Agreement, dated May 31, 2006, between subsidiaries of the Company and HCP (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated May 31, 2006, filed by the Company with the Securities and Exchange Commission.)

10.14

Lease, dated May 31, 2006, between subsidiaries of the Company and HCP regarding the Crosswood Oaks Facility in Citrus Heights, California (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated May 31, 2006, filed by the Company with the Securities and Exchange Commission.)

10.15

Schedule identifying substantially identical agreements to Exhibit 10.14 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, dated May 31, 2006, filed by the Company with the Securities and Exchange Commission.)

10.8


Exhibit

Number

Description

10.16

Fourth Amendment to the Employment Agreement of Lawrence A. Cohen. (Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 20, 2010.)

10.17

Master Lease Agreement, dated as of September 10, 2010, between Capital Texas S, LLC and the Landlord parties thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2010.)

10.18

Employment Agreement, dated July 22, 2010, by and between Capital Senior Living, Inc. and Joseph G. Solari (Incorporated by reference to the Exhibit 10.50 to the Company’s Annual Report on Form 10-K, dated March 12, 2012, filed by the Company with the Securities and Exchange Commission.)

10.19

Employment Agreement, dated April 25, 2014, by and between Capital Senior Living, Inc. and Carey P. Hendrickson (Incorporated by reference to the Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated April 28, 2014, filed by the Company with the Securities and Exchange Commission.)

10.20

Form of Outside Director’s Restricted Share Unit Award Under the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation.Corporation (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed by the Company with the Securities and Exchange Commission on August 5, 2015.)

10.21

10.9

Second Amendment to Employment Agreement of Joseph G. Solari, dated August 31, 2013January 7, 2019, by and between Capital Senior Living Corporation and Joseph G. Solari.Kimberly S. Lody (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 8, 2019.)
10.1
Non-qualified Stock Option Agreement dated January 7, 2019, by and between Capital Senior Living Corporation and Kimberly S. Lody (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 8, 2019.)
10.11
Performance Award Agreement dated January 7, 2019, by and between Capital Senior Living Corporation and Kimberly S. Lody (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 8, 2019.)
10.12
Restricted Stock Award Agreement dated January 7, 2019, by and between Capital Senior Living Corporationand Kimberly S. Lody (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 8, 2019.)
10.13
Employment Agreement, dated February 20, 2019, by and between Capital Senior Living Corporation and Michael C. Fryar (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed by the Company with the Securities and Exchange Commission on May 6, 2015.August 9, 2019.)

10.22

10.14

Amendment to Employment Agreement of Brett D. Lee, dated July 25, 2017,, by andand between CapitalSonida Senior Living, CorporationInc. and Brett D. LeeBrandon Ribar (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company with the Securities and Exchange Commission on August 5, 2022.)
10.15
Sign-On Performance Award Agreement, dated as of September 10, 2019, by and between Capital Senior Living Corporation and Brandon M. Ribar. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 10, 2019.)
48
Table of Contents
10.16
Sign-On Restricted Stock Award Agreement, dated as of September 10, 2019, by and between Capital Senior Living Corporation. and Brandon M. Ribar. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on September 10, 2019.)
10.17
Forbearance Agreement, dated as of March 15, 2020, by and among Midwest Miracle Hills, LLC, Midwest Woodbridge, LLC, Midwest Ames, LLC, Midwest Prestwick, LLC, Midwest Village of Columbus, LLC, Midwest Windermere, LLC, Midwest 108th & Q, LLC, Midwest Van Dorn, LLC, HCRI Texas Properties, Ltd., 402 South Colonial Drive, LLC, 311 E. Hawkins Parkway, LLC, 2281 Country Club Drive, LLC, 5902 North Street, LLC, 750 North Collegiate Drive, LLC, 1011 E. Pecan Grove Road, LLC, 5550 Old Jacksonville Highway, LLC, 1329 Brown Street, LLC, 1818 Martin Drive, LLC, 901 Florsheim Drive, LLC, 504 North River Road, LLC, 6949 Main Street, LLC, 41 Springfield Avenue, LLC, Capital Midwest, LLC, Capital Texas S, LLC, Capital Spring Meadows, LLC and Capital Senior Living Properties, Inc. (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 19, 2020.)
10.18
Employment Agreement, dated as of March 26, 2021, by and between Capital Senior Living Corporation and David R. Brickman (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission on March 31, 2021.)
10.19
Investment Agreement, dated as of July 22, 2021, by and between Capital Senior Living Corporation Conversant Dallas Parkway (A) LP and Conversant Dallas Parkway (B) LP (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on July 10, 2017.22, 2021.)

10.2

Secured Promissory Note, Effective as of July 22, 2021 (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed by the Company with the Securities and Exchange Commission on August 13, 2021.)
10.21
Form of Retention Agreement for Company Executive Officers (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed by the Company with the Securities and Exchange Commission on August 13, 2021.)
10.22
Amended and Restated Investment Agreement, dated as of October 1, 2021, by and between Capital Senior Living Corporation Conversant Dallas Parkway (A) LP and Conversant Dallas Parkway (B) LP (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 1, 2021.)
10.23
Rights Offering Backstop and Participation Agreement, dated as of October 1, 2021, by and between Capital Senior Living Corporation, Silk Partners LP and Arbiter Partners QP, LP (Incorporated by reference to Exhibit 10.2 Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 1, 2021.)
10.24
Investor Rights Agreement, dated as of November 3, 2021, by and among Capital Senior Living Corporation, Conversant Dallas Parkway (A) LP, Conversant Dallas Parkway (B) LP and Silk Partners LP (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 4, 2021.)
10.25
Registration Rights Agreement, dated as of November 3, 2021, by and among Capital Senior Living Corporation, Conversant Dallas Parkway (A) LP and Conversant Dallas Parkway (B) LP (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 4, 2021.)
10.26
Warrant Agreement, dated as of November 3, 2021, by and among Capital Senior Living Corporation, Computershare Inc. and Computershare Trust Company, N.A. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 4, 2021.)
10.27
10.28
10.29
*21.1

Subsidiaries of the Company

*23.1

Consent of Ernst & Young LLP

*23.2

Consent of RSM US LLP
49
Table of Contents
*31.1

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

*31.2

Certification of ChiefPrincipal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

*32.1

Certification of Lawrence A. CohenPrincipal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002

*32.2

*101.INS

Inline XBRL Instance Document

*101.SCH

Inline XBRL Taxonomy Extension Schema Document

*101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

*101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

*101.PRE

��

Inline XBRL Taxonomy Extension Presentation Linkbase Document

*101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

*104Cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (included in Exhibit 101).

*

Filed herewith.

*Filed herewith.


50

Table of ContentsSIGNATURES

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAPITALSONIDA SENIOR LIVING, CORPORATION

INC.

By:

/s/   LAWRENCE A. COHEN

BRANDON M. RIBAR

Lawrence A. Cohen

Brandon M. Ribar

Vice Chairman of the Board andPresident, Chief Executive Officer

and Director

Date: March 2, 2018

30, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature to this report appears below hereby appoints Lawrence A. CohenBrandon M. Ribar and Carey P. HendricksonKevin J. Detz and each of them, any one of whom may act without the joinder of the other, as his or her attorney-in-fact to sign on his or her behalf, individually and in each capacity stated below, and to file all amendments to this report, which amendment or amendments may make such changes in and additions to the report as any such attorney-in-fact may deem necessary or appropriate.

Signature

Title

Date

Signature

Title		Date

/s/    LAWRENCE A. COHEN

BRANDON M. RIBAR

President and Chief Executive Officer and Vice

(Principal Executive Officer)

March 2, 2018

30, 2023

Lawrence A. Cohen

Brandon M. Ribar

/s/    KEVIN J. DETZExecutive Vice President and Chief Financial Officer (Principal Financial Officer)March 30, 2023
Kevin J. Detz
/s/   DAVID W. JOHNSONChairman of the Board (Principal

March 30, 2023

David W. Johnson

Executive Officer)

/s/    CAREY P. HENDRICKSON

NOAH R. BEREN

Senior Vice President and

Director

March 2, 2018

30, 2023

Carey P. Hendrickson

Noah R. Beren

Chief Financial Officer (Principal

Financial and Accounting Officer)

/s/    BENJAMIN P. HARRIS

Director		March 30, 2023

/s/    MICHAEL W. REID

Benjamin P. Harris

Chairman of the Board

March 2, 2018

Michael W. Reid

/s/    PHILIP A. BROOKS

Director

March 2, 2018

Philip A. Brooks

/s/    ED A. GRIER

Director

March 2, 2018

Ed A. Grier

/s/    E. RODNEY HORNBAKE

Director

March 2, 2018

E. Rodney Hornbake

/s/    PAUL J. ISAAC

Director

March 2, 2018

Paul J. Isaac

/s/    JILL M. KRUEGER

Director

March 2, 2018

30, 2023

Jill M. Krueger

/s/    ROSS B. LEVIN

MAX J. LEVY

Director

March 2, 2018

30, 2023

Ross B. Levin

Max J. Levy

/s/    KIMBERLY S. LODY

SHMUEL S.Z. LIEBERMAN

Director

March 2, 2018

30, 2023

Kimberly S. Lody

Shmuel S.Z. Lieberman

/s/    RONALD A. MALONE

ELLIOT R. ZIBEL

Director

March 2, 2018

30, 2023

Ronald A. Malone

Elliot R. Zibel



51
Table of Contents
INDEX TO FINANCIAL STATEMENTS

Page

Page
Consolidated Financial Statements of CapitalSonida Senior Living, Corporation

Inc.

Report of Independent Registered Public Accounting Firm Ernst & Young LLP

 (PCAOB ID: 49)

F-2

F-2

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
F-4
Consolidated Balance Sheets — December 31, 20172022 and 2016202

1

F-3

F-5

Consolidated Statements of Operations and Comprehensive LossIncome (Loss) — For the years ended December 31, 2017, 20162022 and 2015

2021

F-4

F-6

Consolidated Statements of Shareholders’ Equity (Deficit) — For the years ended December 31, 2017, 20162022 and 2015

2021

F-5

F-7

Consolidated Statements of Cash Flows — For the years ended December 31, 2017, 20162022 and 2015

2021

F-6

F-8

Notes to Consolidated Financial Statements

F-7

F-Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, Ernst & Young LLP9

F-33



F-1
Table of Contents
Report of Independent RegisteredRegistered Public Accounting Firm

To the Shareholders and the Board of Directors of CapitalSonida Senior Living, Corporation

Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheetssheet of CapitalSonida Senior Living, CorporationInc. (the Company) as of December 31, 2017 and 2016, and2022, the related consolidated statements of operations and comprehensive loss, shareholders'income (loss), shareholders’ equity (deficit) and cash flows, for each of the three years in the periodyear then ended, December 31, 2017, and the related notes (collectively, referred to as the “financial statements”)financial statements). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company atas of December 31, 20172022, and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the periodyear then ended December 31, 2017, in conformity with U.S.accounting principles generally accepted accounting principles.

Wein the United States of America.

The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered from recurring losses from operations and total current liabilities exceed total current assets. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also have audited,are described in accordance withNote 2. The financial statements do not include any adjustments that might result from the standardsoutcome of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 2, 2018, expressed an unqualified opinion thereon.

this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company‘sCompany's management. Our responsibility is to express an opinion on the Company‘sCompany's financial statements based on our audits.audit. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsaudit included performing procedures to assess the riskrisks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Valuation of long-lived assets for impairment
As described in Note 4 to the consolidated financial statements, the Company assessed $615.8 million of long-lived assets for impairment. The Company assesses its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of its long-lived assets may not be recoverable. As part of the Company’s impairment indicator analysis, management considers numerous potential indicators of impairment which include internal factors, such as net operating losses, along with external factors relating to each asset including contract changes, local market developments and other publicly available information to determine whether impairment indicators exist. The Company identified indicators of impairment for certain long-lived assets and, in such cases, further assessed the assets for recoverability by comparing the net carrying value to estimated future cash flows on an undiscounted basis.
F-2
Table of Contents
We identified the evaluation of impairment for asset groups with impairment indicators as a critical audit matter because of the significant assumptions management makes in estimating the future undiscounted cash flows, including revenue and expense projections and terminal capitalization rates used. Auditing management’s undiscounted cash flow model required a high degree of auditor judgment and increased audit effort as estimates underlying the calculation, including revenue and expense growth rates and terminal capitalization rates, were based on assumptions which are impacted by expected future market and economic conditions.
Our audit procedures related to the Company’s evaluation of long-lived assets for impairment included the following, among others.
•We evaluated the reasonableness of management’s undiscounted cash flow projections by testing the inputs used to develop estimates of future cash flow including occupancy, rental rate and expense growth assumptions by comparing to historical occupancy trends, consideration of changes in the asset group’s business and inspection of publicly available industry and market outlook information.
•We evaluated the reasonableness of management’s terminal capitalization rates by comparing rates to market and industry sales data.
•We assessed information and events subsequent to the balance sheet date to corroborate the expected increase in rental rates to resident leases.
/s/ Ernst & YoungRSM US LLP

We have served as the Company’s auditorsauditor since 2006.

2022.

Dallas, Texas

March 2, 2018

30, 2023

F-3

Table of ContentsCAPITAL
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Sonida Senior Living, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Sonida Senior Living, Inc. (the Company) as of December 31, 2021, the related consolidated statements of operations and comprehensive income (loss), shareholders' equity (deficit) and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP 
We served as the Company’s auditor from 2006 to 2021.
Dallas, Texas
April 15, 2022
F-4
Table of Contents
SONIDA SENIOR LIVING, CORPORATION

INC.

CONSOLIDATED BALANCE SHEETS

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,646

 

 

$

34,026

 

Restricted cash

 

 

13,378

 

 

 

13,297

 

Accounts receivable, net

 

 

12,307

 

 

 

13,675

 

Property tax and insurance deposits

 

 

14,386

 

 

 

14,665

 

Prepaid expenses and other

 

 

6,332

 

 

 

6,365

 

Total current assets

 

 

64,049

 

 

 

82,028

 

Property and equipment, net

 

 

1,099,786

 

 

 

1,032,430

 

Other assets, net

 

 

18,836

 

 

 

31,323

 

Total assets

 

$

1,182,671

 

 

$

1,145,781

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,801

 

 

$

5,051

 

Accrued expenses

 

 

40,751

 

 

 

39,064

 

Current portion of notes payable, net of deferred loan costs

 

 

19,728

 

 

 

17,889

 

Current portion of deferred income

 

 

13,840

 

 

 

16,284

 

Current portion of capital lease and financing obligations

 

 

3,106

 

 

 

1,339

 

Federal and state income taxes payable

 

 

383

 

 

 

218

 

Customer deposits

 

 

1,394

 

 

 

1,545

 

Total current liabilities

 

 

87,003

 

 

 

81,390

 

Deferred income

 

 

10,033

 

 

 

12,205

 

Capital lease and financing obligations, net of current portion

 

 

48,805

 

 

 

37,439

 

Deferred taxes

 

 

1,941

 

 

 

—

 

Other long-term liabilities

 

 

16,250

 

 

 

15,325

 

Notes payable, net of deferred loan costs and current portion

 

 

938,206

 

 

 

882,504

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value:

 

 

—

 

 

 

—

 

Authorized shares — 15,000; no shares issued or outstanding

 

 

 

 

 

 

 

 

Common stock, $.01 par value:

 

 

 

 

 

 

 

 

Authorized shares — 65,000; issued and outstanding shares 30,505

   and 30,012 in 2017 and 2016, respectively

 

 

310

 

 

 

305

 

Additional paid-in capital

 

 

179,459

 

 

 

171,599

 

Retained deficit

 

 

(95,906

)

 

 

(51,556

)

Treasury stock, at cost – 494 shares in 2017 and 2016

 

 

(3,430

)

 

 

(3,430

)

Total shareholders’ equity

 

 

80,433

 

 

 

116,918

 

Total liabilities and shareholders’ equity

 

$

1,182,671

 

 

$

1,145,781

 

(in thousands)

 December 31,
 20222021
ASSETS
Current assets:
Cash and cash equivalents$16,913 $78,691 
Restricted cash13,829 14,185 
Accounts receivable, net6,114 3,983 
Federal and state income taxes receivable2 — 
Prepaid expenses and other4,097 9,328 
Derivative assets, current2,611 — 
Total current assets43,566 106,187 
Property and equipment, net615,754 621,199 
Derivative assets, non-current111 — 
Other assets, net1,837 1,166 
Total assets$661,268 $728,552 
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$7,272 $9,168 
Accrued expenses36,944 37,026 
Current portion of notes payable, net of deferred loan costs46,029 69,769 
Current portion of deferred income3,419 3,162 
Federal and state income taxes payable— 599 
Other current liabilities653 758 
Total current liabilities94,317 120,482 
Other long-term liabilities113 288 
Notes payable, net of deferred loan costs and current portion625,002 613,342 
Total liabilities719,432 734,112 
Commitments and contingencies
Redeemable preferred stock:
Series A convertible preferred stock, $0.01 par value; 41 shares authorized, 41 shares issued and outstanding as of December 31, 2022 and 202143,550 41,250 
Shareholders’ deficit:
Preferred stock, $0.01 par value:
Authorized shares — 15,000 as of December 31, 2022 and 2021; none issued or outstanding, except Series A convertible preferred stock as noted above— — 
Common stock, $0.01 par value:
Authorized shares — 15,000 and 15,000 as of December 31, 2022 and 2021, respectively; 6,670 and 6,634 shares issued and outstanding as of December 31, 2022 and 2021, respectively67 66 
Additional paid-in capital295,277 295,781 
Retained deficit(397,058)(342,657)
Total shareholders’ deficit(101,714)(46,810)
Total liabilities, redeemable preferred stock and shareholders’ deficit$661,268 $728,552 
See accompanying notes to consolidated financial statements.


F-5

Table of ContentsCAPITAL
SONIDA SENIOR LIVING, CORPORATION

INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

INCOME (LOSS)

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Resident revenue

 

$

466,997

 

 

$

447,448

 

 

$

412,177

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (exclusive of facility lease expense and

   depreciation and amortization expense shown below)

 

 

290,662

 

 

 

273,899

 

 

 

248,736

 

General and administrative expenses

 

 

23,574

 

 

 

23,671

 

 

 

20,351

 

Facility lease expense

 

 

56,432

 

 

 

61,718

 

 

 

61,213

 

Loss on facility lease termination

 

 

12,858

 

 

 

—

 

 

 

—

 

Provision for bad debts

 

 

1,748

 

 

 

1,727

 

 

 

1,192

 

Stock-based compensation expense

 

 

7,682

 

 

 

11,645

 

 

 

8,833

 

Depreciation and amortization expense

 

 

66,199

 

 

 

60,398

 

 

 

53,017

 

Total expenses

 

 

459,155

 

 

 

433,058

 

 

 

393,342

 

Income from operations

 

 

7,842

 

 

 

14,390

 

 

 

18,835

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

73

 

 

 

67

 

 

 

53

 

Interest expense

 

 

(49,471

)

 

 

(42,207

)

 

 

(35,732

)

Write-off of deferred loan costs and prepayment premiums

 

 

—

 

 

 

—

 

 

 

(2,766

)

(Loss) Gain on disposition of assets, net

 

 

(123

)

 

 

(65

)

 

 

6,225

 

Other income

 

 

7

 

 

 

233

 

 

 

1

 

Loss before provision for income taxes

 

 

(41,672

)

 

 

(27,582

)

 

 

(13,384

)

Provision for income taxes

 

 

(2,496

)

 

 

(435

)

 

 

(900

)

Net loss

 

$

(44,168

)

 

$

(28,017

)

 

$

(14,284

)

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per share

 

$

(1.50

)

 

$

(0.97

)

 

$

(0.50

)

Diluted net loss per share

 

$

(1.50

)

 

$

(0.97

)

 

$

(0.50

)

Weighted average shares outstanding — basic

 

 

29,453

 

 

 

28,909

 

 

 

28,688

 

Weighted average shares outstanding — diluted

 

 

29,453

 

 

 

28,909

 

 

 

28,688

 

Comprehensive loss

 

$

(44,168

)

 

$

(28,017

)

 

$

(14,284

)

 Years Ended December 31,
 20222021
 (In thousands, except per share data)
Revenues:  
Resident revenue$208,703 $190,213 
Management fees2,359 3,603 
Managed community reimbursement revenue27,371 40,902 
Total revenues$238,433 $234,718 
Expenses:
Operating expense171,635 157,269 
General and administrative expense30,286 32,328 
Depreciation and amortization expense38,448 37,870 
Long-lived asset impairment1,588 6,502 
Managed community reimbursement expense27,371 40,902 
Total expenses269,328 274,871 
Other income (expense):
Interest income235 6 
Interest expense(33,025)(37,234)
    Gain (loss) on extinguishment of debt, net(641)199,901 
Loss on settlement of backstop— (4,600)
Other income, net10,011 8,270 
Income (loss) before provision for income taxes(54,315)126,190 
Provision for income taxes(86)(583)
Net (loss) income$(54,401)$125,607 
Dividends on Series A convertible preferred stock(2,269)(718)
Undeclared dividends on Series A convertible preferred stock(2,300)— 
Remeasurement of Series A convertible preferred stock— (13,474)
Net income (loss) attributable to common stock$(58,970)$111,415 
Per share data:
Basic net income (loss) per share$(9.27)$38.24 
Diluted net income (loss) per share$(9.27)$37.92 
Weighted average shares outstanding — basic6,359 2,750 
Weighted average shares outstanding — diluted6,359 2,773 
Comprehensive income (loss)$(54,401)$125,607 


See accompanying notes to consolidated financial statements.


