Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with our historical consolidated financial statements and related notes contained in "Item 8. Financial Statements and Supplementary Data." In addition to historical information, this discussion and analysis may contain forward-looking statements that involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from management's expectations. See additional risks and uncertainties described in "Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995" for more information. Factors that could cause such differences include those described in this section and "Item 1A. Risk Factors" of this Annual Report on Form 10-K.
For information regarding our business, including our strategy and recent developments regarding community acquisitions, dispositions, and mortgage financings, refer to "Item 1. Business." Refer to Note 3 in "Item 8. Financial Statements and Supplementary Data" for more information about acquisitions, dispositions, and other significant leasing transactions.
Results of Operations
As of December 31, 2025, our total operations included 584 communities with a capacity to serve approximately 51,000 residents. As of that date, we owned 370 communities (33,262 units), leased 178 communities (10,608 units), and managed 36 communities (4,374 units). The following discussion should be read in conjunction with our consolidated financial statements and the related notes, which are included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. The results of operations for any particular period are not necessarily indicative of results for any future period.
We use the operating measures described below in connection with operating and managing our business and reporting our results of operations.
• Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The
operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making and components of executive compensation, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects.
• RevPAR , or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding revenue for private duty services provided to seniors living outside of our communities), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR for decision making and components of executive compensation, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.
• RevPOR , or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding revenue for private duty services provided to seniors living outside of our communities), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance.
• Weighted average occupancy reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance.
This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable measure in accordance with GAAP.
As of December 31, 2025, we had three reportable segments: Independent Living; Assisted Living and Memory Care; and CCRCs. These segments were determined based on the way that our chief operating decision maker organizes our business activities for making operating decisions, assessing performance, developing strategy, and allocating capital resources.
Discussion of our financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024 is presented below. Discussion of our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 17, 2025.
Comparison of Years Ended December 31, 2025 and 2024
Summary Operating Results
The following table summarizes our overall operating results for the years ended December 31, 2025 and 2024.
Years Ended
December 31,
Increase (Decrease)
(in thousands)
Amount
Percent
Resident fees
Facility operating expense
Net income (loss)
Adjusted EBITDA
The increase in resident fees was primarily attributable to a 5.1% increase in same community RevPAR, comprised of a 210 basis point increase in same community weighted average occupancy and a 2.3% increase in same community RevPOR. The increase was partially offset by the disposition of communities, primarily though lease terminations, since the beginning of the prior year, which resulted in $56.9 million less in resident fees during the year ended December 31, 2025 compared to the prior year.
The increase in facility operating expense was primarily attributable to a 4.7% increase in same community facility operating expense, primarily resulting from increases in wage rates, utilities expense, estimated group health insurance expense, and repairs and maintenance expense. The increase was partially offset by the disposition of communities, primarily though lease terminations, since the beginning of the prior year, which resulted in $49.2 million less in facility operating expense during the year ended December 31, 2025 compared to the prior year.
The increase in net loss was primarily attributable to a $62.8 million increase in non-cash impairment charges, primarily related to the planned disposition of certain underperforming communities resulting in a change in their intended holding periods, the increase in facility operating expense, and a $32.8 million loss on extinguishment of a financing obligation during the year ended December 31, 2025 for the reacquisition of three communities previously subject to sale-leaseback transactions for the amount by which the repurchase price exceeded the previously recognized financing obligation for such three communities, partially offset by the increase in resident fees.
The increase in Adjusted EBITDA was primarily attributable to the increase in resident fees and a $34.8 million decrease in cash facility operating lease payments due to acquisitions and dispositions of previously leased communities, partially offset by the increase in facility operating expense.
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the years ended December 31, 2025 and 2024 including operating results and data on a same community basis. The same community portfolio excludes 31 communities, including 29 communities (2,364 units) that we plan to sell during 2026. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
Amount
Percent
Resident fees
Facility operating expense
Number of communities (period end)
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
Same Community Operating Results and Data
Resident fees
Facility operating expense
Number of communities
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
Independent Living Segment
The following table summarizes the operating results and data for our Independent Living segment for the years ended December 31, 2025 and 2024, including operating results and data on a same community basis.