F-6

Table of ContentsCAPITAL
SONIDA SENIOR LIVING, CORPORATION

INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(DEFICIT)

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Treasury

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Total

 

 

 

(In thousands)

 

Balance at January 1, 2015

 

 

29,097

 

 

$

294

 

 

$

151,069

 

 

$

(9,255

)

 

$

(934

)

 

$

141,174

 

Exercise of stock options

 

 

3

 

 

 

1

 

 

 

37

 

 

 

—

 

 

 

—

 

 

 

38

 

Restricted stock awards

 

 

439

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

8,833

 

 

 

—

 

 

 

—

 

 

 

8,833

 

Excess tax benefits on stock options exercised

 

 

—

 

 

 

—

 

 

 

(19

)

 

 

—

 

 

 

—

 

 

 

(19

)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(14,284

)

 

 

—

 

 

 

(14,284

)

Balance at December 31, 2015

 

 

29,539

 

 

$

299

 

 

$

159,920

 

 

$

(23,539

)

 

$

(934

)

 

$

135,746

 

Exercise of stock options

 

 

6

 

 

 

—

 

 

 

60

 

 

 

—

 

 

 

—

 

 

 

60

 

Restricted stock awards

 

 

611

 

 

 

6

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

7

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

11,645

 

 

 

—

 

 

 

—

 

 

 

11,645

 

Excess tax benefits on stock options exercised

 

 

—

 

 

 

—

 

 

 

(27

)

 

 

—

 

 

 

—

 

 

 

(27

)

Treasury stock

 

 

(144

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,496

)

 

 

(2,496

)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(28,017

)

 

 

—

 

 

 

(28,017

)

Balance at December 31, 2016

 

 

30,012

 

 

$

305

 

 

$

171,599

 

 

$

(51,556

)

 

$

(3,430

)

 

$

116,918

 

Restricted stock unit conversions

 

 

3

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restricted stock awards

 

 

490

 

 

 

5

 

 

 

(4

)

 

 

—

 

 

 

—

 

 

 

1

 

Stock-based compensation

 

 

—

 

 

 

—

 

 

 

7,864

 

 

 

(182

)

 

 

—

 

 

 

7,682

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(44,168

)

 

 

—

 

 

 

(44,168

)

Balance at December 31, 2017

 

 

30,505

 

 

$

310

 

 

$

179,459

 

 

$

(95,906

)

 

$

(3,430

)

 

$

80,433

 

Common StockAdditional
Paid-In
Capital		Retained
Deficit		Total
SharesAmount
(In thousands)
Balance as of December 31, 20202,084 $21 $188,978 $(468,264)$(279,265)
Restricted stock awards (cancellations), net298 2 (2)— — 
Issuance of common stock, net (1)
4,252 43 105,392 — 105,435 
Issuance of warrants, net— — 12,798 — 12,798 
Issuance of Series A convertible preferred stock dividends— — (718)— (718)
Non-cash stock-based compensation— — 2,807 — 2,807 
Remeasurement of Series A convertible preferred stock— — (13,474)— (13,474)
Net income— — — 125,607 125,607 
Balance as of December 31, 20216,634 $66 $295,781 $(342,657)$(46,810)
Restricted stock awards (cancellations), net39 1 (1)— — 
Undeclared dividends on Series A convertible preferred stock— — (2,300)— (2,300)
Issuance of Series A convertible preferred stock dividends— — (2,269)— (2,269)
Non-cash stock-based compensation— — 4,327 — 4,327 
Shares withheld for taxes(3)— (261)— (261)
Net loss— — — (54,401)(54,401)
Balance as of December 31, 20226,670 $67 $295,277 $(397,058)$(101,714)

(1)Issuance of common stock, net includes rights offering, backstop shares and private placement common stock, net of transaction costs and other discounts.


See accompanying notes to consolidated financial statements.


F-7

Table of ContentsCAPITAL
SONIDA SENIOR LIVING, CORPORATION

INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

 

 

(in thousands)

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(44,168

)

 

$

(28,017

)

 

$

(14,284

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

66,199

 

 

 

60,398

 

 

 

53,017

 

Amortization of deferred financing charges

 

 

1,626

 

 

 

1,193

 

 

 

1,029

 

Amortization of deferred lease costs and lease intangibles, net

 

 

859

 

 

 

679

 

 

 

1,555

 

Amortization of lease incentives

 

 

(1,336

)

 

 

(710

)

 

 

(134

)

Deferred income

 

 

(1,397

)

 

 

(414

)

 

 

(677

)

Deferred taxes

 

 

1,941

 

 

 

—

 

 

 

—

 

Lease incentives

 

 

5,673

 

 

 

7,530

 

 

 

2,464

 

Loss on facility lease termination

 

 

12,858

 

 

 

—

 

 

 

—

 

Write-off of deferred loan costs and prepayment premiums

 

 

—

 

 

 

—

 

 

 

2,766

 

Loss (Gain) on disposition of assets, net

 

 

123

 

 

 

65

 

 

 

(6,225

)

Provision for bad debts

 

 

1,748

 

 

 

1,727

 

 

 

1,192

 

Stock-based compensation expense

 

 

7,682

 

 

 

11,645

 

 

 

8,833

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(8,159

)

 

 

(14,519

)

 

 

(6,605

)

Property tax and insurance deposits

 

 

279

 

 

 

(267

)

 

 

(2,200

)

Prepaid expenses and other

 

 

33

 

 

 

(1,995

)

 

 

2,427

 

Other assets

 

 

4,061

 

 

 

(2,228

)

 

 

(1,289

)

Accounts payable

 

 

2,750

 

 

 

1,695

 

 

815

 

Accrued expenses

 

 

1,689

 

 

 

4,798

 

 

 

2,146

 

Other liabilities

 

 

5,017

 

 

 

12,014

 

 

 

3,677

 

Federal and state income taxes receivable/payable

 

 

165

 

 

 

107

 

 

 

(108

)

Deferred resident revenue

 

 

(1,898

)

 

 

(1,148

)

 

176

 

Customer deposits

 

 

(151

)

 

 

(274

)

 

320

 

Net cash provided by operating activities

 

 

55,594

 

 

 

52,279

 

 

 

48,895

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(39,959

)

 

 

(62,371

)

 

 

(42,430

)

Cash paid for acquisitions

 

 

(85,000

)

 

 

(138,750

)

 

 

(162,460

)

Proceeds from disposition of assets

 

 

19

 

 

 

72

 

 

 

43,463

 

Net cash used in investing activities

 

 

(124,940

)

 

 

(201,049

)

 

 

(161,427

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

77,197

 

 

 

150,798

 

 

 

250,944

 

Repayments of notes payable

 

 

(20,099

)

 

 

(17,680

)

 

 

(115,896

)

Cash payments for capital lease and financing obligations

 

 

(2,869

)

 

 

(1,314

)

 

 

(978

)

Increase in restricted cash

 

 

(81

)

 

 

(138

)

 

 

(918

)

Cash proceeds from the issuance of common stock

 

 

—

 

 

 

67

 

 

42

 

Excess tax benefits on stock options exercised

 

 

—

 

 

 

(27

)

 

 

(19

)

Purchases of treasury stock

 

 

—

 

 

 

(2,496

)

 

—

 

Deferred financing charges paid

 

 

(1,182

)

 

 

(2,501

)

 

 

(3,765

)

Net cash provided by financing activities

 

 

52,966

 

 

 

126,709

 

 

 

129,410

 

(Decrease) Increase in cash and cash equivalents

 

 

(16,380

)

 

 

(22,061

)

 

 

16,878

 

Cash and cash equivalents at beginning of year

 

 

34,026

 

 

 

56,087

 

 

 

39,209

 

Cash and cash equivalents at end of year

 

$

17,646

 

 

$

34,026

 

 

$

56,087

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

47,022

 

 

$

40,585

 

 

$

33,642

 

Income taxes

 

$

543

 

 

$

582

 

 

$

1,039

 

Non-cash operating, investing, and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable assumed by purchaser through disposition of assets

 

$

—

 

 

$

—

 

 

$

6,764

 

Years Ended December 31,
(In thousands)20222021
Operating Activities
Net (loss) income$(54,401)$125,607 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization38,448 37,870 
Amortization of deferred loan costs1,281 1,519 
Unrealized gain on derivative instruments, net(19)— 
Write-off of other assets535 — 
Loss on disposition of assets, net43 436 
Long-lived asset impairment1,588 6,502 
Casualty losses1,100 — 
Loss (gain) on extinguishment of debt641 (199,901)
Provision for bad debt1,159 1,251 
Non-cash stock-based compensation expense4,327 2,807 
Other non-cash(498)4,478 
Changes in operating assets and liabilities:
Accounts receivable(2,354)585 
Prepaid expenses and other8,303 (2,420)
Other assets, net(141)45 
Accounts payable and accrued expenses(2,245)(3,122)
Federal and state income taxes receivable/payable(601)426 
Deferred income257 (822)
Customer deposits(1)(342)
Other liabilities— (3,714)
Net cash used in operating activities(2,578)(28,795)
Investing Activities
Acquisition of new communities(12,342)— 
Capital expenditures(24,562)(10,443)
Net cash used in investing activities(36,904)-36904000(10,443)
Financing Activities
Proceeds from notes payable88,125 23,081 
Repayments of notes payable(102,351)(64,971)
Proceeds from issuance of Series A convertible preferred stock— 41,250 
Proceeds from issuance of common stock— 113,538 
Payment of transaction costs for the A&R Investment Agreement— (13,380)
Other financing activities(114)(103)
Deferred loan costs paid(2,361)— 
Shares withheld for taxes(261)— 
Series A convertible preferred stock dividends(2,987)— 
Purchase of derivative assets(2,703)— 
Net cash (used in) provided by financing activities(22,652)-2265200099,415 
 (Decrease) increase in cash and cash equivalents(62,134)60,177 
Cash and cash equivalents and restricted cash at beginning of year92,876 32,699 
Cash and cash equivalents and restricted cash at end of year$30,742 $92,876 
Supplemental Disclosures
Cash paid during the year for:
Interest$29,626 $31,126 
Income taxes$725 $329 
Non-cash investing and financing activities:
Non-cash additions of property, plant and equipment$1,559 $55 
      Property and equipment acquired with finance lease liabilities$— $148 
Accrued dividends on Series A convertible preferred stock$2,300 $718 

See accompanying notes to consolidated financial statements.


F-8

CAPITAL

Table of Contents
SONIDA SENIOR LIVING, CORPORATION

INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

1.

Organization


1. Organization
Sonida Senior Living, Inc., (formerly known as Capital Senior Living Corporation,Corporation), a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operatorsleading owner-operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates,operates, develops, and manages senior housing communities throughout the United States. As of December 31, 2017,2022, the Company operated 12972 senior housing communities in 2318 states with an aggregate capacity of approximately 16,5008,000 residents, including 8362 senior housinghousing communities whichthat the Company owned and 46 senior housing10 communities that the Company leased.managed on behalf of third parties. As of December 31, 2022, the Company had two properties that the Company no longer operates that were in the process of transitioning legal ownership back to the Federal National Mortgage Association ("Fannie Mae"). The transfer of ownership was completed in January 2023. See "Note 16–Subsequent Events." The accompanying consolidated financial statements include the financial statements of CapitalSonida Senior Living, CorporationInc. and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

2.

Summary of Significant Accounting Policies


2.Going Concern Uncertainty and Related Strategic Cash Preservation Initiatives

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

In complying with the requirements under ASC 205-40 to complete an evaluation without considering mitigating factors, the Company considered several conditions or events including: (1) the continued impact of the COVID-19 pandemic, the current inflationary environment and the impact of elevated interest rates on the Company’s operations and financial results; (2) $15.7 million of principal payments and $30.1 million of scheduled interest payments due in the next 12 months (excluding $32.0 million of Fannie Mae debt - see "Note 8–Notes Payable"); (3) recurring operating losses and projected operating losses for fiscal periods through March 31, 2024; (4) the Company’s working capital deficit; and (5) events of non-compliance with certain of our mortgage agreements, as noted in "Note 16–Subsequent Events". The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the 12-month period following the date the fiscal year 2022 financial statements are issued.

As discussed below, the Company has implemented plans which encompass short-term cash preservation initiatives to provide the Company with adequate liquidity to meet its obligations for at least the 12-month period following the date its fiscal year 2022 financial statements are issued, in addition to creating sustained cash flow generation thereafter. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) net cash generated from operations; (2) COVID-19 or related relief grants from various state agencies; and (3) debt modifications, refinancings and extensions to the extent available on acceptable terms.

Strategic and Cash Preservation Initiatives

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

•Upon its management team transition in September 2022, the Company promptly implemented new strategic and operational plans to accelerate margin recovery, including the following:

◦Design and execution of a comprehensive resident rate review program to align revenues with the significant increase in the operating cost environment.

◦Implementation of a global purchasing organization function to leverage scaled purchasing to lower unit operating costs.
F-9
Table of Contents

◦Use of several internally developed and external programs to provide alternative mitigants to a challenging labor environment.

•We have adopted a comprehensive cash optimization strategy aimed at improving working capital management.

•The company is engaged in active discussions with certain of its lenders in regards to potential modifications of certain mortgage debt on more favorable terms, which does not preclude a potential ownership transfer on select communities based on various financial metrics.

•Through recently integrated systems and revised process workflows, the Company has implemented additional proactive spending reductions, including reduced discretionary spending and more stringent, return-based capital spending.

•The Company received approximately $2.0 million in various state grants during January and February of 2023. See "Note 16–Subsequent Events".

•Under the terms of the A&R Investment Agreement, the Company may request additional investments from the Conversant Investors in shares of Series A Preferred Stock (up to an aggregate amount equal to $25.0 million) that can be used for future investment in accretive capital expenditures and acquisitions, subject to certain conditions.

While the Company’s plans are designed to provide it with adequate liquidity to meet its obligations for at least the 12-month period following the date its financial statements are issued; the remediation plan is dependent on conditions and matters that may be outside of the Company’s control, and no assurances can be given that certain options will be available on terms acceptable to the Company, or at all. Accordingly, management could not conclude that it was probable that the plans will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. In addition, it is probable that the Company will not be able to comply with some of the financial covenants and other restrictions contained in our debt instruments, which would in turn trigger an event of default under our loan agreements. An event of default, subject to cure provisions in certain instances, would give the respective lenders the right to accelerate the related debt and to declare all amounts outstanding to be immediately due and payable, or foreclose on collateral securing the outstanding indebtedness. We cannot assure that we could pay these debt obligations if they became due prior to their stated dates.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the 12-month period following the date the financial statements are issued. As such, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern.

3. Summary of Significant Accounting Policies

Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of reserve accounts for property insurance, real estate taxes, capital expenditures, and debt service required by certain loan agreements. In addition, restricted cash includes deposits required by certain lenderscounterparties as collateral pursuant to letters of credit. The depositcredit which must remain so long as the letterletters of credit isare outstanding, which isare subject to renewal annually.

F-10
Table of Contents
In March 2022, the Company completed the refinancing of certain existing mortgage debt with Ally Bank. Ally Bank required a debt service reserve of $1.5 million as part of this transaction, which is included in the restricted cash balances as of December 31, 2022. See "Note 8–Notes Payable."
In August 2021, the Company executed a one year extension of the Company's loan agreement with PNC Bank, National Association (successor to BBVA) ("PNC Bank"), which extended the maturity date to December 10, 2022. PNC Bank required a debt service reserve of $0.9 million as part of this extension, which was included in the restricted cash balances as of December 31, 2021. In March 2022 the Company refinanced this loan with a different lender as further described in Note 8– Notes Payable.
The following table sets forth our cash and cash equivalents and restricted cash (in thousands):
Years Ended December 31,
20222021
Cash and cash equivalents$16,913 $78,691 
Restricted cash:
   Property tax and insurance reserves6,184 6,666 
   Lender reserve1,500 900 
   Capital expenditures reserves2,034 2,637 
   Deposits pursuant to outstanding letters of credit4,111 3,982 
Total restricted cash13,829 14,185 
Total cash, cash equivalents, and restricted cash$30,742 $92,876 

Long-Lived Assets

and Impairment

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviewsreviewed the carrying value of its property and equipment to determine if facts and circumstances suggestsuggested that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors, such as net operating losses, along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information. information to determine whether impairment indicators exist.
If an indicator of impairment is identified, 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, the Company estimates fair value of the asset group and records an impairment loss when the carrying amount exceeds fair value.
In evaluating our long-lived assets for impairment, we undergo continuous evaluations of property level performance and real estate trends, and management makes several estimates and assumptions, including, but not limited to, the projected date of disposition, estimated sales price and future cash flows of each property during our estimated holding period. If our analysis or assumptions regarding the projected cash flows expected to result from the use and eventual disposition of our properties change, we incur additional costs and expenses during the holding period, or our expected hold periods change, we may incur future impairment losses.
Upon the acquisition of new communities accounted for as an acquisition of an asset, we recognize the assets acquired and the liabilities assumed as of the acquisition date, measured at their relative fair values once we have determined the fair value of each of these assets and liabilities. The acquisition date is the date on which we obtain control of the real estate property. The assets acquired and liabilities assumed consist of land, inclusive of associated rights, buildings, assumed debt, and identified intangible assets and liabilities.
The Company recognized a non-cash impairment charges of $1.6 million to its "Property and equipment, net" during the year ended December 31, 2022, which related to one owned community. The Company recognized non-cash impairment charges of $6.5 million to its "Property and equipment, net" during the year ended December 31, 2021, which related to one owned community. See "Note 4–Impairment of Long-Lived Assets".

F-11
Table of Contents
Fair Value Measurement
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting             entity at the measurement date.

Level 2 Inputs – Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs – Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company's other financial instruments consist primarily of cash and cash equivalents, receivables, accounts payable, accrued expenses, derivative financial instruments, and long-term debt. The carrying value of the Company’s receivables, trade payables, and accrued expenses approximates fair value due to their highly liquid nature, short-term maturity, or competitive rates assigned to these financial instruments. See "Note 13–Fair Value".

    The Company adjusts the carrying amount of certain non-financial assets to fair value on a long-lived assetnon-recurring basis when they are impaired.

Derivatives and Hedging
The Company uses derivatives as part of our overall strategy to manage our exposure to market risks associated with the fluctuations in interest rates. We may also be required to enter into interest rate derivative instruments in compliance with debt agreements. We do not enter into derivative financial instruments for trading or speculative purposes. See "Note 14–Derivatives and Hedging".
Derivative instruments may be designated for hedge accounting under ASC 815-20, Derivatives - Hedging. Instruments that meet hedge criteria are formally designated as hedges at the inception of the instrument. For those instruments designated as hedges, the changes in fair value are recognized in other comprehensive income (“OCI”), and any ineffectiveness is considered impaired whenrecognized immediately in earnings. As of December 31, 2022, the anticipated undiscountedCompany did not have any derivative instruments designated as hedges under ASC 815-20, Derivatives - Hedging.
The Company’s derivative assets and liabilities are measured at fair value. Fair value related to the cash flows from such asset is separately identifiableoccurring within one year are classified as current and is less thanthe fair value related to the cash flows occurring beyond one year are classified as non-current in the consolidated balance sheets.

Stock-based Plans
The Company applies the provisions of ASC 718, Compensation - Stock Compensation, in its carrying value. In that event, a loss isaccounting and reporting for stock-based compensation. ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. All unvested options outstanding under the amountCompany's option plans have grant prices equal to the carrying value exceedsmarket price of the Company's stock on the dates of grant. Compensation cost for restricted stock and restricted stock units is determined based on the fair market value generally based on discounted cash flows, of the long-lived asset.Company's stock at the date of grant. Stock-based compensation expense is generally recognized over the required service period, or over a shorter period when employee retirement eligibility is a factor. The Company does not believe there are any indicators of impairment that would require an adjustment torecognizes forfeitures as they occur.

Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was approximately $1.6 million and $1.1 million for the carrying value of the property and equipment or their remaining useful lives as ofyears ended December 31, 20172022 and 2016.

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements at December 31, 2017.

2021, respectively.


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Income Taxes

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year.payable. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expectthe Company expected those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies and future expectations of income.

F-7

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statementfinancial statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense.


Revenue Recognition

Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recognized at estimated net realizablerecorded when services are rendered, and amounts based on historical experiences,billed are due from residents in the period in which the rental and other services are provided. Additionally, substantially all communityResidency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears. Other operating revenue consists of Provider Relief funds received from residentsvarious states due to the financial distress impacts of COVID-19.
The Company's senior housing communities have residency agreements that generally require the resident to pay a community fee and other amounts prior to moving into the community which are non-refundable and areinitially recorded initially by the Company as deferred revenue. The Company had contract liabilities for deferred amountsfees paid by our residents prior to the month housing and support services were to be provided totaling approximately $3.4 million and $3.2 million, respectively, which are amortized over the respective residents’ initial lease term which is consistent with the contractual obligation associated with the estimated stayincluded as a component of deferred income within current liabilities of the resident.

Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021.

Revenues from the Medicaid program accounted for approximately 5.6%10.0% of the Company’s revenue in fiscal 2017, 5.5%year 2022, and 9.6% of the Company’s revenue in fiscal 2016, and 4.6% of the Company’s revenue in fiscal 2015.year 2021. During fiscal 2017, 2016,years 2022 and 2015, 41, 40,2021, 28 and 34,42, respectively, of the Company’s communities were providers of services under the Medicaid program. Accordingly, these communities were entitled to reimbursement under the foregoingMedicaid program at established rates that were lower than private pay rates. Patient service revenueResident revenues for Medicaid patients wasresidents were recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fiscal 2017, 2016,years 2022 or 2015.

2021.

Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing.wrongdoing that would have a material effect on its Consolidated Financial Statements. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicaid program.

Purchase Accounting

In determining

The Company has management agreements whereby it manages certain communities on behalf of third-party owners under contracts that provide for periodic management fee payments to the allocationCompany. The Company has determined that all community management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company’s estimate of the purchasetransaction price for management services also includes the amount of senior housingreimbursement due from the owners of the communities acquiredfor services provided and related costs incurred. Such revenue is included in “managed community reimbursement revenue” on the Company’s Consolidated Statements of Operations and Comprehensive Income
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(Loss). The related costs are included in “managed community reimbursement expense” on the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).
Revenue for the years ended December 31, 2022 and 2021 is comprised of the following components (in thousands):
Years Ended December 31,
20222021
Housing and support services$204,349 $187,404 
Community fees1,898 1,646 
Ancillary services1,243 1,163 
Other operating revenue (1)
1,213 — 
Resident revenue208,703 190,213 
Management fees2,359 3,603 
Managed community reimbursement revenue27,371 40,902 
Total revenues$238,433 $234,718 
________
(1) Other operating revenue consists of Provider Relief Funds received from state departments due to net tangiblefinancial distress impacts of COVID-19. The Company intends to pursue additional funding that may become available in the future, but there is no guarantee of qualifying for, or receiving, any additional relief funds in the future.
In April 2022 and identified intangible assets acquired and liabilities assumed, if any,January 2021, the Company makes estimatesaccepted $9.1 million and $8.7 million of fair value using information obtainedcash, respectively, through grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phases 4 and 3 General Distribution, respectively, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare-related or lost revenues attributable to COVID-19. Both the Phase 4 and Phase 3 Provider Relief Funds were recorded as a resultother income in the years ended December 31, 2022 and 2021, respectively. The CARES Act Provider Relief Funds are grants that do not have to be repaid provided we satisfy the terms and conditions of pre-acquisition due diligence, leasing activities and/or independent appraisals.the CARES Act. The Company assignsrecognizes income for government grants on a systematic and rational basis over the purchase priceperiods in which the Company recognizes the related expenses or loss of revenue for senior living communitieswhich the grants are intended to assets acquired and liabilities assumed based on their estimated fair values which are determined in accordancecompensate when there is reasonable assurance that the Company will comply with the provisions of ASC 805, Business Combinations. The determination of fair value involves the use of significant judgmentsapplicable terms and estimates which is generally assessed as follows:

The Company allocates the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimated remaining livesconditions of the buildings, not to exceed 40 years. The Company determinesgrant and there is reasonable assurance that the allocated values of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciates such values over the assets’ estimated remaining useful lives as determined at the acquisition date. The Company determines the value of land by considering the sales prices of similar properties in recent transactions.

grant will be received.


F-8

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

The fair value of acquired lease-related intangibles reflects the estimated fair value of existing resident in-place leases as represented by the cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the property acquired was vacant. The Company amortizes any acquired resident in-place lease intangibles to depreciation and amortization expense over the estimated remaining useful life of the respective resident operating leases.

Credit Risk and Allowance for Doubtful Accounts

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $4.9$5.9 million and $4.3$4.7 million atas of December 31, 20172022 and 2016,2021, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustmentsaccounts. Adjustments are made to the allowance, as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.


Concentration of Credit Risk and Business Risk
Substantially all of our revenues are derived from senior living communities we own and senior living communities that we manage. Senior living operations are particularly sensitive to adverse economic, social and competitive conditions and trends, including the effects of the COVID-19 pandemic, which has adversely affected, and may continue to adversely affect, our business, financial condition, and results of operations. We have a concentration of owned properties operating in Texas (16), Indiana (12), Ohio (11) and Wisconsin (8), which we estimate represented approximately 24%, 18%, 20%, and 10%, respectively, of our resident revenues for the year ended December 31, 2022.

Lease Accounting

The Company

Management determines whetherif a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to accountcontrol the use of an identified asset for its leases as operating, capital or financing leases dependinga period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
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Operating lease right-of-use assets and liabilities are recognized based on the underlying termspresent value of the lease agreement. This determination of classification requires significant judgment relating to certain information, including the estimated fair value and remaining economic life of the community, the Company’s cost of funds,future minimum lease payments and otherover the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.
Financing lease right-of-use assets are recognized within property and equipment and leasehold improvements, net on the Company’s Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease rates underliabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.
Modifications to existing lease agreements, including changes to the lease term or payment amounts, are reviewed to determine whether they result in a separate contract. For modifications that do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and liabilities at the effective date of the modification.
Certain of the Company’s lease agreementsarrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are subject to certain conditional escalation clauses which arenot recorded on the balance sheet and the related lease expense is recognized when probable or incurred and are based on changes ina straight-line basis over the consumer price index or certain operational performance measures. expected lease term.
As of December 31, 20172022 and 2016,2021, the Company had operating leases for equipment, as well as finance leases for certain vehicles, and no leased 46senior housing communities. As of December 31, 2022 and 50 communities, respectively, two2021, the balances of whichoperating lease assets and liabilities, finance lease assets and liabilities, as well as lease expenses and cash flows associated with those leases, were insignificant to consolidated financial statements of the Company classifiedtaken as capital lease and financing obligations with the remaining classified as operating leases. The Company incurs lease acquisition costs and amortizes these costs over the term of the lease agreement. Certain leases entered into by the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. No new communities were leased by the Company during fiscal 2017 or 2016. Effective January 31, 2017, the Company acquired from Ventas the underlying real estate associated with four of its operating leases. For additional information refer to Note 3, “Acquisitions”.

Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives.

Employee Health and Dental Benefits, Workers’ Compensation, and Insurance Reserves

a whole.


Self-Insurance Liability Accruals
The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Additionally, the Company may be liable for an Employee Shared Responsibility Payment (“ESRP”) pursuant to the Patient Protection and Affordable Care Act. The ESRP is applicable to employers that (i) had 50 or more full-time equivalent employees, (ii) did not offer minimum essential coverage (“MEC”) to at least 70% of full-time employees and their dependents, or (iii) did offer MEC to at least 70% of full-time employees and their dependents that did not meet the affordable or minimum value criteria and had one or more full-time employees certified as being allowed the premium tax credit. The Internal Revenue Service ("IRS") determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by such employers' employees. Management believes that the liabilityrecorded liabilities and reserves established for outstanding losses and expenses isare adequate to cover the ultimate cost of losses and expenses incurred atas of December 31, 2017; however,2022. It is possible that actual claims and expenses may differ.differ from established reserves. Any subsequent changes in estimates are recorded in the period in which they are determined.

F-9

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

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

Advertising

Advertising


Net Income (Loss) Per Common Share
The Company uses the two-class method to compute net income per common share because the Company has issued securities (Series A Preferred Stock) that entitle the holder to participate in dividends and earnings of the Company. Under this method, net income is expensedreduced by the amount of any dividends earned during the period. The remaining earnings (undistributed
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earnings) are allocated based on the weighted-average shares outstanding of common stock and Series A Preferred Stock (on an if-converted basis) to the extent that each preferred security may share in earnings as incurred. Advertising expensesif all of the earnings for the years ended December 31, 2017, 2016, and 2015 were $16.7 million, $15.0 million, and $13.9 million, respectively, andperiod had been distributed. The total earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are includedallocated to determine the earnings per share. The two-class method is not applicable during periods with a net loss, as a componentthe holders of operating expenses within the Consolidated Statements of Operations and Comprehensive Loss.

Net Loss Per Share

BasicSeries A Preferred Stock have no obligation to fund losses.

Diluted net lossincome (loss) per common share is computed under the two-class method by dividing net loss byusing the weighted averageweighted-average number of shares of common sharesstock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, stock based compensation awards and warrants. In addition, the Company analyzes the potential dilutive effect of the outstanding Series A Preferred Stock under the "if-converted" method when calculating diluted earnings per share, in which it is assumed that the outstanding Series A Preferred Stock converts into common stock at the beginning of the period or when issued, if later. The Company reports the more dilutive of the approaches (two class or "if-converted") as its diluted net income per share during the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.

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

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Net loss

 

$

(44,168

)

 

$

(28,017

)

 

$

(14,284

)

Net loss allocated to unvested restricted shares

 

 

—

 

 

 

—

 

 

 

—

 

Undistributed net loss allocated to common shares

 

$

(44,168

)

 

$

(28,017

)

 

$

(14,284

)

Weighted average shares outstanding — basic

 

 

29,453

 

 

 

28,909

 

 

 

28,688

 

Effects of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Employee equity compensation plans

 

 

—

 

 

 

—

 

 

 

—

 

Weighted average shares outstanding — diluted

 

 

29,453

 

 

 

28,909

 

 

 

28,688

 

Basic net loss per share

 

$

(1.50

)

 

$

(0.97

)

 

$

(0.50

)

Diluted net loss per share

 

$

(1.50

)

 

$

(0.97

)

 

$

(0.50

)

Years Ended December 31,
20222021
Basic net (loss) income per common share calculation:
Net (loss) income$(54,401)$125,607 
Less: Dividends on Series A Preferred Stock(2,269)(718)
Less: Undeclared dividends on Series A Preferred Stock(2,300)— 
Less: Remeasurement of Series A Preferred Stock— (13,474)
Less: Undistributed earnings to participating securities— (6,266)
Net (loss) income attributable to common stockholders$(58,970)$105,149 
Weighted average shares outstanding — basic6,359 2,750 
Basic net income (loss) per share$(9.27)$38.24 
Diluted net (loss) income per common share calculation:
Net (loss) income attributable to common stockholders$(58,970)$105,149 
Weighted average shares outstanding — diluted6,359 2,773 
Diluted net income (loss) per share$(9.27)$37.92 

Awards


The following weighted-average shares of unvested restrictedsecurities were not included in the computation of diluted net income (loss) per common share as their effect would have been antidilutive:
Years Ended December 31,
(shares in thousands)20222021
Series A Preferred Stock (if converted)1,088.7 163.8 
Restricted stock awards381.8 26.6 
Warrants1,031.3 163.8 
Stock options9.8 9.8 
Total2,511.6 364.0 

Redeemable Preferred Stock
The Company's Series A Preferred Stock is convertible outside of our control and in accordance with ASC 480-10-S99-3A and as such is classified as mezzanine equity. The Series A Preferred Stock was initially recorded at fair value upon issuance, net of issuance costs and discounts. The holders of Series A Preferred Stock are entitled to vote with the holders of common stock representing approximately 0.9 million, 0.8 million, and 0.8 million shares were outstanding foron all matters submitted to a vote of stockholders of the fiscal years endedCompany. As such, the Conversant Investors, in combination with their common stock ownership as of December 31, 2017, 2016,2022 and 2015, respectively, and are antidilutive. Beginning2021, have voting rights in fiscal 2015, the unvested restricted stock did not meet allexcess of the requirements to be deemed participating securities and therefore, are calculated under the treasury method.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity until it is canceled. There were no repurchases50% of the Company’s common stock during fiscal 2017. The Company repurchased 144,315 shares of its common stock during fiscal 2016, pursuant to a share repurchase program approvedtotal voting stock. It is deemed probable that the Series A Preferred Stock could be redeemed for cash by the Company’s boardConversant Investors, and as such the Series A Preferred Stock is required to be remeasured and adjusted to its maximum

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redemption value at the end of each reporting period. However, to the extent that the maximum redemption value of the Series A Preferred Stock does not exceed the fair value of the shares acquired byat the Company have been purchased in open-market transactions.

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CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

date of issuance, the shares are not adjusted below the fair value at the date of issuance. As of December 31, 2017

Stock-Based Compensation

2022 and December 31, 2021, the Series A Preferred Stock is carried at the maximum redemption value. The Company recognizes compensation expense for share-based payment awardsSeries A Preferred Stock does not have a maturity date and therefore is considered as perpetual.

Dividends on redeemable preferred stock are recorded to certain employeesretained earnings or additional paid-in capital if retained earnings is an accumulated deficit. Dividends are cumulative, and directors, including grantsany declaration of stock options and awards of restricted stock, individends is at the Consolidated Statements of Operations and Comprehensive Loss based on their fair values.

On May 8, 2007, the Company’s stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”) which provides for, among other things, the grant of restricted stock awards and stock options to purchase sharesdiscretion of the Company’s common stock. The 2007 Plan authorizesBoard of Directors. If the CompanyBoard does not declare a dividend in respect of any dividend payment date, the amount of such accrued and unpaid dividend is added to issue up to 4.6 million shares of common stockthe liquidation preference and the Company currently has 1.1 million shares of common stock reserved for future issuance pursuant to awards under the 2007 Plan.

compounds quarterly thereafter.


Segment Information

The Company evaluates the performance and allocates resources of its senior living facilitiescommunities based on current operations and market assessments on a property-by-property basis. The Company does not have a concentration of operations geographically or by product or service as its management functions are integrated at the property level. The Company has determined that all of its operating units meet the criteria in Accounting Standards Codification (“ASC”)ASC Topic 280, Segment Reporting, to be aggregated into one reporting segment. As such, the Company operates in one segment.


Reclassifications
Certain amounts previously reflected in the prior year consolidated balance sheet have been reclassified to conform to our December 31, 2022 presentation. The consolidated balance sheet as of December 31, 2021 reflects reclassifying “operating lease right-of-use assets, net” to “other assets, net”, “property tax and insurance deposits” to “restricted cash”, lender reserves from “other assets, net” to “restricted cash", "current portion of lease liabilities" to "other current liabilities", and "lease liabilities, net of current portion" to "other long-term liabilities". "Customer deposits" were combined into "other current liabilities." The consolidated statements of operations for the year ended December 31, 2021 includes the reclassification of "gain (loss) on disposition of assets" to "other income, net", as well as an immaterial correction to classify “stock-based compensation expense”, which was previously reported as a separate line item, within “general and administrative expense".
These reclassifications had no effect on the previously reported total assets, total liabilities, or reported net income. The consolidated statements of cash flows reflect reclassifying changes in property tax and insurance deposits and changes in lender reserves to restricted cash beginning/ending balances, consistent with the balance sheet reclassifications described above.

Off-Balance Sheet Arrangements
The Company had no material off-balance sheet arrangements as of December 31, 2022 or 2021.
Recently Adopted Accounting Pronouncements

Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on contracts, hedging relationships, and other transactions that reference the London InterBank Offered Rate. The new standard was effective upon issuance and elections can be made through December 31, 2022. The adoption of the optional expedient has not had and is not expected to have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Guidance

Pronouncements Not Yet Adopted

Measurement of Credit Losses
In January 2017,June 2016, the FASB issued ASU 2016-13, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations – ClarifyingInstruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles (GAAP) require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the Definitioncurrent incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a Business. ASU 2017-01 provides guidance in accountingbroader range of reasonable and supportable information to form credit loss estimates. The determination of the allowance for business combinations when determining ifcredit losses under the transaction represents acquisitions or disposals of assets ornew standard would typically be based on evaluation of a business. Under ASU 2017-01, when determining whether an integrated setnumber of assetsfactors, including but not limited to general economic
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conditions, payment status, historical collection patterns and activities constitutes a business, entities must compare the fair value of gross assets acquired to the fair value of a single identifiable asset or group of similar identifiable assets. If substantially allloss experience, financial strength of the fairborrower, and nature, extent and value of the gross assets acquired (or disposed of)underlying collateral. For smaller reporting companies, ASU 2016-13 is concentratedeffective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. It requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. We will adopt ASU 2016-13 on January 1, 2023 and do not expect the adoption of ASU 2016-13 to have a material impact on our consolidated financial statements.
Fair Value Measurement of Equity Securities
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the single identifiable assets or groupequity security's unit of similar identifiable assets,account. Accordingly, an entity should not consider the integrated set of assets and activities is not characterizedcontractual sale restriction when measuring the equity security’s fair value. In addition, the ASU prohibits an entity from recognizing a contractual sale restriction as a business.separate unit of account. This ASU 2017-01 is applied prospectively and iswill be effective for fiscal years beginning after December 15, 2017,2023, and interim periods within those fiscal years. Early application isyears, with early adoption permitted. Management doesWe do not expect the adoption of ASU 2017-01this standard to have a material impact on the Company’s financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). ASU 2016-18 requires an entity to include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. Management does not expect the adoption of ASU 2016-18 to have a material impact on the Company’s cash flows.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance in ASC 230, which often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and has resulted in diversity in practice in how certain cash receipts and cash payments are classified. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. Management does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s cash flows.

F-11

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the provisions of ASU 2016-09 on January 1, 2017, and incorporated the provisions of this update into its consolidated financial statements upon adoption. Upon adoption, the Company elected to change its accounting policy to account for forfeitures as they occur. This change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of $0.2 million. Additionally, the adoption of ASU 2016-09 resulted in the Company recording an adjustment of $5.3 million, which resulted in an increase to the Company’s deferred tax asset valuation allowance, to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized to additional paid in capital. Excess tax benefits for share-based payments are now included in net operating activities rather than net financing activities within the Company’s Consolidated Statements of Cash Flows. As a result of the adoption of ASU 2016-09, these reporting changes have been applied prospectively and prior periods have not been adjusted.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. The Company has evaluated the impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures. Based on our assessment, we do not believe it will have a significant impact on the Company’sour consolidated financial statements. The


4. Impairment of Long-Lived Assets
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company is planning to adopt the standard under the modified retrospective adoption.

Use of Estimates and Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments aboutreviews the carrying value of assetsits property and liabilitiesequipment to determine if facts and circumstances indicate the carrying amount of an asset group may not be recoverable, or that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions.the depreciation period may need to be changed. The Company believes revenue recognition, purchase accounting, credit riskconsiders internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments and allowance for doubtful accounts, lease accounting, employee health and dental benefits, workers’ compensation and insurance reserves, long-lived assets, and income taxes are its most critical accounting policies and/or require management’s most difficult and subjective judgments.

Reclassifications

Certain reclassifications have been madeother publicly available information to prior period amounts to conform to current period presentation.

F-12

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

determine whether impairment indicators exist.

3.