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
Amount
Percent
Resident fees
Facility operating expense
Number of communities (period end)
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
Same Community Operating Results and Data
Resident fees
Facility operating expense
Number of communities
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
The decrease in the segment's resident fees was primarily attributable to the disposition of communities, primarily though lease terminations, since the beginning of the prior year, which resulted in $26.7 million less in resident fees during the year ended December 31, 2025 compared to the prior year. The decrease was partially offset by an increase in the segment's same community RevPAR, comprised of a 3.2% increase in same community RevPOR and a 170 basis point increase in same community weighted average occupancy. The increase in the segment's RevPOR was primarily the result of the current year annual rate increase.
The decrease in the segment's facility operating expense was primarily attributable to the disposition of communities, primarily though lease terminations, since the beginning of the prior year, which resulted in $18.9 million less in facility operating expense during the year ended December 31, 2025 compared to the prior year. The decrease was partially offset by an increase in the segment's same community facility operating expense, primarily resulting from increases in wage rates, repairs and maintenance expense, utilities expense, and estimated group health insurance expense. The segment's same community facility operating expense for the year ended December 31, 2024 excludes $1.2 million of natural disaster expense.
Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the years ended December 31, 2025 and 2024, including operating results and data on a same community basis.
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
Amount
Percent
Resident fees
Facility operating expense
Number of communities (period end)
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
Same Community Operating Results and Data
Resident fees
Facility operating expense
Number of communities
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 2.3% increase in same community RevPOR and a 220 basis point increase in same community weighted average occupancy. The increase in the segment's same community RevPOR was primarily the result of the current year annual rate increase. The increase in the segment's resident fees was partially offset by the disposition of communities, primarily though lease terminations, since the beginning of the prior year, which resulted in $31.5 million less in resident fees during the year ended December 31, 2025 compared to the prior year.
The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including increases in wage rates, estimated group health insurance expense, repairs and maintenance expense, and utilities expense. The increase in the segment's facility operating expense was partially offset by the disposition of communities, primarily though lease terminations, since the beginning of the prior year, which resulted in $29.1 million less in facility operating expense during the year ended December 31, 2025 compared to the prior year. The segment's same community facility operating expense for the year ended December 31, 2025 and 2024 excludes $1.2 million and $4.7 million, respectively, of natural disaster expense.
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs segment for the years ended December 31, 2025 and 2024, including operating results and data on a same community basis.
(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)
Years Ended
December 31,
Increase (Decrease)
Amount
Percent
Resident fees
Facility operating expense
Number of communities (period end)
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
Same Community Operating Results and Data
Resident fees
Facility operating expense
Number of communities
Total average units
RevPAR
Weighted average occupancy
bps
RevPOR
The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 290 basis point increase in same community weighted average occupancy and a 0.6% increase in the segment's same community RevPOR. The increase in the segment's same community RevPOR was primarily the result of the current year annual rate increase, and was partially offset by an occupancy mix shift to more independent living and assisted living residents and lower skilled nursing revenue.
The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including increases in wage rates and food costs.
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating results for the years ended December 31, 2025 and 2024.
Years Ended
December 31,
Increase (Decrease)
(in thousands)
Amount
Percent
Management fees
Reimbursed costs incurred on behalf of managed communities
Costs incurred on behalf of managed communities
General and administrative expense
Facility operating lease expense
Depreciation and amortization
Asset impairment
Loss (gain) on sale of communities, net
Loss (gain) on facility operating lease termination, net
Interest income
Interest expense
Gain (loss) on debt modification and extinguishment, net
Non-operating gain (loss) on sale of assets, net
Other non-operating income (loss)
Benefit (provision) for income taxes
Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on Behalf of Managed Communities. The decrease in reimbursed costs and costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year, partially offset by an increase in community labor costs incurred for communities managed in both years.
General and Administrative Expense. The increase in general and administrative expense was primarily due to $9.3 million of organizational restructuring costs related to senior leadership changes and our efforts to reduce general and administrative expense, as we scaled our general and administrative costs in connection with community dispositions, and $8.0 million of transaction costs for stockholder relations advisory matters in the current year, partially offset by $7.0 million of legal expenses recognized in the prior year for certain putative class action litigation. General and administrative expense includes transaction, legal, and organizational restructuring costs of $18.1 million and $7.9 million for the years ended December 31, 2025 and 2024, respectively. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Legal costs include charges associated with putative class action litigation. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance costs.
Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to a $21.7 million decrease attributable to the acquisition of formerly leased communities and a decrease attributable to the termination of community leases during the current year, partially offset by an increase attributable to the extension of community leases during the prior year at a higher annual lease expense.