Acquisitions


Fiscal 2017

Effective January 31, 2017 (the “Closing Date”), the Company acquired the underlying real estate through

If an indicator of impairment is identified, recoverability of an asset acquisition associated with four ofgroup is assessed by comparing its carrying amount to the senior housing communities previously leased from Ventas, Inc. (“Ventas”) for an acquisition price of $85.0 million (the “Four Property Lease Transaction”). The Company obtained interest only, bridge financing from Berkadia Commercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with the balance of the acquisition price paid from the Company’s existingestimated future undiscounted net cash resources. Additionally, the Company agreed to continue paying $2.3 million of the annual rents associated with the four communities acquired over the remaining lease term of the seven communities remaining in the Ventas Lease Portfolio. As such, the total additional lease paymentsflows expected to be paid overgenerated by the remaining lease term were discounted back toasset group through operation or disposition, calculated utilizing the Closing Date utilizing a credit-adjusted risk-free rate to determinelowest level of identifiable cash flows. If the long-lived asset group’s carrying amount exceeds its estimated undiscounted future cash flows, the fair value of the lease termination financing obligationlong-lived asset group is then estimated by management and compared to its carrying amount. An impairment charge is recognized on these long-lived assets when carrying amount exceeds fair value.
The Company recognized a non-cash impairment charge of $16.0 million.$1.6 million to its "Property and equipment, net" during the year ended December 31, 2022, which related to one owned community. The impairment charge resulted from: a) the management's commitment to a plan to sell the community shortly after the balance sheet date, but before the issuance of this Annual Report on Form 10-K; and b) the agreed-upon selling price being below the community's carrying amount. In complying with the requirements under ASC 360, Property, Plant, and Equipment, management evaluated the significance of the asset in relation to the overall asset group, as well as the facts and circumstances surrounding the sale of this particular asset, and determined that no additional testing of the asset group under the held-and-used impairment approach was necessary at the balance sheet date.
The Company recognized non-cash impairment charges of $6.5 million to its property and equipment, net during the year ended December 31, 2021, which related to one owned community. Due to the recurring net operating losses, the Company concluded the assets related to this community had indicators of impairments and the carrying value was not fully recoverable. The fair value of the four communities acquiredproperty and equipment, net of this community was determined to approximate $88.1 million. The fair values of the property, plant, and equipment of the acquired communities were determined utilizing a directusing an income capitalization methodapproach considering stabilized facility net operating income and market capitalization rates. Theserates of 8.25%. This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their fair value measurementsvalue.
During the years ended December 31, 2022 and 2021, for long-lived assets where indicators of impairment were based on current market conditions asidentified, tests of the acquisition daterecoverability were performed, and are considered Level 3 measurements (fair value measurements using significant unobservable inputs) within the fair value hierarchy of ASC 820-10, Fair Value Measurement. The range of capitalization rates utilized was 7.25% to 8.50%, depending upon the property type, geographical location, and overall quality of each respective community. The acquisition price of $85.0 million and lease termination obligation of $16.0 million resulted in total aggregate consideration by the Company for the acquisition of the four communities of $101.0 million. The Company recorded the difference between the total aggregate consideration ($101.0 million) and the estimated fair value of the four communities acquired ($88.1 million) of $12.9 million as a loss on facility lease termination during the first quarter of fiscal 2017. Additionally, the Company incurred approximately $0.4 million in transaction costs related to this acquisition which have been capitalized as a component of the cost of the assets acquired.

As a result of this asset acquisition, the Company recorded additions tohas concluded its property and equipment of approximately $88.1 million withinis recoverable and does not warrant adjustment to the Company’s Consolidated Balance Sheets which will be depreciatedcarrying value or amortized over the estimatedremaining useful lives.

The purchase accountinglives, except for the Springfield Transaction and Cincinnati Transaction, as defined below, which closed during fiscal 2016, was finalized during the first quarterlong-lived asset noted above.


F-18
Table of fiscal 2017 and valuation adjustments resulted inContents
5. Significant Transactions
Indiana Acquisition
On February 1, 2022, the Company reclassifying approximately $1.3 million from property and equipment to other assets to reflect the final purchase price allocation.

Fiscal 2016

Effective November 2, 2016, the Company closed the acquisition of one senior housing community located in Cincinnati, Ohio, for $29.0 million (the “Cincinnati Acquisition”). The community consists of 45 independent living units and 77 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $22.0 million of the acquisition price at a fixed interest rate of 4.24% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources.

Effective September 30, 2016, the Company closed the acquisition of one senior housing community located in Springfield, Massachusetts, for $27.0 million (the “Springfield Transaction”). The community consists of 97 independent living units and 90 assisted living units. The Company incurred approximately $0.3 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for $20.3 million of the acquisition price at a fixed interest rate of 4.10% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources.

F-13

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

Effective September 27, 2016, the Company closed the acquisition of one senior housing community located in Kingwood, Texas for $18.0 million (the “Kingwood Transaction”). The community consists of 96 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life Insurance Company (“Protective Life”) for $13.0 million of the acquisition price at a fixed interest rate of 4.13% with a 15-year term with the balance of the acquisition price paid from the Company’s existing cash resources.

Effective February 16, 2016, the Company closedcompleted the acquisition of two senior housingliving communities located in Pensacola, Florida,Indiana for $48.0 million (the “Pensacola Transaction”).a combined purchase price of $12.3 million. The two communities consist of 179 assisteda total of 157 independent living units. The acquisition price was funded with cash on hand. The acquired assets did not meet the definition of a business and, as such, the transaction was accounted for as an asset acquisition pursuant to the guidance in subsection 805-50 of Accounting Standards Codification ("ASC") 805, Business Combinations.

Refinancing
During the year ended December 31, 2022, the Company incurred approximately $0.3 millioncompleted the refinancing of certain of its mortgage debt. See "Note 8–Notes Payable".
Investment Agreement
On October 1, 2021, the Company entered into an Amended and Restated Investment Agreement (the "A&R Investment Agreement") with Conversant Dallas Parkway (A) LP (“Conversant Fund A”) and Conversant Dallas Parkway (B) LP ("Conversant Fund B" and, together with Conversant Fund A, the “Conversant Investors”), affiliates of Conversant Capital LLC, which amended and restated in transaction costs relatedits entirety the Investment Agreement that the Company entered into with the Conversant Investors on July 22, 2021 and was subsequently amended (the “Original Investment Agreement”). Pursuant to this acquisition which have been includedthe A&R Investment Agreement, (i) the Conversant Investors purchased from the Company, and the Company sold to the Conversant Investors, in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for $35.0 milliona private placement (the “Private Placement”) pursuant to Section 4(a)(2) of the acquisition priceSecurities Act of 1933, as amended (the “Securities Act”), 41,250 shares of newly designated Series A convertible preferred stock, par value $0.01 per share (the “Series A Preferred Stock”) at a fixed interest rateprice per share equal to $1,000 and 1,650,000 shares of 4.38%common stock, par value $0.01 per share, at a price per share equal to $25; (ii) the Conversant Investors received 1,031,250 warrants, each evidencing the right to purchase one share of common stock at a price per share of $40 and with an exercise expiration date of five years after the Closing Date; (iii) the Company amended the terms of its previously announced rights offering under the Original Investment Agreement to allow the holders of record of its outstanding shares of common stock at the close of business on September 10, 2021 the right to purchase at $30 per share, 1.1 shares of common stock for each share of common stock held (the “Rights Offering”), in each case as more fully described in the A&R Investment Agreement.
In addition, pursuant to the A&R Investment Agreement, the Conversant Investors agreed to partially backstop the Amended Rights Offering up to $50.5 million through the purchase of additional shares of the Company's common stock at $30 per share. In consideration for the backstop commitments of the Conversant Investors, the Company paid to the Conversant Investors, as a 10-year termpremium, 174,675 shares of common stock.On or after the closing date under the A&R Investment Agreement, the Company may from time to time request additional investments from the Conversant Investors in shares of Series A Preferred Stock for future investment in accretive capital expenditures and acquisitions post-closing up to an aggregate amount equal to $25.0 million, subject to certain conditions.
Simultaneously with the balanceentry into the Investment Agreement, the Company and the Conversant Investors entered into a $17.3 million secured promissory note (the “Promissory Note”) to provide interim debt financing which was scheduled to mature in July 2022 and was subsequently amended. The Promissory Note was amended by the A&R Investment Agreement to reduce the aggregate indebtedness outstanding by $1.3 million, resulting in an amended secured promissory note in the amount of $16.0 million. The Promissory Note was fully repaid upon closing of the acquisition price paid fromtransactions contemplated by the Company’s existing cash resources.

Effective January 26, 2016,A&R Investment Agreement and the Company recognized a $1.0 million loss on extinguishment of the Promissory Note. See "Note 8–Notes Payable."

The transactions contemplated by the A&R Investment Agreement were subject to stockholder approval, which was received on October 22, 2021. The Rights Offering expired on October 27, 2021 with subscription rights to purchase 1,133,941 shares exercised by existing stockholders.The transactions contemplated by the A&R Investment Agreement closed (the “Closing”) on November 3, 2021 and resulted in net proceeds to the acquisitionCompany of three senior housing communities located in Colby, Park Falls,$141.4 million after paying customary transaction and Wisconsin Rapids, Wisconsin, forclosing costs of approximately $16.8 million (the “Pine Ridge Transaction”). $13.4 million.The three communitiesConversant Investors and Arbiter Partners QP, LP (“Arbiter”) backstopped the Rights Offering, pursuant to which they purchased an additional 1,160,806 shares of common stock and 114,911 shares of common stock, respectively, and received a backstop fee of 174,675 shares of common stock and 17,292 shares of common stock, respectively.
At the Closing, the Company, the Conversant Investors and Silk Partners LP (“Silk”) entered into an Investor Rights Agreement, pursuant to which, among other things, the Company's board of directors was reconstituted to consist of 138 assisted living units. The Company incurred approximately $0.1 million in transaction costs relatedfour new directors designated by the Conversant Investors, two new directors designated by Silk and three continuing directors.
F-19
Table of Contents
At the Closing, all outstanding performance-based stock based compensation including restricted shares were converted at target award levels to this acquisition which have been included in generaltime-based restricted stock awards that will vest on the applicable scheduled vesting dates or the relevant award termination date applicable to such performance shares.See “Note 10–Stock-Based Compensation.”

6. Property and administrative expenses within the Company’s Consolidated StatementsEquipment
As of OperationsDecember 31, 2022 and Comprehensive Loss. The Company obtained financing from Protective Life for $11.3 million of the acquisition price at a fixed interest rate of 4.50% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources.

As a result of these acquisitions, the Company recorded additions to2021, property and equipment, of approximately $126.0 millionnet and otherleasehold improvements, which include assets of approximately $12.8 million, primarily consisting of in-place lease intangibles, within the Company’s Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives. During fiscal 2016, final valuation adjustments associated with 2015 senior housing community acquisitions resulted in the Company reclassifying approximately $1.3 million from other assets to property and equipment. As a result of adoption of ASU 2015-16, prior periods were not adjusted and recast to reflect this reclassification within the Company’s Consolidated Balance Sheets.

During fiscal 2016, these acquisitions generated $15.5 million of revenue and $(7.7) million of losses before income taxes which are included in the Company’s Consolidated Statements of Operations and Comprehensive Loss from the dates of acquisition. Losses before income taxes primarily result from the amortization of in-place lease intangibles associated with acquisitions during fiscal 2016 and 2015. The unaudited pro forma combined results of operations have been prepared as if the acquisitions had occurred on January 1, 2015, as follows (in thousands):

 

 

December 31,

 

 

 

2016

 

 

2015

 

Total revenues

 

$

461,653

 

 

$

434,967

 

Loss before income taxes

 

$

(19,389

)

 

$

(27,374

)

The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the results of operations of the Company that would have actually resulted had the acquisitions occurred on January 1, 2015.

F-14

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

4.

Property and Equipment

Property and equipmentunder finance leases, consists of the following (in thousands):

 December 31,
Asset Lives20222021
Land$47,476 $46,069 
Land improvements5 to 20 years20,053 19,146 
Buildings and building improvements10 to 40 years842,854 814,035 
Furniture and equipment5 to 10 years53,236 52,602 
Automobiles5 to 7 years2,704 2,662 
Leasehold improvements, and assets under finance leases(1)1,899 2,276 
Construction in progressNA666 392 
     Total property and equipment968,888 937,182 
Less accumulated depreciation and amortization(353,134)(315,983)
Property and equipment, net$615,754 $621,199 

 

 

 

 

December 31,

 

 

 

Asset Lives

 

2017

 

 

2016

 

Land

 

 

 

$

69,842

 

 

$

66,755

 

Land improvements

 

5 to 20 years

 

 

24,665

 

 

 

21,644

 

Buildings and building improvements

 

10 to 40 years

 

 

1,148,816

 

 

 

1,030,676

 

Furniture and equipment

 

5 to 10 years

 

 

62,614

 

 

 

51,471

 

Automobiles

 

5 to 7 years

 

 

6,236

 

 

 

5,776

 

Leasehold improvements

 

(1)

 

 

85,384

 

 

 

77,364

 

Construction in progress

 

NA

 

 

5,711

 

 

 

23,906

 

 

 

 

 

 

1,403,268

 

 

 

1,277,592

 

Less accumulated depreciation and

   amortization

 

 

 

 

(303,482

)

 

 

(245,162

)

Property and equipment, net

 

 

 

$

1,099,786

 

 

$

1,032,430

 

(1)

(1)Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining lease term.

At December 31, 2017 and 2016, furniture and equipment included $3.2 million of capitalized computer software development costs of which $3.0 million and $2.8 million, respectively, has been amortized and is included as a component of accumulated depreciation and amortization. During fiscal 2017, final valuation adjustments associated with senior housing community acquisitions in fiscal 2016 resulted in the Company reclassifying approximately $1.3 million from property and equipment to other assets; however, as a result of adoption of ASU 2015-16, the Consolidated Balance Sheet for the year ended December 31, 2016, has not been adjusted and recast to reflect these reclassification adjustments.

Property and equipment includes $31.8 million of assets under capital lease in connection with the Ventas Lease Transaction, as discussed at Note 15, “Leases,” of which $15.4 million and $14.6 million has been amortized and is included as a component of accumulated depreciation and amortization at December 31, 2017 and 2016, respectively.

5.

Other Assets

Other assets consist of the following (in thousands):

 

 

December 31,

 

 

 

2017

 

 

2016

 

Deferred lease costs, net

 

$

5,555

 

 

$

7,538

 

Security and other deposits

 

 

10,234

 

 

 

14,274

 

In-place lease intangibles, net

 

 

—

 

 

 

6,301

 

Other

 

 

3,047

 

 

 

3,210

 

 

 

$

18,836

 

 

$

31,323

 

In connection with the Company’s acquisitions and certain of its lease transactions, subject to final valuation adjustments, the Company records additions to in-place lease intangibles in order to reflect the value associated with the resident operating leases acquired. In-place lease intangibles are being amortized over the estimated remaining useful life of the respective resident operating leases. The valueasset or the remaining lease term.  Assets under finance leases and leasehold improvements include $0.2 million and $0.3 million of in-place leases includes lost revenue that would be realized if the resident operating leases were to be replaced by the Company.

F-15

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

finance lease right-of-use assets, net of accumulated amortization, as of December 31, 2017

During fiscal 2017, final valuation adjustments associated with senior housing community acquisitions in 2016 resulted in the Company reclassifying approximately $1.3 million from2022 and 2021, respectively.


As of December 31, 2022 and 2021, property and equipment, to other assets; however, as a resultnet included $1.6 million and $0.1 million, respectively, of adoption of ASU 2015-16,capital expenditures which had been incurred but not yet paid. During the Consolidated Balance Sheet for the yearyears ended December 31, 2016, has not been adjusted2022 and recast to reflect these reclassification adjustments.

At December 31, 2016,2021, the Company had gross in-place lease intangiblesrecognized non-cash impairment charges to "Property and equipment, net" of approximately $86.5$1.6 million and $6.5 million, respectively. See “Note 4–Impairment of which approximately $80.2 million had been amortized. The unamortized ending balance of approximately $6.3 million at December 31, 2016, was fully amortized during fiscal 2017.

Long–Lived assets.”

6.

Accrued Expenses


7. Accrued Expenses
Accrued expenses consist of the following (in thousands):

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued salaries, bonuses and related expenses

 

$

13,015

 

 

$

12,465

 

Accrued property taxes

 

 

14,208

 

 

 

14,244

 

Accrued interest

 

 

3,757

 

 

 

3,288

 

Accrued health claims and workers comp

 

 

4,547

 

 

 

3,998

 

Accrued professional fees

 

 

763

 

 

 

792

 

Other

 

 

4,461

 

 

 

4,277

 

 

 

$

40,751

 

 

$

39,064

 

 December 31,
 20222021
Accrued payroll and employee benefits$13,795 $13,592 
Accrued interest (1)
9,374 7,311 
Accrued taxes6,939 7,278 
Accrued professional fees3,179 4,102 
Accrued other expenses3,657 4,743 
 $36,944 $37,026 

F-16

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

__________
(1) Includes accrued interest related to the remaining two Fannie Mae communities totaling $4.1 million and $2.7 million as of December 31, 2017

2022 and December 31, 2021, respectively. See “Transactions Involving Certain Fannie Mae Loans” disclosure below. On January 11, 2023, Fannie Mae completed the transfer of ownership on the two properties. As a result of the change in legal ownership, the Company will derecognize all of the debt and accrued interest related to the two properties. See "Note 16-Subsequent Events".

7.

Notes Payable


F-20
Table of Contents
8. Notes Payable
Notes payable consists of the following (in thousands):

 

 

Average

Monthly

 

 

Net Book Value

 

 

Interest

 

 

Maturity

 

Notes Payable

December 31,

 

Lender

 

Payment

 

 

Of Collateral(1)

 

 

Rate

 

 

Date

 

2017

 

 

2016

 

Fannie Mae

 

$

78

 

 

$

14,534

 

 

 

5.69

 

 

August 2021

 

$

12,283

 

 

$

12,507

 

Fannie Mae

 

 

26

 

 

 

5,675

 

 

 

4.97

 

 

October 2021

 

 

4,331

 

 

 

4,419

 

Fannie Mae

 

 

101

 

 

 

20,586

 

 

 

4.92

 

 

October 2021

 

 

17,097

 

 

 

17,448

 

Fannie Mae

 

 

27

 

 

 

20,586

 

 

 

5.19

 

 

October 2021

 

 

4,839

 

 

 

4,911

 

Fannie Mae

 

 

117

 

 

 

22,981

 

 

 

4.92

 

 

November 2021

 

 

19,886

 

 

 

20,291

 

Fannie Mae

 

 

27

 

 

 

5,990

 

 

 

4.38

 

 

March 2022

 

 

4,831

 

 

 

4,936

 

Fannie Mae

 

 

60

 

 

 

11,700

 

 

 

4.76

 

 

April 2022

 

 

10,403

 

 

 

10,614

 

Fannie Mae

 

 

19

 

 

 

11,700

 

 

 

4.85

 

 

April 2022

 

 

3,470

 

 

 

3,522

 

Fannie Mae

 

 

135

 

 

 

26,638

 

 

 

4.69

 

 

April 2022

 

 

23,637

 

 

 

24,123

 

Fannie Mae

 

 

11

 

 

 

4,178

 

 

 

4.97

 

 

April 2022

 

 

2,022

 

 

 

2,051

 

Fannie Mae

 

 

60

 

 

 

15,214

 

 

 

4.48

 

 

May 2022

 

 

10,699

 

 

 

10,926

 

Fannie Mae

 

 

20

 

 

 

15,214

 

 

 

4.85

 

 

May 2022

 

 

3,697

 

 

 

3,752

 

Fannie Mae

 

 

144

 

 

 

34,196

 

 

 

4.34

 

 

November 2022

 

 

26,382

 

 

 

26,935

 

Fannie Mae

 

 

33

 

 

 

7,384

 

 

 

4.50

 

 

November 2022

 

 

5,881

 

 

 

6,000

 

Fannie Mae

 

 

43

 

 

 

26,135

 

 

 

5.49

 

 

November 2022

 

 

7,403

 

 

 

7,504

 

Fannie Mae

 

 

84

 

 

 

17,197

 

 

 

4.32

 

 

January 2023

 

 

15,532

 

 

 

15,856

 

Fannie Mae

 

 

49

 

 

 

17,197

 

 

 

5.39

 

 

January 2023

 

 

8,453

 

 

 

8,572

 

Fannie Mae

 

 

39

 

 

 

8,311

 

 

 

4.58

 

 

January 2023

 

 

6,953

 

 

 

7,092

 

Fannie Mae

 

 

17

 

 

 

8,311

 

 

 

5.49

 

 

January 2023

 

 

3,029

 

 

 

—

 

Fannie Mae

 

 

85

 

 

 

17,613

 

 

 

4.66

 

 

April 2023

 

 

15,131

 

 

 

15,423

 

Fannie Mae

 

 

18

 

 

 

5,242

 

 

 

5.46

 

 

April 2023

 

 

3,068

 

 

 

3,110

 

Fannie Mae

 

 

45

 

 

 

8,560

 

 

 

5.93

 

 

October 2023

 

 

7,205

 

 

 

7,312

 

Fannie Mae

 

 

67

 

 

 

13,398

 

 

 

5.50

 

 

November 2023

 

 

11,180

 

 

 

11,359

 

Fannie Mae

 

 

67

 

 

 

12,634

 

 

 

5.38

 

 

November 2023

 

 

11,236

 

 

 

11,419

 

Fannie Mae

 

 

282

 

 

 

52,384

 

 

 

5.56

 

 

January 2024

 

 

46,662

 

 

 

47,390

 

Fannie Mae

 

 

632

 

 

 

113,697

 

 

 

4.24

 

 

July 2024

 

 

121,141

 

 

 

123,465

 

Fannie Mae

 

 

120

 

 

 

26,087

 

 

 

4.48

 

 

July 2024

 

 

22,394

 

 

 

22,806

 

Fannie Mae

 

 

81

 

 

 

20,645

 

 

 

4.30

 

 

July 2024

 

 

15,462

 

 

 

15,756

 

Fannie Mae

 

 

91

 

 

 

68,299

 

 

 

4.98

 

 

July 2024

 

 

16,579

 

 

 

16,822

 

Fannie Mae

 

 

134

 

 

 

27,541

 

 

 

4.59

 

 

September 2024

 

 

24,805

 

 

 

25,247

 

Fannie Mae

 

 

22

 

 

 

13,867

 

 

 

5.72

 

 

September 2024

 

 

3,682

 

 

 

3,724

 

Fannie Mae

 

 

54

 

 

 

10,711

 

 

 

4.70

 

 

September 2024

 

 

9,864

 

 

 

10,037

 

Fannie Mae

 

 

53

 

 

 

12,277

 

 

 

4.50

 

 

January 2025

 

 

9,915

 

 

 

10,091

 

Fannie Mae

 

 

95

 

 

 

6,313

 

 

 

4.46

 

 

January 2025

 

 

18,023

 

 

 

18,345

 

Fannie Mae

 

 

70

 

 

 

15,660

 

 

 

4.35

 

 

February 2025

 

 

13,434

 

 

 

13,678

 

Fannie Mae

 

 

109

 

 

 

8,913

 

 

 

3.85

 

 

March 2025

 

 

22,086

 

 

 

22,522

 

Fannie Mae

 

 

102

 

 

 

24,411

 

 

 

3.84

 

 

April 2025

 

 

20,749

 

 

 

21,157

 

Fannie Mae

 

 

31

 

 

 

24,411

 

 

 

5.53

 

 

April 2025

 

 

5,372

 

 

 

5,435

 

Fannie Mae

 

 

47

 

 

 

9,822

 

 

 

4.55

 

 

June 2025

 

 

8,794

 

 

 

8,944

 

Fannie Mae

 

 

59

 

 

 

12,332

 

 

 

4.79

 

 

June 2025

 

 

10,753

 

 

 

10,929

 

Fannie Mae

 

 

81

 

 

 

15,898

 

 

 

5.30

 

 

June 2025

 

 

13,580

 

 

 

13,811

 

Fannie Mae

 

 

24

 

 

 

12,332

 

 

 

5.71

 

 

June 2025

 

 

4,079

 

 

 

—

 

Fannie Mae

 

 

58

 

 

 

12,968

 

 

 

4.69

 

 

October 2025

 

 

10,780

 

 

 

10,956

 

F-17

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

 

 

Average

Monthly

 

 

Net Book Value

 

 

Interest

 

 

Maturity

 

Notes Payable

December 31,

 

Lender

 

Payment

 

 

Of Collateral(1)

 

 

Rate

 

 

Date

 

2017

 

 

2016

 

Fannie Mae

 

 

44

 

 

 

9,648

 

 

 

4.70

 

 

October 2025

 

 

8,147

 

 

 

8,280

 

Fannie Mae

 

 

273

 

 

 

39,692

 

 

 

4.68

 

 

December 2025

 

 

51,163

 

 

 

51,991

 

Fannie Mae

 

 

9

 

 

 

9,229

 

 

 

5.81

 

 

December 2025

 

 

1,445

 

 

 

1,461

 

Fannie Mae

 

 

62

 

 

 

11,382

 

 

 

5.43

 

 

April 2026

 

 

10,443

 

 

 

10,607

 

Fannie Mae

 

 

29

 

 

 

11,382

 

 

 

5.84

 

 

April 2026

 

 

4,903

 

 

 

4,957

 

Fannie Mae

 

 

98

 

 

 

22,563

 

 

 

4.10

 

 

October 2026

 

 

19,854

 

 

 

20,195

 

Fannie Mae

 

 

108

 

 

 

25,235

 

 

 

4.24

 

 

December 2026

 

 

21,617

 

 

 

21,975

 

Protective Life

 

 

96

 

 

 

24,806

 

 

 

3.55

 

 

April 2025

 

 

20,234

 

 

 

20,665

 

Protective Life

 

 

49

 

 

 

11,429

 

 

 

4.25

 

 

August 2025

 

 

9,535

 

 

 

9,713

 

Protective Life

 

 

78

 

 

 

18,092

 

 

 

4.25

 

 

September 2025

 

 

15,163

 

 

 

15,444

 

Protective Life

 

 

138

 

 

 

33,301

 

 

 

4.25

 

 

November 2025

 

 

26,993

 

 

 

27,447

 

Protective Life

 

 

57

 

 

 

14,070

 

 

 

4.50

 

 

February 2026

 

 

10,959

 

 

 

11,149

 

Protective Life

 

 

187

 

 

 

42,753

 

 

 

4.38

 

 

March 2026

 

 

33,705

 

 

 

34,396

 

Protective Life

 

 

70

 

 

 

15,505

 

 

 

4.13

 

 

October 2031

 

 

12,645

 

 

 

12,950

 

Berkadia

 

 

78

 

 

 

19,476

 

 

 

(3

)

 

April 2019(5)

 

 

11,505

 

 

 

11,742

 

Berkadia

 

 

298

 

 

 

96,952

 

 

 

(4

)

 

February 2020

 

 

65,000

 

 

 

—

 

HUD

 

 

16

 

 

 

5,622

 

 

 

4.48

 

 

September 2045

 

 

2,989

 

 

 

3,042

 

Insurance Financing

 

 

146

 

 

 

—

 

 

 

2.76

 

 

May 2018

 

 

725

 

 

 

—

 

Insurance Financing

 

 

324

 

 

 

—

 

 

 

3.04

 

 

November 2018

 

 

3,505

 

 

 

—

 

Insurance Financing

 

 

—

 

 

 

—

 

 

 

1.73

 

 

October 2017

 

 

—

 

 

 

756

 

Insurance Financing

 

 

—

 

 

 

—

 

 

 

1.73

 

 

May 2017

 

 

—

 

 

 

691

 

Insurance Financing

 

 

—

 

 

 

—

 

 

 

1.79

 

 

September 2017

 

 

—

 

 

 

1,576

 

 

 

$

5,677

 

 

 

 

 

 

4.60%(2)

 

 

 

 

$

967,332

 

 

$

910,234

 

Less deferred loan costs, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,398

 

 

 

9,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

957,934

 

 

$

900,393

 

Less current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,728

 

 

 

17,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

938,206

 

 

$

882,504

 

(1)

81 of the facilities owned by the Company are encumbered by mortgage debt and are provided as collateral under their respective loan agreements.

(2)

Weighted average interest rate on current fixed interest rate debt outstanding.

  

December 31,
Weighted average
interest rate		Maturity Date20222021
Fixed rate mortgage notes payable4.6%2024 to 2045$503,312 $561,006 
Fannie Mae mortgage notes payable (1)
4.6%202331,991 31,991 
Variable rate mortgage notes (2)
5.9%2026 to 2029137,652 88,711 
Notes payable - insurance5.4%20231,724 3,483 
Notes payable - other7.1%20231,619 2,121 
   Notes payable, excluding deferred loan costs$676,298 $687,312 
Deferred loan costs, net5,267 4,201 
Total notes payable, net$671,031 $683,111 
Less current portion46,029 69,769 
Total long-term notes payable, net$625,002 $613,342 

(3)

Variable interest rate of LIBOR plus 4.50%, which was 5.93% at December 31, 2017.


(4)

Variable interest rate of LIBOR plus 4.00%, which was 5.43% at December 31, 2017.

(5)

Effective July 31, 2017, the Company extended the maturity date with Berkadia to April 1, 2019.

F-18

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

The aggregate scheduled maturities of notes payable atas of December 31, 20172022 are as follows (in thousands):

2018

 

$

21,421

 

2019

 

 

28,994

 

2020

 

 

83,482

 

2021

 

 

72,706

 

2022

 

 

106,161

 

Thereafter

 

 

654,568

 

 

 

$

967,332

 

2023 (1)
$47,669 
2024152,155 
2025114,285 
2026164,044 
20273,980 
Thereafter194,165 
     Total notes payable, excluding deferred loan costs$676,298 

(1)See "Transactions Involving Certain Fannie Mae Loans" disclosure below. On January 11, 2023, Fannie Mae completed the transfer of ownership on the two properties. As a result of the change in legal ownership, the Company will derecognize all of the debt and accrued interest related to the two properties. See "Note 16-Subsequent Events".
(2)Capped weighted average rate. See "Note 14-Derivatives and Hedging" for interest rate cap agreements on variable rate mortgage notes payable.

As of December 15, 2017,31, 2022, our fixed rate mortgage notes bear interest rates ranging from 3.6% to 6.3%. Our variable rate mortgage notes are based on either one-month LIBOR or the Secured Overnight Financing Rate (“SOFR”) plus an applicable margin. As of December 31, 2022, one-month LIBOR and one-month SOFR were 4.4% and 4.3%, respectively, and the applicable margins were 2.14% and 3.50%, respectively.
As of December 31, 2022, we had property and equipment with a net carrying value of $604.5 million that is secured by outstanding notes payable, and two unencumbered properties with a net book value of $12.9 million which could provide a source of liquidity from new debt.

2022 Mortgage Refinance
In March 2022, the Company completed supplemental mortgage financingthe refinancing of approximately $4.1 million from Fannie Mae at a fixed interest rate of 5.71% on one community located in Oneonta, New York. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the originalcertain existing mortgage debt maturingwith Ally Bank (“Refinance Facility”) for ten of its communities. The Refinance Facility includes an initial term loan of $80 million. In addition, $10 million is available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements and up to an additional uncommitted $40 million may be available in June 2025.the lender's discretion to fund future growth initiatives. In addition, the Company provided a limited payment guaranty (“Limited Payment Guaranty”) of 33%, that reduces to 25% and then to 10%, of the then outstanding balance of the Refinance Facility based upon achieving certain financial covenants and then maintained over the life of the loan. As defined and required in the Limited Payment Guaranty, the Company is required to maintain certain covenants including maintaining a Tangible Net Worth of $150 million and Liquid Assets of at least $13 million which is inclusive of a $1.5 million debt service reserve provided by the Company at the closing of the Refinance Facility. The debt service reserve may be released upon terms described in the loan agreement and is included in restricted cash.
F-21
Table of Contents
In conjunction with the Refinance Facility, the Company incurred costs of $2.2 million in March 2022. These costs, net of amortization of $0.4 million, are included in deferred loan costs as of December 31, 2022. The financing transaction generated a loss on refinancing of notes payable of $0.6 million which is included in loss on extinguishment of debt for the twelve months ended December 31, 2022.
On December 13, 2022, the Company amended the Refinance Facility with Ally Bank by adding two additional subsidiaries of the Company as borrowers. The amendment increased the principal by $8.1 million to $88.1 million. In conjunction with the amendment, the Company incurred costs of approximately $0.2 million in December 2022 that are included in deferred financingloan costs related to this loan, which are beingas of December 31, 2022 and will be deferred and amortized over the remaining initiallife of the term loan.
The Refinance Facility also requires the financial performance of the twelve communities to meet certain financial covenants, including a minimum debt service coverage ratio and a minimum debt yield (as defined in the loan term.

Onagreement) with a first measurement date as of June 30, 2022 and quarterly measurement dates thereafter. As of December 1, 2017,31, 2022, we were in compliance with the financial covenants. We can provide no assurance that any financial covenants will be met in the future.

The Refinance Facility requires the Company to purchase and maintain an interest rate cap facility during the term of the Refinance Facility. To comply with the lender’s requirement, the Company entered into an interest rate cap agreement for an aggregate notional amount of $88.1 million in November 2022. See "Note 14–Derivatives and Hedging".

Notes Payable - Insurance
In June 2022, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $3.5 million. The finance agreement has a fixed interest rate$1.7 million, of 3.04% with the principal being repaid over an 11-month term.

On November 30, 2017, the Company completed supplemental mortgage financingwhich $0.5 million was outstanding as of approximately $3.0 million from Fannie Mae at a fixed interest rate of 5.49% on one community located in Rocky River, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in January 2023. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.

On MayDecember 31, 2017,2022. In July 2022, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.6 million. The finance agreement has a fixed interest rate of 2.76% with the principal being repaid over an 11-month term.

On January 31, 2017, in conjunction with the Four Property Lease Transaction, the Company obtained $65.0$0.3 million, of mortgage debt from Berkadia. The new mortgage loan is interest-only and has a three-year term with an initial variable interest rate of LIBOR plus 4.00%. The Company incurred approximately $0.9 million in deferred financing costs related to this loan, which are being amortized over three years.

On December 22, 2016, the Company completed supplemental mortgage financing of approximately $5.0 million from Fannie Mae at a fixed interest rate of 5.84% on one community located in Lamberville, Michigan. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in April 2026. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.

On December 22, 2016, the Company completed supplemental mortgage financingwas outstanding as of approximately $1.5 million from Fannie Mae at a fixed interest rate of 5.81% on one community located in Mishawaka, Indiana. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in December 2025. The Company incurred approximately $45,000 in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.


F-19

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

On2022. In December 22, 2016, the Company completed supplemental mortgage financing of approximately $3.7 million from Fannie Mae at a fixed interest rate of 5.72% on one community located in Roanoke, Virginia. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in September 2024. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.

On December 15, 2016, the Company completed supplemental mortgage financing of approximately $5.4 million from Fannie Mae at a fixed interest rate of 5.53% on one community located in Toledo, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in April 2025. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.

On December 1, 2016,2022, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $0.8 million. The$1.1 million, of which $1.1 million was outstanding as of December 31, 2022. As of December 31, 2022, the Company had finance agreement has aagreements totaling $1.7 million, with fixed interest rates ranging from 4.45% to 5.60%, and weighted average rate of 1.66% with principal amortized over a 10-month term.

On November 2, 2016, in conjunction5.44%, with the Cincinnati Transaction,principals being repaid over ten-month term. 


Transactions Involving Certain Fannie Mae Loans
The Coronavirus Aid, Relief and Economic Security Act of 2020 ("CARES Act"), among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to the COVID-19 pandemic to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company obtained $22.0entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 of the Company's properties. On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer of one Fannie Mae loan covering one of the Company's properties. On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of three Fannie Mae loans covering two of the Company's properties. The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May, and June 2020 and Fannie Mae agreed to forbear in exercising its rights and remedies during such three month period. During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.
On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one-month extension of the forbearance agreements between the Company and Fannie Mae covering 23 of the Company's properties. The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period. By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less any payments made during the forbearance period.
On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for five of mortgage debt fromthe Company's properties with forbearance agreements. The Company elected not to pay $3.8 million on the loans for the remaining 18 properties as of that date as it initiated a process intended to transfer the operations and ownership of such properties to Fannie Mae. The new mortgage loan hasTherefore, the Company was in default on such loans, which were non-recourse loans.
As a 10-year termresult of the default, Fannie Mae filed a motion with the United States District Court (the "District Court") requesting that a 4.24% fixed interest rate andreceiver be appointed over the principal amortized over a 30-year term.18 properties, which was approved by the District Court. The Company incurred approximately $0.2 million in deferred financing costs relatedagreed to this loan, which are being amortized over 10 years.

On September 30, 2016, in conjunction withcontinue to manage the Springfield Transaction,18 communities, subject to earning a management fee, until management of the Company obtained $20.3 millioncommunities was transitioned to a successor operator or legal ownership of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.10% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs relatedproperties was transferred to this loan, which are being amortized over 10 years.

On September 27, 2016, in conjunction with the Kingwood Transaction, the Company obtained $13.0 million of mortgage debt from Protective Life. The new mortgage loan has a 15-year term with a 4.13% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 15 years.

On September 23, 2016, the Company completed supplemental mortgage financing of approximately $3.5 million from Fannie Mae at a fixed interest rate of 4.85% on one community located in Jeffersonville, Indiana, with existing mortgage debt maturing in April 2022. The supplemental mortgage loan is cross-collateralized and cross-defaulted withor its designee. Management fees earned from the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.

On September 23, 2016, the Company completed supplemental mortgage financing of approximately $3.8 million from Fannie Mae at a fixed interest rate of 4.85% on one community located in Irving, Texas, with existing mortgage debt maturing in May 2022. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.

On August 2, 2016, the Company completed supplemental mortgage financing of approximately $2.1 million from Fannie Mae at a fixed interest rate of 4.97% on one senior housing community located in Conroe, Texas. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original mortgage debt maturing in April 2022. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.


F-20

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

Effective July 31, 2016, the Company extended the maturity of its mortgage loan with Berkadia on one of its senior housing communities located in Canton, Ohio. The maturity date was extended from July 10, 2017 to July 10, 2018 with an initial variable interest rate of LIBOR plus 4.50% with principal amortized over 25 years.properties were recognized as revenue when earned. In conjunction with the loan extension,receivership order, the Company was required to obtain approval from the receiver for all payments and received reimbursements from

F-22
Table of Contents
Fannie Mae for reasonable operating expenses incurred an extension feeon behalf of approximately $30,000 which will be amortized overany of the new loan term.

On June 15, 2016,18 communities under the receivership order. As a result of the events of default and receivership order, the Company completed supplemental mortgage financingdiscontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of approximately $16.9 million fromdefault. In addition, the Company concluded that it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae atwere forfeited and the Company no longer had control of the properties in accordance with ASC 610-20.

During the year ended December 31, 2021, Fannie Mae completed the transition of legal ownership of 16 of the Company's properties and the Company recorded a fixedgain on extinguishment of debt of $200.9 million, which is included in gain on extinguishment of debt in the Company's Consolidated Statement of Operations and Comprehensive Income (Loss). As of December 31, 2022, two properties remained for which the legal ownership has not been transferred back to Fannie Mae. As of December 31, 2022, the Company included $31.8 million of outstanding debt in current portion of notes payable, net of deferred loan costs of $0.2 million. As of December 31, 2022 and December 31, 2021, the accrued interest raterelated to the remaining two properties was $4.1 million and $2.7 million, respectively, and was included in accrued expenses on the Company’s Consolidated Balance Sheets. As of 4.98%December 31, 2022, the Company did not manage any properties on four senior housing communities located in Texas,behalf of Fannie Mae.
On January 11, 2023, Fannie Mae completed the transfer of ownership of the two senior housing communities located in Ohio,remaining properties. See "Note 16–Subsequent Events."

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements
On May 21, 2020, the Company entered into amendments to its loan agreements with one senior housing community located in Missouri.of its lenders, Protective Life Insurance Company (“Protective Life”), related to loans (the "Protective Life Loans") covering ten of the Company's properties. These amendments allowed the Company to defer principal and interest payments for April, May, and June 2020 and to defer principal payments for July 2020 through March 2021. The supplemental mortgage loans are coterminous, cross-collateralized and cross-defaulted with the original mortgageCompany made all required debt maturingservice payments in July, 2024. TheAugust, and September 2020. On October 1, 2020, the Company incurred approximately $0.5entered into further amendments to its loan agreements with Protective Life Insurance Company. These amendments allowed the Company to defer interest payments for October, November, and December 2020, and to extend the deferral period of principal payments through September 1, 2021, with such deferral amounts being added to principal due at maturity in either 2025, 2026, or 2031, depending upon the loan. As of December 31, 2022, the Company had deferred payments of $7.2 million in deferred financing costs related to these loans,the Protective Life Insurance Loans, of which are being amortized over$2.6 million was included in accrued expenses in the Company’s Consolidated Balance Sheets. The remaining initial$4.6 million is included in notes payable, net of deferred loan terms.

costs and current portion on the Company’s Consolidated Balance Sheets.


Other Debt Related Transactions
On May 31, 2016,20, 2020, the Company renewed certain insurance policies and entered into an agreement with Healthpeak (the “Healthpeak Forbearance”), effective from April 1, 2020 through the lease term ending October 31, 2020, to defer a finance agreement totaling approximately $2.6 million. The finance agreement has a fixed interest ratepercentage of 2.16% with principal amortized over a 15-month term.

On Mayrent payments.  As of December 31, 2016,2022, the Company renewed certain insurance policieshad deferred $1.6 million in rent payments, which is included in notes payable, net of deferred loan costs and entered into a finance agreement totaling approximately $1.5 million.current portion on the Company’s Consolidated Balance Sheets. The finance agreement has a fixed interest rateaccrued on the deferred rent payments was $0.1 million as of 2.16% with principal amortize over an 11-month term.