Asset Impairment . During the year ended December 31, 2025, we recorded $71.3 million of non-cash impairment charges, primarily related to the planned disposition of certain underperforming communities resulting in a change in their intended holding periods. During the year ended December 31, 2024, we recorded $8.6 million of non-cash impairment charges, primarily for certain leased communities with lower than expected occupancy and decreased future cash flow estimates over the remaining lease term and for property damage sustained at certain communities during the year.
Interest Expense. The increase in interest expense was primarily due to debt obtained to finance the acquisition of 36 communities previously subject to operating leases subsequent to the beginning of the prior year.
Gain (Loss) on Debt Modification and Extinguishment, Net. The increase in loss on debt modification and extinguishment, net was primarily due to a $32.8 million loss on extinguishment of a financing obligation during the current year for the reacquisition of three communities previously subject to sale-leaseback transactions, partially offset by a $15.5 million loss on debt extinguishment in the prior year for the convertible notes issuance and exchange transactions. Refer to the "Convertible Senior Notes" section for additional information on the convertible notes issuance and exchange transactions.
Other Non-operating Income (Loss). The decrease in other non-operating income was due to decreased income recognized for insurance recoveries from our property and casualty insurance policies.
Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the years ended December 31, 2025 and 2024 was primarily due to a decrease in the tax expense resulting from the valuation allowance recorded against the benefit on operating losses. We recorded an aggregate deferred federal, state, and local tax benefit of $60.0 million for the year ended December 31, 2025, which was offset by an increase in the valuation allowance of $56.7 million. We recorded an aggregate deferred federal, state, and local tax benefit of $43.7 million for the year ended December 31, 2024, which was offset by an increase in the valuation allowance of $47.3 million.
Liquidity and Capital Resources
This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.
Liquidity
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the consolidated statements of cash flows, and our Adjusted Free Cash Flow.
Years Ended December 31,
Increase (Decrease)
(in thousands)
Amount
Percent
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
Adjusted Free Cash Flow
The increase in net cash provided by operating activities was primarily attributable to an increase in resident fees and a $34.8 million decrease in cash facility operating lease payments, partially offset by an increase in facility operating expense compared to the prior year.
The increase in net cash used in investing activities was primarily attributable to an increase of $202.6 million of cash paid for the acquisition of formerly leased communities, partially offset by a $19.1 million increase in net proceeds from sale of assets.
The increase in net cash provided by financing activities was primarily attributable to a $152.4 million increase in debt proceeds compared to the prior year, partially offset by a $97.4 million increase in repayment of debt and financing lease obligations compared to the prior year.
The change in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities.
Our principal sources of liquidity have historically been from:
• cash balances on hand, cash equivalents, and marketable securities;
• cash flows from operations;
• proceeds from our credit facilities;
• funds generated through unconsolidated venture arrangements;
• proceeds from mortgage financing or refinancing of various assets;
• funds raised in the debt or equity markets; and
• proceeds from the disposition of assets.
Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity.
Over the near-term, we expect that our liquidity requirements will primarily arise from:
• working capital;
• operating costs such as labor costs, severance costs, general and administrative expense, and supply costs;
• debt, interest, and lease payments;
• investment in our healthcare and wellness initiatives;
• transaction consideration and related expenses;
• capital expenditures and improvements;
• cash collateral required to be posted in connection with our financial instruments and insurance programs; and
• other corporate initiatives (including information systems and other strategic projects).
We are highly leveraged and have significant debt and lease obligations. As of December 31, 2025, we had $4.3 billion of debt outstanding at a weighted average interest rate of 5.06%. As of such date, 89.7%, or $3.9 billion, of our total debt obligations represented non-recourse property-level mortgage financings.
As of December 31, 2025, we had $1.2 billion of operating and financing lease obligations, and for the twelve months ending December 31, 2026, we will be required to make approximately $191.6 million of cash lease payments in connection with our existing operating and financing leases.
As of December 31, 2025, we had $1.4 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility. We also had separate letter of credit facilities providing for up to $68.0 million of letters of credit as of December 31, 2025, under which $59.2 million had been issued as of that date.