On May 3, 2016,December 31, 2022 and was included in accrued expenses in the Company’s Consolidated Balance Sheets.


Deferred Loan Costs
As of December 31, 2022 and December 31, 2021, the Company drew down approximately $2.6 millionhad gross deferred loan costs of supplemental funding proceeds from Protective Life associated with the previous acquisition of one senior housing community located in Indianapolis, Indiana, during fiscal 2015, at a fixed interest rate of 4.25% with a 10-year term and principal amortized over a 30-year term. The loan commitment was based on certain funding requirements being met and was available to the Company through February 28, 2018.

On February 16, 2016, in conjunction with the Pensacola Transaction, the Company obtained $35.0 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.38% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.4 million in deferred financing costs related to this loan, which are being amortized over 10 years.

On January 26, 2016, in conjunction with the Pine Ridge Transaction, the Company obtained approximately $11.3 million and $11.5 million, respectively. Accumulated amortization was approximately $6.0 million and $7.3 million as of mortgage debt from Protective Life. The newDecember 31, 2022 and December 31, 2021, respectively.


Debt Covenant Compliance
Except for the non-compliance with Fannie Mae mortgages for the two remaining properties in the process of transition back to Fannie Mae, and certain mortgage loan has a 10-year termagreements with a 4.50% fixed interest rate andProtective Life (See "Note 16–Subsequent Events"), the principal amortized over a 30-year term. Company was in compliance with all other aspects of its outstanding indebtedness as of December 31, 2022.

F-23
Table of Contents
Letters of Credit
The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years.

The Companypreviously issued standby letters of credit with Wells Fargo, Bank (“Wells Fargo”), totaling approximately $3.9$3.4 million, for the benefit of Hartford Financial Services (“Hartford”) associatedin connection with the administration of workers compensationworkers’ compensation.  On August 27, 2020, the available letters of credit were increased to $4.0 million, and subsequently on July 31, 2022 they were further increased to $4.1 million, all of which remainremained outstanding as of December 31, 2017.

2022.


9. Securities Financing
Series A Preferred Stock
The Company issued standby lettersentered into an investment agreement with the Conversant Investors on July 22, 2021 that was subsequently amended and restated on October 1, 2021 and completed and closed on November 3, 2021. On November 3, 2021 (“Closing Date”) under the terms of credit with JPMorgan Chase Bank (“Chase”), totaling approximately $6.7 million, for the benefit of Welltower, Inc. (“Welltower”), formerly Healthcare REIT, Inc. on certain leases between Welltower andA&R Investment Agreement, the Company raised approximately $154.8 million through (i) the issuance to the Conversant Investors of 41,250 shares of newly designated Series A Preferred Stock of the Company, par value $0.01 per share, at $1,000 per share (“Series A Preferred Stock”) that generated approximately $41.25 million in proceeds, 1,650,000 shares of common stock of the Company, par value $0.01 per share, per share at $25 per share that generated approximately $41.25 million in proceeds and 1,031,250 warrants to purchase common stock at $40 per share and (ii) a common stock rights offering to the Company’s existing stockholders (the “Rights Offering”), pursuant to which remain outstandingsuch common stock holders purchased an additional 1,133,941 shares of common stock at $30 per share that generated approximately $34.0 million in proceeds. The Conversant Investors and Arbiter backstopped the Rights Offering, pursuant to which they purchased an additional 1,160,806 and 114,911 shares of common stock, respectively, that generated approximately $38.3 million in proceeds, and received a backstop fee amounting to 174,675 shares of common stock and 17,292 shares of common stock, respectively. Of this total, approximately $16.0 million was used to retire the Promissory Note described herein.
With respect to the distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Series A Preferred Stock will rank: (i) on a parity basis with each other class or series of capital stock of the Company now existing or hereafter authorized, classified or reclassified, the terms of which expressly provide that such class or series ranks on a parity basis with the Series A Preferred Stock as to dividends or rights; and (ii) junior to each other class or series of capital stock of the Company hereafter authorized, classified or reclassified, the terms of which expressly provide that class or series. In the event of a Change of Control (as defined in the A&R Investment Agreement), the Series A Preferred Stockholders hold a liquidation preference that is equal to $1,000 per share plus the sum of preferred dividends and other dividends paid as additional stock plus any accrued and unpaid dividends (the “Liquidation Preference”).
The Series A Preferred Stock has an 11% annual dividend calculated on the original investment of $41.25 million accrued quarterly in arrears and compounded. Dividends are guaranteed and may be paid in cash or in additional Series A Preferred Stock shares at the discretion of the Company’s Board of Directors. Generally, the Series A Preferred Stockholders do not have special voting rights and have voting rights consistent with common stockholders as if they were one class. Series A Preferred Stockholders are entitled to a number of votes in respect of the shares of Series A Preferred Stock owned by them equal to the number of shares of common stock into which such shares of Series A Preferred Stock would be converted.
Dividends are cumulative, and any declaration of dividends is at the discretion of the Company’s Board of Directors. If the Board does not declare a dividend in respect of any dividend payment date, the amount of such accrued and unpaid dividend is added to the liquidation preference and compounds quarterly thereafter. On December 31, 2021, the Company declared $0.7 million of dividends on the Series A Preferred Stock, which was included in accrued liabilities in the Consolidated Balance Sheets of the Company as of December 31, 2017.

2021, and paid in January 2022. On March 31, 2022, the Company declared a $1.1 million cash dividend on the Series A Preferred Stock which was paid in April 2022. On June 8, 2022, the Company declared a $1.1 million cash dividend on the Series A Preferred Stock, which was paid in June 2022. During the three months ended September 30, 2022, and the three months ended December 31, 2022, the Board did not declare dividends, and accordingly, $2.3 million was added to the liquidation preference of the Series A Preferred Stock.

The Series A Preferred Stockholders ("Holder") have the right at any time to convert (an “Optional Conversion”) each share of Series A Preferred Stock into common stock as described in the Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock. The right of Optional Conversion may be exercised as to all or any portion of such Holder’s Series A Preferred Stock from time to time, except that, in each case, no right of Optional Conversion may be exercised by a Holder in respect of fewer than 1,000 shares of Series A Preferred Stock (unless such conversion relates to all shares of Series A Preferred Stock held by such Holder). If an Optional Conversion Date occurs on or after the Record Date for a Dividend and on or before the immediately following Dividend Payment Date and Dividends have been declared for such Dividend Payment Date, then (x) on such Dividend Payment Date, such Dividend will be paid to the Holder of each share of Series A Preferred Stock as of the close of business on the applicable Record Date for such Dividend, notwithstanding the Holder’s exercise of an Optional Conversion, and (y) the amount of such Dividend, if a Preferred Dividend, will not be included in the Liquidation Preference referred to in clause (a) above.
F-24
Table of Contents
At any time on or after the third anniversary of the Closing Date, the Company may elect, upon the approval of a majority of the independent and disinterested directors of the Board of Directors, to convert all, but not less than all, of the outstanding shares of Series A Preferred Stock into shares of common stock by delivery to the Series A Preferred Stock holders of a notice of Mandatory Conversion (as defined in the A&R Investment Agreement), provided, that the Company shall not be entitled to deliver an irrevocable notice of Mandatory Conversion unless the volume-weighted average price (“VWAP”) per share of common stock exceeds 150% of the Conversion Price (as defined in the A&R Investment Agreement) for the 30 consecutive trading days immediately preceding the notice. The Company issued standby lettershas the option to exercise its right to require the Conversant Investors to convert their Series A Preferred Stock, once VWAP has met the above requirements for this contingent call.
In the case of credit with Chase, totaling approximately $2.9 million,a Mandatory Conversion, each share of Series A Preferred Stock then outstanding will be converted into (i) a number of shares of common stock equal to the quotient of (a) the Liquidation Preference of such share of Series A Preferred Stock as of the applicable Mandatory Conversion date, divided by (b) the Conversion Price as of the applicable Mandatory Conversion date and (ii) cash in lieu of fractional shares. If the Mandatory Conversion date occurs on or after the record date for a dividend and on or before the immediately following dividend payment date and dividends have been declared for such date, then such dividend will be paid to the Series A Preferred Stock holder of each share of Series A Preferred Stock as of the close of business on the applicable record date, notwithstanding the Company’s exercise of a Mandatory Conversion, and the amount of such dividend, if a Series A Preferred Stock dividend, will not be included in the Liquidation Preference.
The Company may, at its option, irrevocably elect to redeem the Series A Preferred Stock, in whole or in part, at any time (i) on or after the forty-second month anniversary of the Closing Date (and before the seventh anniversary), at a cash redemption price per share of Series A Preferred Stock equal to the greater of (A) 100% of the Liquidation Preference as of such redemption date and (B) an amount equal to (a) the number of shares of common stock issuable upon conversion of such share of Series A Preferred Stock as of the redemption date, multiplied by (b) the VWAP of common stock for the benefit30 trading days immediately preceding the notice date and (c) on or after the seventh anniversary of HCP, Inc. (“HCP”) on certain leases between HCP and the Company which remain outstandingoriginal issue date, at a redemption price per share of Series A Preferred Stock equal to 100% of the Liquidation Preference as of the redemption date. The Conversant Investors, in combination with their common stock ownership as of December 31, 2017.


F-21

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

In connection with2021, have voting rights in excess of 50% of the Company’s loan commitments described above,total voting stock. It is therefore deemed probable that the Company incurred financing chargesSeries A Preferred Stock could be redeemed for cash by the Conversant Investors, and as such the Series A Preferred Stock is required to be adjusted to its maximum redemption value at the end of each reporting period. However, to the extent that were deferred and amortized over the lifemaximum redemption value of the notes. At December 31, 2017 and 2016,Series A Preferred Stock does not exceed the Company had gross deferred loan costs of $14.0 million and $12.8 million, respectively. Accumulated amortization was $4.6 million and $3.0 million at December 31, 2017 and 2016, respectively. Amortization expense is expected to be approximately $1.7 million in each of the next five fiscal years. The Company was in compliance with all aspects of its outstanding indebtedness at December 31, 2017 and 2016.

8.

Equity

Preferred Stock

The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rightsfair value of the shares at the date of issuance, the shares are not adjusted below the fair value at the date of issuance. As of December 31, 2022 and 2021, the Series A Preferred Stock was carried at the maximum redemption value. The redemption amount at each such seriesbalance sheet date should include amounts representing dividends not currently declared or paid but which will be payable under the redemption features.

The Series A Preferred Stock does not have a maturity date and the qualifications, limitations and restrictions thereof. Such action may be taken by the Board without stockholder approval.therefore is considered perpetual. The rights, preferences and privileges of holders of common stock are subject to the rightsSeries A Preferred Stock is redeemable outside of the holdersCompany’s control and is therefore classified as mezzanine equity in the Consolidated Balance Sheet of preferred stock. No preferred stock was outstandingthe Company as of December 31, 20172022 and 2016.

Share Repurchases

2021.

Changes in the Series A Preferred Stock are as follows:
Series A Preferred Stock
SharesAmount
(In thousands)
Balance as of December 1, 2021— $— 
Issuance of Series A Preferred Stock, net of transaction costs41 27,776 
Remeasurement of Series A Preferred Stock— 13,474 
Balance as of December 31, 202141 41,250 
Undeclared dividends on Series A Preferred Stock— 2,300 
Balance as of December 31, 202241 $43,550 

Warrants
On January 22, 2009,the Closing Date, the Company issued 1,031,250 warrants to the Conversant Investors, each evidencing the right to purchase one share of common stock at a price per share of $40 and with an exercise expiration date of five years after the Closing Date. The value of the warrants, adjusted for the pro-rata share of issuance costs and other discounts was included in Additional Paid in Capital in the Consolidated Balance Sheet of the Company as of December 31, 2022 and 2021.
F-25
Table of Contents
Investor Rights
For so long as the Conversant Investors beneficially own at least 33% of the Company’s boardoutstanding common stock on an as-converted basis, Investor A shall be entitled to designate four members of the Company’s Board of Directors including the Chairperson. For so long as the Conversant Investors beneficially own less than 33% but at least 15% or more of the outstanding shares of common stock of the Company on an as-converted basis, Investor A will have the right to designate a number of directors, approved a share repurchase program that authorizedrounded to the nearest whole number, equal to the quotient of the total number of outstanding shares of common stock of the Company on an as-converted basis beneficially owned by the Conversant Investors divided by the total number of outstanding shares of common stock of the Company on an as-converted basis, multiplied by the total number of directors then on the Board including the Chairperson for so long as the Conversant Investors beneficially own at least 20% or more of the outstanding shares of common stock on an as-converted basis. For so long as the Conversant Investors beneficially own less than 15% but at least 5% or more of the outstanding shares of common stock of the Company on an as-converted basis, Investor A will have the right to designate one designee for inclusion in the Company’s slate of individuals nominated for election to the Board (which slate will include a number of nominees equal to the number of director positions to be filled). After 3.5 years the Conversant Investors can designate 5 board seats if their beneficial ownership exceeds 50%.
For so long as Silk Partners, LLC with its affiliates (collectively, “Silk”) beneficially own at least 5% of the outstanding shares of common stock of the Company on an as-converted basis, Silk will have the right to designate two designees for inclusion in the Company’s slate of individuals nominated for election to the Board of Directors (which slate will include a number of nominees equal to the number of director positions to be filled).
Issuance Costs and Other Discounts
The Company incurred approximately $13.4 million in issuance costs associated with the A&R Investment Agreement. Additionally, the fair value of the private placement preferred stock and common stock along with the warrants issued to the Conversant Investors exceeded the proceeds received, the excess of which, along with the issuance costs, were applied as a discount to the private placement preferred stock, common stock and warrants on a relative fair value basis. These discounts resulted in a net reduction to the balance of Series A Preferred Stock and Additional Paid In Capital in the Consolidated Balance Sheets of the Company as of December 31, 2022 and 2021.
Loss on Settlement of Backstop
On October 1, 2021 the Conversant Investors and Arbiter provided backstop commitments to the Company in exchange for a backstop fee of 174,675 and 17,292 shares of common stock, respectively.Upon settlement of the commitment, the fair value of the fee provided, net of the financial benefit of the commitment when settled, was recorded as a loss on backstop of $4.6 million in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the Company for the year ended December 31, 2021.

10. Stock-Based Compensation
The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) based on their fair values.
On May 14, 2019, the Company’s stockholders approved the Capital Senior Living Corporation 2019 Omnibus Stock and Incentive Plan (the “2019 Plan”), which replaced the previous plan. The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase up to $10.0 millionshares of the Company’s common stock. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate2019 Plan authorizes the Company to acquire any particular amountissue up to 150,000 shares of common stock, and the share repurchase authorization has no stated expiration date. Shares of stock repurchasedplus reserved shares not issued or subject to outstanding awards under the program will be held as treasury shares. Pursuantprevious plan. The Company has reserved shares of common stock for future issuance pursuant to this authorization, during fiscal 2009,awards under the 2019 Plan.
On October 22, 2021, the Company's stockholders approved an amendment to the 2019 Plan to (i) increase the number of shares of common stock that the Company purchased 349,800may issue under such plan from 150,000 shares at an average costto 797,699 shares and to (ii) to exclude 257,000 shares from the minimum vesting provisions of $2.67 per share for a total cost to the Company of approximately $0.9 million. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during fiscal 2016, the Company purchased 144,315 shares of its common stock at an average cost of $17.29 per share for a total cost to the Company of approximately $2.5 million. All such purchases were made in open market transactions. There were no repurchases of the Company’s common stock during fiscal 2017.

plan.

9.

Stock-Based Compensation


Stock Options

Although the Company has not granted stock options in recent years, the

The Company’s stock option program is a long-term retention program that is intended to attract, retain and provide incentives for employees, officers, and directors and to more closely align stockholder and employee interests. The Company’s
F-26
Table of Contents
stock options generally vest over one to five years and the related expense is amortized on a straight-line basis over the vesting period.

F-22

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

A summary of the Company’s There were no stock option activity and related information foroptions granted during the years ended December 31, 2017, 2016,2022 and 2015 is presented below:

2021.

 

 

Outstanding at

Beginning of

Year

 

 

Granted

 

 

Exercised

 

 

Forfeited

 

 

Outstanding

End of Year

 

 

Options

Exercisable

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Weighted average price

 

$

—

 

 

 

—

 

 

$

—

 

 

 

—

 

 

$

—

 

 

$

—

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

3,000

 

 

 

—

 

 

 

3,000

 

 

 

—

 

 

 

—

 

 

 

—

 

Weighted average price

 

$

10.97

 

 

 

—

 

 

$

10.97

 

 

 

—

 

 

$

—

 

 

$

—

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

6,000

 

 

 

—

 

 

 

3,000

 

 

 

—

 

 

 

3,000

 

 

 

3,000

 

Weighted average price

 

$

8.44

 

 

 

—

 

 

$

5.90

 

 

 

—

 

 

$

10.97

 

 

$

10.97

 

No stock

There were 9,816 options were outstanding atas of December 31, 20172022 and 2016, as all outstanding options have fully vested and have been exercised or forfeited.2021. The options outstanding and the options exercisable atas of December 31, 20152022 and 2021 had an aggregateno intrinsic value, a weighted-average remaining contractual life of $30,000.

Restricted Stock

6.0 years, and a weighted-average exercise price of $111.90.

As of December 31, 2022, there was no unrecognized compensation expense related to unvested stock option awards. The fair value of the stock options is amortized as compensation expense over the vesting periods of the options. The Company may grant restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance and market-based vesting conditions, the Company recordsrecorded stock-based compensation expense forrelated to stock options of approximately $0.0 million and $0.1 million in the entire awardyears ended December 31, 2022 and 2021, respectively. 

Restricted Stock Units
Restricted stock units ("RSUs") may be granted to members of the Company’s Board of Directors as part of their compensation. Awards have a vesting period of one year. Compensation expense is recognized over the vesting period on a straight-line basis overbasis. The fair value of RSUs is the requisite service period, whichmarket close price of the Company’s common stock on the date of the grant. In fiscal years 2022 and 2021, 8,739 and 9,954 RSUs were issued with a weighted average grant date fair value per share of $26.50 and $52.75, respectively, and had intrinsic values of $0.2 million and $0.5 million on the date of grant, respectively. In the fourth quarter of 2021, in conjunction with the A&R Investment Agreement, the RSUs granted in 2021 became fully vested. A summary of restricted stock units’ activity is generally a period of one to four years, unlesspresented in the award is subject to certain accelerated vesting requirements. table below:
Number of SharesWeighted Average Grant-Date Fair Value
Non-vested shares as of January 1, 2021— $— 
    Granted9,954 52.75 
    Converted from Market-Based12,816 102.20 
    Vested(9,954)52.75 
Non-vested shares as of December 31, 202112,816 $102.20 
   Granted8,739 26.50 
   Vested(12,816)102.20 
Non-vested shares as of December 31, 20228,739 $26.50 

Restricted Stock Awards
Restricted stock awards (“RSAs”) entitle the holder to receive shares of the Company’s common stock as the awards vest. RSAs are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. ForGrants of restricted stock awards with performance andare classified as time-based, performance-based, or market-based, vesting conditions, total compensation expense is recognized over the requisite service period once the performance target is deemed probable of achievement. Performance goals are evaluated periodically and if such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed. If the achievement of a market condition varies from initial estimatesdepending on the date of grant, compensation expense will not be adjusted to reflect the difference since the grant date fair valuevesting criteria of the performance award gave consideration to the probability of market condition achievement.

The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted common stock awards activity and related information for the years ended December 31, 2017, 2016, and 2015 is presented below:

award.

 

 

Outstanding at

Beginning of

Year

 

 

Issued

 

 

Vested

 

 

Forfeited

 

 

Outstanding

End of Year

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

829,766

 

 

 

565,745

 

 

 

(355,400

)

 

 

(75,627

)

 

 

964,484

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

783,310

 

 

 

666,883

 

 

 

(565,224

)

 

 

(55,203

)

 

 

829,766

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

702,718

 

 

 

467,944

 

 

 

(358,716

)

 

 

(28,636

)

 

 

783,310

 

Time-Based Restricted Stock Awards

F-23

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

The restricted stock outstanding at December 31, 2017, 2016, and 2015, had an aggregate intrinsic value of $13.0 million, $13.3 million, and $16.3 million, respectively.