Total liquidity of $377.7 million as of December 31, 2025 included $279.1 million of unrestricted cash and cash equivalents (excluding restricted cash of $63.9 million) and $98.6 million of availability on our secured credit facility. Total liquidity as of December 31, 2025 decreased $11.6 million from total liquidity of $389.3 million as of December 31, 2024. During 2026, we plan to sell 29 owned communities (2,364 units), which we believe will generate approximately $200.0 million of proceeds. The closings of the expected sales of assets are subject (where applicable) to our successful marketing of such assets on terms acceptable to us. Further, the closings of the expected sales of assets are, or will be, subject to the satisfaction of various conditions, including (where applicable) the receipt of regulatory approvals. There can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
As of December 31, 2025, our current liabilities exceeded current assets by $14.0 million. Included in our current liabilities is $75.7 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our consolidated balance sheets. We currently estimate our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, and cash equivalents, availability on our secured credit facility, and proceeds from financings and refinancings of various assets will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to focus on increasing our RevPAR, maintaining appropriate expense discipline, continuing to refinance or exercise available extension options for maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets. There is no assurance that financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in monetizing certain assets or exercising extension options.
Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors." Since the amount of mortgage financing available for our communities is generally dependent on their appraised values and performance, decreases in their appraised values, including due to adverse changes in real estate market conditions, or their performance, could result in available mortgage refinancing amounts that are less than the communities’ maturing indebtedness. In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac. As of December 31, 2025, 11% of our owned communities were unencumbered by mortgage debt.
As of December 31, 2025, the current portion of long-term debt was $77.5 million, which includes $23.3 million of our 2.00% convertible senior notes due October 15, 2026 and $19.6 million of mortgage notes payable secured by assets held for sale. We have completed the refinancing of all of our mortgage debt maturities due in 2026. Our inability to obtain refinancing proceeds sufficient to cover 2027 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.
Funding our planned capital expenditures or investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.
Capital Expenditures
Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include maintenance expenditures (including routine maintenance of communities over $1,500 per occurrence), community renovations, unit upgrades (including unit turnovers over $500 per unit), and other major building infrastructure projects (including replacements of major building systems). Corporate capital expenditures include those for information technology systems and equipment and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities.
The following table summarizes our capital expenditures for the year ended December 31, 2025 for our consolidated business.
(in thousands)
Community-level capital expenditures, net (1)
Corporate capital expenditures, net
Non-development capital expenditures, net (2)
Development capital expenditures, net
Total capital expenditures, net
(1) Reflects the amount invested, net of lessor reimbursements of $32.6 million.
(2) Amount is included in Adjusted Free Cash Flow.
In the aggregate, we expect our full-year 2026 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $175.0 million to $195.0 million. We anticipate that our 2026 capital expenditures will be funded from cash on hand, cash equivalents, cash flows from operations, and reimbursements from lessors. As of December 31, 2025, the average age of the buildings in our consolidated senior housing portfolio was approximately 28 years. To support our strategy and to protect the value of our community portfolio and ensure that our communities are in appropriate physical condition, over the intermediate term, we expect that our community-level non-development capital expenditures, net of lessor reimbursements, will be at annual levels in a similar range of 2026 projected spend.
Over the longer term, we expect that we will also continue to invest in our development capital expenditures program through which we expand, reposition, and redevelop selected existing senior living communities where economically advantageous.
Indebtedness
As of December 31, 2025, we had $4.3 billion of debt outstanding, at a weighted average interest rate of 5.06%. As of such date, 89.7%, or $3.9 billion, of our total debt obligations represented non-recourse property-level mortgage financings. As of December 31, 2025, we had $3.3 billion of long-term fixed-rate debt (including our $23.3 million principal amount of 2.00% convertible senior notes due 2026 and our $369.4 million principal amount of 3.50% convertible senior notes due 2029), at a weighted average interest rate of 4.70%.
As of December 31, 2025, we had $1.0 billion of long-term variable-rate debt, which is indexed to Secured Overnight Financing Rate ("SOFR") plus a weighted average margin of 244 basis points, at a weighted average interest rate of 6.18%. Increases in prevailing interest rates as a result of inflation or other factors will increase our payment obligations on our variable-rate obligations to the extent they are unhedged and may increase our future borrowing and hedging costs. In the normal course of business, we enter into interest rate agreements with major financial institutions to manage our risk above certain interest rates on variable-rate debt. Although we have interest rate cap or swap agreements in place for all of our $1.0 billion of outstanding long-term variable-rate debt as of December 31, 2025, these agreements only limit our exposure to increases in interest rates above certain levels and only for the remaining term of the existing interest rate cap or swap agreements. For our SOFR interest rate cap and swap agreements as of December 31, 2025, the weighted average fixed interest rate is 4.25%, and the weighted average remaining term is 0.9 years. Many of our long-term variable-rate debt instruments include provisions that obligate us to obtain additional interest rate cap agreements upon the maturity of the existing interest rate cap agreements.
The annual aggregate scheduled maturities (including recurring principal payments) of long-term debt outstanding as of December 31, 2025 are as follows (in millions).
Years Ending December 31,
Fixed Rate Maturities
Variable Rate Maturities
Recurring Principal Payments
Long-term Debt
Weighted
Rate
Thereafter
Total obligations
Less amount representing deferred financing costs, net
Total
(1) Variable rate maturities include the maturities of $357.8 million of mortgage debt for which we have the option to extend the maturity for two additional terms of one year each subject to the satisfaction of certain conditions.
Convertible Senior Notes
2026 Convertible Senior Notes
On October 1, 2021, we issued $230.0 million principal amount of 2.00% convertible senior notes due 2026 (the "2026 Notes"). We received net proceeds of $224.3 million at closing after the deduction of the initial purchasers’ discount. We used $15.9 million of the net proceeds to pay the cost of the capped call transactions described below.
The 2026 Notes were issued pursuant to, and are governed by, the Indenture dated as of October 1, 2021 by and between us and Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company, LLC) ("EQ"), as trustee. The 2026 Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2026 Notes, and equal in right of payment to any of our indebtedness that is not so subordinated. The 2026 Notes are effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of our current or future subsidiaries.
The 2026 Notes bear interest at 2.00% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year. The 2026 Notes will mature on October 15, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms. Holders of the 2026 Notes may convert all or any portion of their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2026, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2021 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of the 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2026 Notes on each such trading day; (3) if we call any or all of the 2026 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events. On or after July 15, 2026, holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, we will our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election.
The conversion rate for the 2026 Notes is initially 123.4568 shares of our common stock per $1,000 principal amount of the 2026 Notes (equivalent to an initial conversion price of approximately $8.10 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or following the issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event or who elects to convert any 2026 Notes called (or deemed called) for redemption during the related redemption period in certain circumstances.
We may redeem for cash all or (subject to certain limitations) any portion of the 2026 Notes, at our option, on or after October 21, 2024 and prior to the 51st scheduled trading day immediately preceding the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2026 Notes.
If we undergo a fundamental change (as defined in the Indenture) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their 2026 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
In connection with the offering of the 2026 Notes, we entered into privately negotiated capped call transactions ("Capped Call Transactions") with each of Bank of America, N.A., Royal Bank of Canada, Wells Fargo Bank, National Association or their respective affiliates (the "Capped Call Counterparties"). The Capped Call Transactions initially cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the 2026 Notes and initially have an exercise price of $8.10 per share of common stock. The cap price of the Capped Call Transactions is initially approximately $9.90 per share of our common stock, representing a premium of 65% above the last reported sale price of $6.00 per share of our common stock on September 28, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce or offset potential dilution to holders of our common stock upon conversion of the 2026 Notes and/or offset the potential cash payments that we could be required to make in excess of the principal amount of any converted Notes upon conversion thereof, with such reduction and/or offset subject to a cap based on the cap price.
The Capped Call Transactions are separate transactions entered into by us with the Capped Call Counterparties and are not part of the terms of the 2026 Notes. The Capped Call Transactions had a cost of $15.9 million, which was paid on October 1, 2021 from the proceeds of the 2026 Notes. We account for Capped Call Transactions separately from the 2026 Notes and recognized the cost as a reduction of additional paid-in capital in the year ended December 31, 2021 as the Capped Call Transactions are indexed to our common stock. Subsequent to our convertible notes exchange transactions on October 3, 2024, the Capped Call Transactions remain outstanding with the terms unchanged and continue to cover the number of shares of our common stock that initially underlie the $230.0 million initial principal amount of 2026 Notes. Refer to Note 7 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for additional information on the convertible senior notes transactions.