During fiscal 2017, the Company awarded 565,745 shares of restricted common stock to certain employees and directors of the Company, of which 194,652 shares were subject to performance and market-based vesting conditions. The average market value of the common stock on the date of grant was $13.75. These awards of restricted shares

Time-based RSAs generally vest over a onethree to four-year period,five years unless the award is subject to certain accelerated vesting requirements, and had an intrinsicrequirements. The fair value of $7.8 milliontime-based RSAs is based on the closing price of the Company’s common stock on the date of grant. Additionally, during fiscal 2017,Compensation expense for time-based RSAs is recognized over the Company awarded 26,787vesting period on a straight-line basis, net of actual forfeitures. A summary of time-based restricted stock unitsawards’ activity is presented in the table below:

F-27
Table of Contents
Number of SharesWeighted Average Grant-Date Fair Value
Non-vested shares as of January 1, 202113,292 $117.90 
    Granted51,982 32.66 
    Forfeited/Cancelled(3,079)111.67 
    Converted from Performance-Based65,366 37.62 
    Vested(15,242)85.43 
Non-vested shares as of December 31, 2021112,319 $39.51 
   Granted70,101 28.14 
   Forfeited/Cancelled(79,327)34.99 
   Vested(21,965)51.97 
Non-vested shares as of December 31, 202281,128 $30.75 
Performance-Based Restricted Stock Awards
Vesting of performance-based stock awards ("PSAs") is dependent upon attainment of various levels of performance that equal or exceed targeted levels and generally vest in their entirety one to certain directors of the Company with average market value of $13.44 onthree years from the date of the grant. TheseCompensation expense for performance-based restricted stock awards of restricted units vestis recognized over a one-yearthe performance period and had an intrinsic value of approximately $0.4 millionis based on the probability of achievement of the performance condition. Expense is recognized net of actual forfeitures.
During the fourth quarter of 2021, in conjunction with the A&R Investment Agreement, all outstanding performance- based stock based awards were converted to time-based restricted stock awards that will vest on the applicable scheduled vesting dates or the relevant award termination date of grant.

Stock Based Compensation

The Company usesapplicable to such performance shares. These modifications were accounted for as equity award modifications under ASC Topic 718. There was no incremental stock-based expense based on the Black-Scholes option pricing model to estimate the grant date fair value of itsthe modified awards. There were 52,619 PSAs outstanding as of December 31, 2022 and no PSAs outstanding as of December 31, 2021. A summary of performance-based restricted stock options. The Black-Scholes model requiresawards’ activity is presented in the inputtable below:


Number of SharesWeighted Average Grant-Date Fair Value
Non-vested shares as of January 1, 20217,395 $94.34 
    Granted60,618 36.42 
    Forfeited/Cancelled(2,647)162.00 
    Converted to Time-Based(65,366)37.62 
Non-vested shares as of December 31, 2021— $— 
    Granted87,674 28.47 
    Forfeited/Cancelled(35,055)31.58 
Non-vested shares as of December 31, 202252,619 $26.40 

Market-Based Restricted Stock Awards
Market-based restricted stock awards become eligible for vesting upon the achievement of certain assumptions including expected volatility, expected dividend yield, expected life ofspecific market-based conditions based on the option and the risk free interest rate. The expected volatility used by the Company is based primarily on an analysis of historical pricesper share price of the Company’s common stock.
During the fourth quarter of 2021, in conjunction with the A&R Investment Agreement, the Company granted certain employees market-based restricted stock awards. The expected term of options granted is based primarily on historical exercise patterns onshares were issued in three tranches that vest if the Company’s outstanding stock options. The risk free rate is based on zero-coupon U.S. Treasury yields in effectprice closes at or above an established threshold for each tranche for fifteen consecutive trading days within five years of the date of grantthe grant. Compensation expense related to market-based restricted stock awards is recognized over the requisite service period on a straight-line basis. The requisite service period is a measure of the expected time to reach the respective vesting threshold and was estimated by utilizing a Monte Carlo simulation, considering only those stock price-paths in which the threshold was exceeded.
During the fourth quarter of 2021, in conjunction with the same periodA&R Investment Agreement, all previously outstanding market-based stock based awards were converted to time-based restricted stock awards that will vest on the applicable scheduled vesting dates or the relevant award termination date applicable to such performance shares. These modifications were accounted for as the expected option life. The Company does not expect to pay dividends on its common stock and therefore has used a dividend yieldequity award modifications under ASC Topic 718. There was no incremental stock-based expense based
F-28
Table of zero in determiningContents
on the fair value of itsthe modified awards. The option forfeiture rate assumption used byA summary of market-based restricted stock awards’ activity is presented in the Company is based primarily on the Company’s historical option forfeiture patterns. The Company currently has no stock options outstanding.

The Company uses the Monte-Carlo simulation model to determine the fair value of performance awards which include market-based vesting conditions. The Monte-Carlo simulation model uses the same input assumptions as the Black-Scholes model, however, it also further incorporates into the fair-value determination the possibility that the market condition may not be satisfied. Compensation costs related to awards with a market-based condition are recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. During fiscal 2017, in accordance with the Company’s long-term incentive compensation plan, the Company granted 194,652 shares of restricted common stock with performance and market-based vesting conditions to certain employees of the Company. These performance awards are subject to a market-based condition that may increase or decrease the number of shares vested if the Company’s 2019 Total Stockholder Return (“TSR”) exceeds or falls below certain achievement level parameters when ranked against the Company’s designated Peer Group. These restricted performance shares vest over a three-year period based on the Company’s Earnings before Interest, Taxes, Depreciation, Amortization, and Rent (“EBITDAR”) financial performance target set by the Company’s compensation committee for the fiscal year ending December 31, 2019. The number of shares of restricted common stock ultimately issued will be prorated between performance level targets achieved.

table below:

Number of SharesWeighted Average Grant-Date Fair Value
Non-vested shares as of January 1, 202112,816 $102.20 
   Granted188,411 28.20 
   Converted to Time-Based(12,816)102.20 
Non-vested shares as of December 31, 2021188,411 $28.20 
Granted60,039 23.19 
Forfeited/Cancelled(77,100)27.02 
Non-vested shares as of December 31, 2022171,350 $26.97 
The Company recognized $7.7 million, $11.6$4.3 million and $8.8$2.8 million in stock-based compensation expense during fiscal 2017, 2016,years 2022 and 2015, respectively. 2021, respectively, that is primarily associated with employees whose corresponding salaries and wages are included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). Unrecognized stock-based compensation expense is $9.1$3.9 million for the year endedas of December 31, 2017. The2022. If all awards granted are earned, the Company expects stock-based compensationthis expense to be recognized over a one tofive-year period for market-based RSAs, and a three-year period for performance restricted stock awardstime-based and a one to four-year period for nonperformance-based restricted stock awards and units.

F-24

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

performance-based RSAs.

10.

Income Taxes


11. Income Taxes
The provision for income taxes consists of the following (in thousands):

 

Year Ended December 31,

 

 Years Ended December 31,

 

2017

 

 

2016

 

 

2015

 

 20222021

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Current:

Federal

 

$

6

 

 

$

—

 

 

$

—

 

Federal$— $— 

State

 

 

550

 

 

 

435

 

 

 

900

 

State86 583 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred:

Federal

 

 

1,940

 

 

 

—

 

 

 

—

 

Federal— — 

State

 

 

—

 

 

 

—

 

 

 

—

 

 

$

2,496

 

 

$

435

 

 

$

900

 

Provision for income taxesProvision for income taxes$86 $583 

The provision (benefit) for income taxes differed from the amounts of income tax provision (benefit) determined by applying the U.S. federal statutory income tax rate to income before (benefit) provision (benefit) for income taxes as a result of the following (in thousands):

 

Year Ended December 31,

 

 Years Ended December 31,

 

2017

 

 

2016

 

 

2015

 

 20222021

Tax (benefit) provision at federal statutory rates

 

$

(14,168

)

 

$

(9,335

)

 

$

(4,515

)

Tax (benefit) provision at federal statutory rates$(11,407)$26,496 

State income tax expense, net of federal effects

 

 

(648

)

 

 

(550

)

 

 

64

 

State income tax (benefit) provision, net of federal effectsState income tax (benefit) provision, net of federal effects(716)3,814 

Change in deferred tax asset valuation allowance

 

 

7,857

 

 

 

8,569

 

 

 

4,986

 

Change in deferred tax asset valuation allowance11,253 (31,819)

Tax reform impact on deferred income taxes

 

 

13,959

 

 

 

—

 

 

 

—

 

Share based compensation ASU 2016-09 adoption

 

 

(5,326

)

 

 

—

 

 

 

—

 

Other

 

 

822

 

 

 

1,751

 

 

 

365

 

Other956 2,092 

 

$

2,496

 

 

$

435

 

 

$

900

 

Provision for income taxesProvision for income taxes$86 $583 

The effective tax rate for fiscal year 2022 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas and accounts for the majority of the Company’s current state tax expense. The fiscal year 2022 other permanent tax differences include $0.5 million of stock compensation shortfalls and $0.5 million of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) compensation limitation and $0.3 million deferred payroll tax penalty. The valuation allowance recorded as of fiscal year 2022 was $99.3 million, which decreased from the prior year by $11.3 million due to current year activity.
F-29
Table of Contents
The effective tax rate for fiscal year 2021 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas and accounts for the majority of the Company’s current state tax expense. The fiscal year 2021 other permanent tax differences include $0.4 million of stock compensation shortfalls and $1.2 million of loss on settlement of backstop. The valuation allowance recorded as of December 31, 2021 was $88.0 million, which had increased from the prior year by $31.8 million due to current year activity.
A summary of the Company’s deferred tax assets and liabilities, are as follows (in thousands):

 

December 31,

 

December 31,

 

2017

 

 

2016

 

20222021

Deferred tax assets:

 

 

 

 

 

 

 

 

Deferred tax assets:

Deferred gains on sale/leaseback transactions

 

$

2,890

 

 

$

5,416

 

Net operating loss carryforward (expiring up to 2037)

 

 

25,441

 

 

 

23,206

 

Lease liabilitiesLease liabilities$413 $590 
Net operating loss carryforwardNet operating loss carryforward84,899 73,605 

Compensation costs

 

 

2,245

 

 

 

3,707

 

Compensation costs2,491 2,446 

Depreciation and amortization

 

 

4,367

 

 

 

—

 

Depreciation and amortization9 — 

Other

 

 

2,099

 

 

 

3,221

 

Other11,526 12,252 

Total deferred tax assets

 

 

37,042

 

 

 

35,550

 

Total deferred tax assets99,338 88,893 

Deferred tax asset valuation allowance

 

 

(36,737

)

 

 

(30,821

)

Deferred tax asset valuation allowance(99,273)(88,019)

Total deferred tax assets, net

 

 

305

 

 

 

4,729

 

Total deferred tax assets, net65 874 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Deferred tax liabilities:
Operating lease right-of-use assetsOperating lease right-of-use assets(65)(501)

Depreciation and amortization

 

 

(2,246

)

 

 

(4,729

)

Depreciation and amortization— (373)

Total deferred tax liabilities

 

$

(2,246

)

 

$

(4,729

)

Total deferred tax liabilities(65)(874)

Net deferred tax (liabilities) assets

 

$

(1,941

)

 

$

—

 

Deferred taxes, netDeferred taxes, net$— $— 


F-25

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year.payable. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expectthe Company expects those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. A significant component of objective evidence evaluated was the cumulative losses before income taxes incurred by the Company over the past several fiscal years. Such objective evidence severely limits the ability to consider other subjective evidence such as the Company’s ability to generate sufficient taxable income in future periods to fully recover the deferred tax assets. However, in the event that wethe Company were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we madeof such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.

The CARES Act contains beneficial provisions to the Company, completed an analysis determining its best estimate for provisionalincluding the deferral of certain employer payroll taxes and the acceleration of the alternative minimum tax adjustments basedcredit refunds. Additionally, on December 27, 2020, the revised tax legislation associated withConsolidated Appropriations Act was enacted providing that electing real property trades or business electing out of Section 163(j)(7)(B) will apply a 30 year ADS life to residential real property placed in service before January 1, 2018. This property had historically been assigned a 40 year ADS life under the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017. Additionally, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”), to address the accounting and reporting of the Act. SAB 118 allows companies to take a reasonable period, which should not extent beyond one year from enactment of the TCJA, to measure and recognize the effects of the new tax law. The Company is still analyzing certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts; however, based upon the Company’s analysis of the TCJA and consideration of SAB 118, the Company remeasured its deferred income taxes on a provisional basis as of December 31, 2017 which resulted in a net $14.0 million reduction in the Company’s deferred tax assets and liabilities. The remeasurement consisted of a $15.9 million reduction to the Company’s deferred tax assets for the change in the corporate statutory tax rate from 34% to 21% and a $0.3 million reduction to the Company’s deferred tax asset valuation allowance for the repeal of the corporate Alternative Minimum Tax (“AMT”("TJCA"), partially offset by a $2.2 million increase to the Company’s deferred tax asset valuation allowance for maximum deduction limits for future net operating loss (“NOL”) carryforwards to 80% of taxable income for losses arising in tax years beginning after December 31, 2017.

.

As of December 31, 2017,2022, the Company has federal and state NOLnet operating loss ("NOL") carryforwards of $108.5$355.3 million and $91.6$283.4 million and related deferred tax assets of $22.8$74.6 million and $5.3$13.0 million, respectively, and a federal AMT credit carryforward of $0.3 million.respectively. The federal and state NOL carryforwards in the income tax returns filed included unrecognized tax benefits. The deferred tax assets recognized for those NOLs are presented net of the unrecognized benefits. If not used, the federal NOL generated prior to fiscal year 2018 will expire during fiscal years 2033 to 2037 and non-conforming state NOL’sNOLs will expire during fiscal 2018years 2022 to 2037.

2041. Federal

F-30
Table of Contents
NOLs generated subsequent to fiscal 2017 currently have no expiration due to changes to tax laws enacted with the TCJA. Some state jurisdictions conform to the unlimited net operating loss carryforward provisions as modified by the TCJA. However, some jurisdictions do not conform to the above-mentioned provisions.
In general, utilization of the net operating loss carryforwards are subject to a substantial annual limitation due to ownership changes that occur or that could occur in the future, as required by Section 382 of the Code. These ownership changes limit the amount of NOL carryforwards that can be utilized annually to offset taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.
The Company had a change in ownership as defined by Section 382 of the Code on November 3, 2021. The Company has completed initial analysis of the annual Section 382 limitation and determined the annual utilization of its tax attributes is limited substantially, including consideration of net unrealized built-in gains on the Company’s assets resulting in an increase in the Section 382 limit over the five-year recognition period. Tax attributes to which the annual Section 382 limitation would apply include net operating losses generated prior to the ownership change. The Company maintains a valuation allowance in all jurisdictions where the NOL carryovers are present.
A summary of the Company’s unrecognized tax benefits activity and related information for the years ended December 31, 2022 and 2021 is presented below (in thousands):
Years Ended December 31,
 20222021
Beginning balance, January 1$2,383 $5,433 
Gross increases – tax positions in prior period413 — 
Gross decreases – tax positions in prior period— (3,050)
Lapse of statute of limitations— — 
Ending balance, December 31$2,796 $2,383 
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its consolidated financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. As of December 31, 2017,2022, the Company has unrecognized tax benefits of $3.4$2.8 million for an uncertain tax position associated with a change in accounting method. The unrecognized tax benefits as of December 31, 20172022 are timing-related uncertainties that if recognized would not impact the effective tax rate of the Company.

F-26

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company files income tax returns in the U.S. federal jurisdiction and U.S. state jurisdictions. As of December 31, 2017

A summary of2022, the Company’s unrecognized tax benefits activity and related information for the years ended December 31, 2017, 2016, and 2015 is presented below (in thousands):

 

 

2017

 

 

2016

 

 

2015

 

Beginning balance, January 1

 

$

3,786

 

 

$

—

 

 

$

—

 

Gross increases – tax positions in prior period

 

 

—

 

 

 

2,451

 

 

 

—

 

Gross decreases – tax positions in prior period

 

 

(370

)

 

 

—

 

 

 

—

 

Gross increases – tax positions in current period

 

 

—

 

 

 

1,335

 

 

 

—

 

Settlements

 

 

—

 

 

 

—

 

 

 

—

 

Lapse of statute of limitations

 

 

—

 

 

 

—

 

 

 

—

 

Ending balance, December 31

 

$

3,416

 

 

$

3,786

 

 

$

—

 

The effective tax rates for fiscal 2017 and 2016 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas and accounts for the majority of the Company’s current state tax expense. During each of fiscal 2017 and 2016 the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes. The Company is generally no longer subject to U.S. federal tax examinations for tax years prior to 2019 and state tax auditsexaminations for tax years before 2014.

prior to 2018 with limited exceptions for net operating losses from 2013 forward.

11.

Employee Benefit Plans

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law and is effective for taxable years beginning after December 31, 2022. The Company hasIRA introduces a 401(k) salary deferral plan (the “Plan”)15% alternative minimum tax based on the financial statement income of certain large corporations and imposes a 1% excise tax on share repurchases, effective for tax years beginning after December 31, 2022. We do not expect the Inflation Reduction Act to have a material impact on our financial results in which all employeesfuture periods.


12. Commitments and Contingencies
As of the Company meeting minimum service and age requirements are eligible to participate. Contributions to the Plan are in the formDecember 31, 2022, we had contractual commitments of employee salary deferrals, which are subject to employer matching contributions of 50% of up to 4% of the employee’s annual salary. The Company’s contributions are funded semi-monthly to the Plan administrator. Matching contributions of $0.5$5.4 million were contributed to the Plan in each of fiscal 2017, 2016 and 2015. The Company incurred administrative expenses related to the Plan of $21,300, $24,600,future renovations and $20,900 in fiscal 2017, 2016, and 2015, respectively.

technology enhancements to our communities. We expect these amounts to be substantially expended during 2023.

12.

Contingencies

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


F-31
Table of Contents
13. Fair Value
Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company uses interest rate cap arrangements with financial institutions to manage exposure to interest rate changes for loans that utilize floating interest rates. As of December 31, 2022, we had twointerest rate cap agreements with an aggregate notional value of its senior housing communities located in southeast Texas impacted by Hurricane Harvey$138.4 million that were entered into during the third quarter of fiscal 2017. Both 2022. The fair value of these communities remain fully vacated and are undergoing repairs. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductiblederivative assets as of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Through December 31, 2017, we have incurred approximately $3.9 million in clean-up and physical repair costs and we expect to incur additional repair costs which we believe are probable of being recovered through insurance proceeds. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. The Company received payments from our insurance underwriters during fiscal 2017 totaling approximately2022 was $2.7 million and was determined using significant observable inputs (Level 2), including quantitative models that utilize multiple market inputs to value the position. The majority of which approximately $2.2 million related to Business Interruptionmarket inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. We did not have any derivative instruments as of December 31, 2017, which has been included as a reduction to operating expenses in2021. See "Note 14–Derivatives and Hedging".

Financial Instruments Not Reported at Fair Value
For those financial instruments not carried at fair value, the Company’s Consolidated Statement of Operationscarrying amount and Comprehensive Loss in fiscal 2017. Based upon our initial assessment of the physical damages and insurance coverage, the Company currently estimates insurance proceeds will be sufficient to reimburse the Company for all damages and repair costs to fully restore the communities to their condition prior to the incident.

F-27

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

13.

Fair Value of Financial Instruments

The carrying amounts andestimated fair values of our financial instruments atassets and liabilities were as follows as of December 31, 20172022 and 2016 are as followsDecember 31, 2021 (in thousands):

December 31,

 

2017

 

 

2016

 

20222021

 

Carrying

Amount

 

 

Fair Value

 

 

Carrying

Amount

 

 

Fair Value

 

Carrying
Amount		Fair ValueCarrying
Amount		Fair Value

Cash and cash equivalents

 

$

17,646

 

 

$

17,646

 

 

$

34,026

 

 

$

34,026

 

Cash and cash equivalents$16,913 $16,913 $78,691 $79,691 

Restricted cash

 

 

13,378

 

 

 

13,378

 

 

 

13,297

 

 

 

13,297

 

Restricted cash13,829 13,829 4,882 4,882 

Notes payable, excluding deferred loan costs

 

 

967,332

 

 

 

929,000

 

 

 

910,234

 

 

 

879,448

 

Notes payable, excluding deferred loan costs676,298 638,485 687,312 636,836 

The following methods and assumptions were used in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents and Restricted cash: The

We believe the carrying amounts reported in the balance sheet foramount of cash and cash equivalents, and restricted cash, equalaccounts receivable, and accounts payable and accrued liabilities approximate fair value which represent level 1 inputs as defined in the accounting standards codification.

Notes payable:due to their short-term nature.

The fair value of notes payable, excluding deferred loan costs, is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent levelLevel 2 inputs as defined in ASC 820, Fair Value Measurement.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company may adjust the carrying amount of certain non-financial assets to fair value on a non-recurring basis when they are impaired. During the year ended December 31, 2022, the Company recorded a non-cash impairment charge of $1.6 million related to the management's commitment to a plan to sell the community shortly after the balance sheet date, and the agreed-upon selling price being below the community's carrying amount. The fair value of the impaired assets was $0.9 million as of December 31, 2022.
During the year ended December, 31, 2021, the Company recorded non-cash impairment charges of $6.5 million to property and equipment, net. The fair value of the impaired assets was $14.0 million as of December 31, 2021. The fair value of the property and equipment, net was primarily determined utilizing an income capitalization approach considering stabilized facility operating income and market capitalization rates of 8.25%.
The following methods and assumptions were used in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and Restricted cash: The carrying amounts reported in the Company’s Consolidated Balance Sheets for cash and cash equivalents and restricted cash approximate fair value, which represent Level 1 inputs as defined in the accounting standards codification.
Notes payable, excluding deferred loan costs: The fair value of notes payable, excluding deferred loan costs, is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent Level 2 inputs as defined in the accounting standards codification.

Property and Equipment, Net: During the years ended December 31, 2022 and 2021, the Company evaluated property, plant and equipment, net for impairment and identified properties with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair
F-32
Table of Contents
value of the assets to their carrying amount for these identified properties and recorded an impairment charge for the excess of carrying amount over fair value.
The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.

14.

Allowance for Doubtful Accounts

14. Derivatives and Hedging
The Company uses derivatives as part of our overall strategy to manage our exposure to market risks associated with the fluctuations in interest rates. We may also be required to enter into interest rate derivative instruments in compliance with debt agreements. We do not enter into derivative financial instruments for trading or speculative purposes.

On March 1, 2022, the Company entered into an interest rate cap agreement for an aggregate notional amount of $50.3 million to reduce exposure to interest rate fluctuations associated with a portion of our variable mortgage notes payable. The interest rate cap agreement has a 24-month term and effectively caps the interest rate at 4.00% from March 1, 2022 through March 1, 2024 with respect to the portion of our floating rate indebtedness. In the event LIBOR is less than the capped rate, we will pay interest at the lower LIBOR rate. In the event LIBOR is higher than the capped rate, we will pay interest at the capped rate of 4.00%. The interest rate cap is not designated as a cash flow hedge under ASC 815-20, Derivatives - Hedging, therefore all changes in the fair value of the instrument are included as a component of interest expense in the consolidated statements of operations.

On November 30, 2022, in order to comply with the lender’s requirements under the Ally Bank Refinance Facility (see "Note 8–Notes Payable"), the Company entered into a SOFR-based interest rate cap transaction for an aggregate notional amount of $88.1 million at a cost of $2.4 million. The interest rate cap agreement has a 12-month term and effectively caps the interest rate at 2.25% with respect to the portion of our floating rate indebtedness. The interest rate cap is not designated as a hedge under ASC 815-20, Derivatives - Hedging, and all changes in the fair value of the instrument are included as a component of interest expense in the consolidated statements of operations.

As of December 31, 2022, the entire balance of our outstanding variable-rate debt obligations was covered by the interest rate transactions entered into during 2022 to better manage our exposure to market risks associated with the fluctuations in interest rates.

The following table presents the fair values of derivative assets and liabilities in the consolidated balance sheets as of December 31, 2022 (in thousands). The Company did not have any derivative instruments as of December 31, 2021.

December 31, 2022
Derivative AssetDerivative Liability
Notional AmountFair ValueNotional AmountFair Value
Interest rate cap (LIBOR-based)
$50,260 $542 $— $— 
Interest rate cap (SOFR-based)
88,125 2,180 — $— 
Total derivatives$138,385 $2,722 $— $— 


The following table presents the effect of the derivative instrument on the consolidated statements of operations (in thousands):
Twelve months ended December 31,
20222021
Derivatives not designated as hedges
Interest rate caps
Gain (loss) on derivatives not designated as hedges included in interest expense19 — 


F-33
Table of Contents
15. Allowance for Doubtful Accounts
The components of the allowance for doubtful accounts are as follows (in thousands):

 

December 31,

 

 December 31,

 

2017

 

 

2016

 

 

2015

 

 20222021

Balance at beginning of year

 

$

4,253

 

 

$

3,188

 

 

$

2,321

 

Balance at beginning of year$4,723 $6,113 

Provision for bad debts, net of recoveries

 

 

1,748

 

 

 

1,727

 

 

 

1,192

 

Provision for bad debts, net of recoveries1,159 1,251 

Write-offs and other

 

 

(1,120

)

 

 

(662

)

 

 

(325

)

Write-offs and other (1)
Write-offs and other (1)
33 (2,641)

Balance at end of year

 

$

4,881

 

 

$

4,253

 

 

$

3,188

 

Balance at end of year$5,915 $4,723 

15.

Leases

(1)For the year ended December 31, 2021 write-offs and other includes $1.7 million for the 18 properties in the process of transitioning legal ownership back to Fannie Mae, $0.1 million for the termination of the Welltower Master Lease Agreements and $0.5 million for the termination of the Healthpeak Master Lease Agreements.

Accounts receivable are reported net of an allowance for doubtful accounts to represent the Company’s estimate of inherent losses at the balance sheet date.

16.Subsequent Events

Transactions Involving Certain Fannie Mae Loans
As discussed in Note 8, Notes Payable, as of December 31, 2022 two properties remained for which the legal ownership had not been transferred back to Fannie Mae. The transfer of legal ownership of these properties had previously been deemed probable, and the Company had already disposed of all the assets related to these properties. As of December 31, 2017,2022, the outstanding debt related to these properties that was included in current portion of notes payable was $31.8 million, net of deferred loan costs of $0.2 million, and the related accrued interest was $4.1 million.
On January 11, 2023, Fannie Mae completed the transfer of ownership on the two properties. As a result of the change in legal ownership, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for 5-20 years atwill derecognize all of the Company’s option. Under these lease agreements,debt and accrued interest related to the two properties, which will result in the gain on extinguishment of debt of approximately $36 million during the first quarter of 2023.
Protective Life Loans
During the first quarter of 2023, the Company is responsible for all operating costs, maintenanceelected not to make principal and repairs, insuranceinterest payments due February and property taxes. No new facility leases were entered into by theMarch of 2023 related to certain non-recourse mortgage loan agreements with Protective Life Insurance Company during fiscal 2017.

F-28

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

The following table summarizes eachcovering four of the Company’s facility lease agreements as of December 31, 2017 (dollars in millions):

Landlord

 

Initial Date of Lease

 

Number of

Communities

 

 

Value of

Transaction

 

 

Current Expiration and Renewal Term

 

Initial

Lease

Rate (1)

 

 

Lease

Acquisition and

Modification

Costs (2)

 

 

Deferred

Gains /Lease

Concessions (3)

 

Ventas

 

September 30, 2005

 

 

4

 

 

$

61.4

 

 

September 30, 2025 (4)

(Two five-year renewals)

 

 

8

%

 

$

7.7

 

 

$

4.2

 

Ventas

 

January 31, 2008

 

 

1

 

 

 

5.0

 

 

September 30, 2025 (4)

(Two five-year renewals)

 

 

7.75

%

 

 

0.2

 

 

 

—

 

Ventas

 

June 27, 2012

 

 

2

 

 

 

43.3

 

 

September 30, 2025 (4)

(Two five-year renewals)

 

 

6.75

%

 

 

0.8

 

 

 

—

 

HCP

 

May 1, 2006

 

 

3

 

 

 

54.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

8

%

 

 

0.3

 

 

 

12.8

 

HCP

 

May 31, 2006

 

 

6

 

 

 

43.0

 

 

April 30, 2026 (6)

(One 10-year renewal)

 

 

8

%

 

 

0.2

 

 

 

0.6

 

HCP

 

December 1, 2006

 

 

4

 

 

 

51.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

8

%

 

 

0.7

 

 

 

—

 

HCP

 

December 14, 2006

 

 

1

 

 

 

18.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

7.75

%

 

 

0.3

 

 

 

—

 

HCP

 

April 11, 2007

 

 

1

 

 

 

8.0

 

 

October 31, 2020 (5)

(Two 10-year renewals)

 

 

7.25

%

 

 

0.1

 

 

 

—

 

Welltower

 

April 16, 2010

 

 

5

 

 

 

48.5

 

 

April 30, 2025 (15 years)

(One 15-year renewal)

 

 

8.25

%

 

 

0.6

 

 

 

0.8

 

Welltower

 

May 1, 2010

 

 

3

 

 

 

36.0

 

 

April 30, 2025 (15 years)

(One 15-year renewal)

 

 

8.25

%

 

 

0.2

 

 

 

0.4

 

Welltower

 

September 10, 2010

 

 

12

 

 

 

104.6

 

 

September 30, 2025 (15 years)

(One 15-year renewal)

 

 

8.50

%

 

 

0.4

 

 

 

2.0

 

Welltower

 

April 8, 2011

 

 

4

 

 

 

141.0

 

 

April 30, 2026 (15 years)

(One 15-year renewal)

 

 

7.25

%

 

 

0.9

 

 

 

16.3

 

Subtotal

 

 

 

12.4

 

 

 

37.1

 

Accumulated amortization through December 31, 2017

 

 

 

(7.2

)

 

 

—

 

Accumulated deferred gains / lease concessions recognized through December 31, 2017

 

 

 

—

 

 

 

(24.2

)

Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2017

 

 

$

5.2

 

 

$

12.9

 

(1)

Initial lease rates are measured against agreed upon fair market values and are subject to conditional lease escalation provisions as set forth in each respective lease agreement.

(2)

Lease acquisition and modification costs are being amortized over the respective lease terms.

(3)

Deferred gains of $34.5 million and lease concessions of $2.6 million are being recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss as a reduction in facility lease expense over the respective initial lease terms. Lease concessions of $0.6 million relate to the transaction with HCP on May 31, 2006, and $2.0 million relate to the transaction with Welltower on September 10, 2010.

(4)

Effective June 17, 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate leasehold improvements for 10 of the leased communities, of which the underlying real estate associated with four of its operating leases was acquired by the Company upon closing the Four Property Lease Transaction on January 31, 2017, and extend the lease terms through September 30, 2025, with two five-year renewal extensions available at the Company’s option.

(5)

On November 11, 2013, the Company executed a third amendment to the master lease agreement associated with nine of its leased communities with HCP to facilitate leasehold improvements for one of the leased communities and extend the respective lease terms through October 31, 2020, with two 10-year renewal extensions available at the Company’s option.

F-29

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

(6)

On April 24, 2015, the Company exercised its right to extend the lease term with HCP through April 30, 2026, with one 10-year renewal extension remaining available at the Company’s option.

Ventas

Company's properties. As of December 31, 2017,2022, the Company leased 7 senior housing communities from Ventas. Effective January 31, 2017, the Company closed the Four Property Lease Transaction and acquired fouramount of the senior housing communities leased from Ventas for a total acquisition price of $85.0debt outstanding under such agreements was $70.0 million. The Company obtained interim, interest only, bridge financing from Berkadia for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with the balance of the acquisition price paid from the Company’s existing cash resources. For additional information refer to Note 3, “Acquisitions.” Prior to the Four Property Lease Transaction, the Company previously leased 11 senior housing communities from Ventas. During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until September 30, 2025, with two five-year renewal extension available at the Company’s option. Additionally, during the second quarter of fiscal 2016, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. During fiscal 2017, the Company executed amendments to the master lease agreements with Ventas to decrease the Special Project Funds for leasehold improvements from $28.5 million to approximately $17.0 million due to the Four Property Lease Transaction and extend the date for completion of the leasehold improvements to June 30, 2018. The initial lease rates under each of the Ventas Lease Agreements range from 6.75% to 8% and are subject to certain conditional escalation clauses that will be recognized when probable or incurred. The Company initially incurred $11.4 million in lease acquisition and modification costs related to the Ventas Lease Agreements, of which a portion of these costs were written-off upon closing the Four Property Lease Transaction leaving $8.7 million in lease acquisition and modification costs associated with the remaining properties. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statement of Operations and Comprehensive loss. The Company accounts for five of the Ventas Lease Agreements as an operating lease and two as a Capital lease and financing obligation.

Effective June 27, 2012, the Company closed a lease modification transaction with Ventas which resulted in the Company exchanging two of its owned communities for one of the communities in the existing Ventas lease portfolio and simultaneously leasing back the two communities exchanged (the “Ventas Lease Transaction”). This transaction was the result of negotiations for a solution to the anticipation of the Company not meeting certain lease coverage ratio requirements for its lease portfolio of ten properties with Ventas. The two communities previously owned by the Company are located in East Lansing, Michigan (the “East Lansing Community”) and Raleigh, North Carolina (the “Raleigh Community”) and were exchanged for a community located in Merrillville, Indiana (the “Towne Centre Community”). All three communities continue to be operated by the Company. In conjunction with this transaction, Ventas assumed approximately $18.3 million of existing mortgage debt from Berkadia and the Company received the Towne Centre Community unencumbered. All of the leased communities in the Ventas lease portfolio were modified to be coterminous with the East Lansing and Raleigh Community leases expiring on September 30, 2020, which were extended to September 30, 2025 during fiscal 2015, with two 5-year renewal extensions available at the Company’s option, eliminate property-level lease covenants, and contain substantially similar terms and conditions. These leases were re-evaluated by the Company at the modification date and continue to be treated as operating leases. Under the terms of the original lease agreements with Ventas, the Company had previously deposited additional cash collateral of approximately $3.4 million, which was returnable to the Company once certain performance targets were reached. However, due to the rebalanced lease portfolio meeting the lease coverage ratio requirements, the Company negotiated the return of these deposits as a condition to the lease modification. Additionally, due to the extension of the lease terms for the Ventas lease portfolio to fiscal 2020, the rights of Ventas to reset the underlying values of the leased communities were deferred for five years.

F-30

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

Pursuant to ASC 840, Leases, the Company performed a sale/leaseback analysis to determine whether the East Lansing Community and Raleigh Community could be removed from its Consolidated Balance Sheets. Based upon the analysis performed, the Company concluded certain aspects of the lease modification would be considered forms of “continuing involvement” which precludes the Company from derecognizing these assets from its Consolidated Balance Sheets under sale/leaseback accounting criteria. Therefore, the Company recorded financing obligations equalis in default on these loans, and was so notified by the lender on March 1, 2023. The Company is currently engaged in active negotiations with the lender for these loans as well as the additional Protective Life loans relating to the fair market value of thesix communities exchangedto resolve this matter and the mortgage debt assumed by Ventas. At the end of the lease term, including exercise ofobtain more favorable terms. However, we cannot give any renewal options, the net remaining financing obligation less the net carrying value of the leased assetsassurance that a mutually agreeable resolution will be recognized as a non-cash gain on sale of the East Lansing Community and Raleigh Community. Rental payments under these leases will not be reflected as a component of facility lease expense but will be recognized as a reduction of the financing obligation and interest expense based upon the Company’s incremental borrowing rate at the time the transaction was closed. As a result of this transaction, the Company recorded additions to property and equipment of approximately $13.2 million and other assets, primarily consisting of lease intangibles, of approximately $11.8 million within the Company’s Consolidated Balance Sheets, which will be depreciated or amortized over the estimated useful lives. The additions to property and equipment were reduced by approximately $4.9 million, which represented the unamortized portion of the deferred gain previously recognized by the Company when the Towne Centre Community had been sold in fiscal 2006. Lease intangibles consist of the fair value of in-place leases associated with the Towne Centre Community and the fair value attributable to Ventas deferring its right to reset the underlying values of the lease portfolio five years until fiscal 2020.

HCP

As of December 31, 2017, the Company leased 15 senior housing communities from HCP. During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with HCP to facilitate up to $3.3 million of leasehold improvements for one community within the HCP lease portfolio and extend the initial lease terms for nine communities until October 31, 2020, with two 10-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with HCP for the remaining six communities in the HCP lease portfolio until April 30, 2026, with one 10-year renewal extension available at the Company’s option. The initial lease rates under the HCP Lease Agreements range from 7.25% to 8% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. reached.

COVID-19 Relief Grants
The Company incurred $1.6received approximately $2.0 million in lease acquisitionvarious state grants during January and modification costs related to the HCP Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated StatementsFebruary of Operations and Comprehensive Loss. The Company accounts for each of the HCP Lease Agreements as an operating lease.

Welltower

As of December 31, 2017, the Company leased 24 senior housing communities from Welltower. The Welltower Lease Agreements each have an initial term of 15 years, with one 15-year renewal extension available at the Company’s option. The initial lease rates under the Welltower Lease Agreements range from 7.25% to 8.5% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The initial terms on the Welltower Lease Agreements expire on various dates through April 2026. The Company incurred $2.1 million in lease acquisition costs related to the Welltower Lease Agreements. These deferred lease acquisition costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for each of the Welltower Lease Agreements as an operating lease.

Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. The Company leases its corporate headquarters in Dallas, Texas, and an office in New York City and has various lease contracts for a duration of 5 years or less on automobiles, buses and office equipment. The lease on the corporate headquarters currently expires on September 30, 2020.

F-31

CAPITAL SENIOR LIVING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017

The Company incurred $59.7 million, $64.5 million, and $62.8 million in lease expense during fiscal 2017, 2016, and 2015, respectively. Future minimum lease commitments as of December 31, 2017, are as follows (in thousands):

2023.

2018

 

$

64,391

 

2019

 

 

64,366

 

2020

 

 

61,880

 

2021

 

 

50,307

 

2022

 

 

50,277

 

Thereafter

 

 

144,241

 

 

 

$

435,462

 

F-34

At December 31, 2017 and 2016, the Company had gross deferred lease costs of $12.4 million and $15.1 million, respectively. Accumulated amortization at December 31, 2017 and 2016 was $7.2 million and $8.0 million, respectively, and amortization expense is expected to be approximately $0.9 million in each of the next five fiscal years. The reduction in deferred lease costs and corresponding accumulated amortization was due to the Four Property Lease Transaction that closed on January 31, 2017. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company was in compliance with all of its lease covenants at December 31, 2017 and 2016.

16.

Quarterly Financial Information (Unaudited)

The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2017 and 2016. This information has been prepared on the same basis as the audited consolidated financial statements of the Company and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company.

 

 

2017 Calendar Quarters

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

 

(In thousands, except per share amounts)

 

Total revenues

 

$

115,990

 

 

$

116,718

 

 

$

117,318

 

 

$

116,971

 

(Loss) Income from operations

 

 

(9,610

)

 

 

4,691

 

 

 

4,513

 

 

 

8,248

 

Net loss and comprehensive loss

 

 

(21,842

)

 

 

(7,835

)

 

 

(8,132

)

 

 

(6,359

)

Net loss per share, basic

 

$

(0.75

)

 

$

(0.27

)

 

$

(0.28

)

 

$

(0.22

)

Net loss per share, diluted

 

$

(0.75

)

 

$

(0.27

)

 

$

(0.28

)

 

$

(0.22

)

Weighted average shares outstanding, basic

 

 

29,288

 

 

 

29,478

 

 

 

29,512

 

 

 

29,531

 

Weighted average shares outstanding, fully diluted

 

 

29,288

 

 

 

29,478

 

 

 

29,512

 

 

 

29,531

 

 

 

2016 Calendar Quarters

 

 

 

First

 

 

Second

 

 

Third

 

 

Fourth

 

 

 

(In thousands, except per share amounts)

 

Total revenues

 

$

109,173

 

 

$

111,034

 

 

$

111,436

 

 

$

115,805

 

Income from operations

 

 

4,153

 

 

 

5,793

 

 

 

3,686

 

 

 

758

 

Net loss and comprehensive loss

 

 

(5,984

)

 

 

(4,446

)

 

 

(7,077

)

 

 

(10,510

)

Net loss per share, basic

 

$

(0.21

)

 

$

(0.15

)

 

$

(0.24

)

 

$

(0.36

)

Net loss per share, diluted

 

$

(0.21

)

 

$

(0.15

)

 

$

(0.24

)

 

$

(0.36

)

Weighted average shares outstanding, basic

 

 

28,751

 

 

 

28,926

 

 

 

28,959

 

 

 

29,000

 

Weighted average shares outstanding, fully diluted

 

 

28,751

 

 

 

28,926

 

 

 

28,959

 

 

 

29,000

 


Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Capital Senior Living Corporation

Opinion on Internal Control over Financial Reporting

We have audited Capital Senior Living Corporation’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Capital Senior Living Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Capital Senior Living Corporation as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017 and the related notes (collectively referred to as the “financial statements”) of Capital Senior Living Corporation, and our report dated March 2, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

Capital Senior Living Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on Capital Senior Living Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Capital Senior Living Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Dallas, Texas

March 2, 2018

F-34