2029 Convertible Senior Notes
On September 30, 2024, we entered into privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with certain holders of the 2026 Notes. On October 3, 2024, pursuant to the Exchange and Subscription Agreements, we issued $369.4 million aggregate principal amount of 3.50% convertible senior notes due 2029 (the "2029 Notes"). At closing, $219.4 million principal amount of the 2029 Notes were issued in exchange for $206.7 million principal amount of the 2026 Notes and $150.0 million principal amount of the 2029 Notes were issued for cash. As part of such transactions, $29.7 million principal amount of the 2029 Notes were issued in exchange for $28.0 million principal amount of the 2026 Notes in transactions with one holder and its affiliates whom beneficially owned more than 10% of the shares of the our common stock as of such date and at closing. The 2029 Notes were issued pursuant to, and are governed by, an Indenture (the “2029 Notes Indenture”), dated as of October 3, 2024 between EQ, as trustee and us. Following the closing, $23.3 million in aggregate principal amount of the 2026 Notes remain outstanding with the terms unchanged.
The 2029 Notes are our senior unsecured obligations and will rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2029 Notes, and equal in right of payment to any indebtedness that is not so subordinated. The 2029 Notes are effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior to all indebtedness and other liabilities (including trade payables) and any preferred equity of our current or future subsidiaries. Under the terms of the 2029 Notes Indenture, subject to certain exceptions, we may not incur pari passu indebtedness in an aggregate principal amount exceeding $500.0 million.
The 2029 Notes bear interest at a rate of 3.50% per year, payable semiannually in arrears on April 15 and October 15 of each year, beginning on April 15, 2025. The 2029 Notes will mature on October 15, 2029, unless earlier converted or repurchased in accordance with their terms. Holders of the 2029 Notes may convert all or any portion of their 2029 Notes at their option at any time prior to the close of business on the business day immediately preceding July 15, 2029, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2024 (and only during such calendar quarter), if the last reported sale price of our the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2029 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the 2029 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after July 15, 2029, holders may convert all or any portion of their 2029 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Under the 2029 Notes Indenture, we will not be obligated to deliver any shares of common stock to any holder upon any conversion of the 2029 Notes
whereby such holder would beneficially own a number of shares of Company common stock in excess of 19.9% of the total number of shares of Company common stock issued and outstanding immediately following such conversion.
The conversion rate for the 2029 Notes will initially be 111.1111 shares of common stock per $1,000 principal amount of the 2029 Notes (equivalent to an initial conversion price of approximately $9.00 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, we will increase the conversion rate for a holder who elects to convert its 2029 Notes in connection with such a corporate event.
We do not have the right to redeem the 2029 Notes at our election before the maturity date. No sinking fund is provided for the 2029 Notes.
Our net cash proceeds from the exchange and issuance transactions, after subtracting fees, discounts and expenses, were $135.0 million.
We recognized a $15.5 million loss on debt extinguishment in the year ended December 31, 2024 for the completed exchange and issuance transactions.
Credit Facilities
In December 2023, we amended our revolving credit agreement with Capital One, National Association, as administrative agent and lender and the other lenders from time to time parties thereto. The amended agreement provides an expanded commitment amount of up to $100.0 million which can be drawn in cash or as letters of credit. The credit facility matures in January 2027, and we have the option to extend the facility for two additional terms of approximately one year each subject to the satisfaction of certain conditions. Amounts drawn under the facility will bear interest at SOFR plus an applicable margin ranging from 2.5% to 3.0% based upon the percentage of the total commitment drawn. Additionally, a quarterly commitment fee of 0.35% per annum was applicable on the unused portion of the facility as of December 31, 2025. The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon certain calculations related to the appraised value and performance of the communities securing the credit facility and the variable interest rate of the credit facility.
As of December 31, 2025, $1.4 million of letters of credit and no cash borrowings were outstanding under our $100.0 million secured credit facility, and the facility had $98.6 million of availability. We also had separate letter of credit facilities providing up to $68.0 million of letters of credit as of December 31, 2025 under which $59.2 million had been issued as of that date.
Long-Term Leases
As of December 31, 2025, we operated 178 communities under long-term leases (169 operating leases and 9 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. In certain cases, we guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.
The leases relating to substantially all of our leased communities are fixed-rate leases with annual escalators that are fixed. We are responsible for all operating costs, including repairs and maintenance, property taxes, and insurance. As of December 31, 2025, the weighted average remaining lease term of our operating and financing leases was 9.9 and 6.3 years, respectively. The lease terms generally provide for renewal or extension options, or in certain cases, purchase options. The existing lease maturities of our senior housing community leases as of December 31, 2025 are as follows (without giving effect to future renewals or extension options).
Years Ending December 31,
Community Count
Total Units
Thereafter
Total
The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity and net worth levels and lease coverage ratios. We are required to spend approximately $23.0 million in aggregate for the 24-month period ending December, 31, 2027 for capital expenditures under certain of our community leases and approximately $116.0 million in aggregate thereafter under the initial lease terms of such leases. Our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.
Certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies.
For the year ended December 31, 2025, our cash lease payments for our operating leases were $222.6 million and for our financing leases were $12.0 million. The aggregate amounts of future minimum lease payments, including community, office, and equipment leases, recognized on the consolidated balance sheet as of December 31, 2025 are as follows (in millions).
Years Ending December 31,
Operating
Lease Payments
Financing
Lease Payments
Total Minimum Lease Payments
Thereafter
Total minimum lease payments
Debt and Lease Covenants
Certain of our long-term debt and lease documents contain restrictions, maintenance and capital expenditure obligations, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity and net worth levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. These covenants include a requirement contained in certain of our long-term debt documents for us to maintain liquidity of at least $130.0 million at each quarter-end determination date. As of December 31, 2025, our liquidity was $377.7 million.
In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).
Furthermore, our mortgage debt is secured by our communities and, in certain cases, our long-term debt and leases are secured by a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt
or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.
As of December 31, 2025, we are in compliance with the financial covenants of our debt agreements and long-term leases.
Summary of Contractual Obligations
The following table presen ts a summary of our material indebtedness and lease obligations, as of December 31, 2025.
Payments Due during the Years Ending December 31,
(in millions)
Thereafter
Total
Principal on long-term debt (2)
Interest on long-term debt (3)
Long-term debt obligations
Lease obligations
Total long-term debt and lease obligations
(1) Principal on long-term debt includes the maturities of $357.8 million of mortgage debt for which we have the option to extend the maturity for two additional terms of one year each subject to the satisfaction of certain conditions.
(2) Excludes deferred financing costs of $45.8 million as of December 31, 2025.
(3) Represents contractual interest for all fixed-rate obligations and interest on variable rate instruments at the December 31, 2025 rate applicable for each instrument excluding the impact of interest rate cap and swap agreements. As of December 31, 2025, our long-term variable-rate debt had a weighted average interest rate of 6.18%. We are subject to market risks from changes in interest rates and increases or decreases in prevailing interest rates would change our payment obligations on our variable-rate obligations.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP, requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. We believe the following accounting estimates are the most critical as they require assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate, or different estimates that could have been selected, could have a material impact on our consolidated results of operations or financial condition. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Our significant accounting policies are discussed in Note 2 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data."
Long-Lived Asset Impairment
As of December 31, 2025, our long-lived assets were comprised primarily of $4.3 billion and $1.0 billion of net property, plant and equipment and leasehold intangibles and operating lease right-of-use assets, respectively.
We test long-lived assets for recoverability annually during our fourth quarter or whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, we are required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value.
In estimating the recoverability of asset groups for purposes of our long-lived asset impairment testing, we utilize future cash flow projections that are generally developed internally. Any estimates of future cash flow projections necessarily involve
predicting unknown future circumstances and events and require significant management judgments and estimates. In arriving at our cash flow projections, we consider our historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset holding periods, and other factors. In estimating the future cash flows of asset groups for purposes of our long-lived asset impairment test, we make certain key assumptions. Those assumptions include asset holding periods, future revenues, facility operating expenses, and cash flows, including sales proceeds that we would receive upon a sale of the assets. We corroborate the estimated asset sale proceeds we use in these calculations with capitalization rates or sales prices observable from recent market transactions.
Determining the future cash flows of an asset group involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include differences in the projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, and our decision to dispose of assets, including through exiting non-strategic or underperforming owned assets or leases. Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing, or the valuation of the real estate of senior living communities, as well as other events and circumstances, including, but not limited to, increased competition and changing economic or market conditions, could result in changes in estimated future cash flows and the determination that additional assets are impaired.
During 2025, 2024, and 2023, we evaluated long-lived depreciable assets and lease right-of-use assets and determined that the carrying amount of these assets exceeded the undiscounted cash flows for certain of our communities. Estimated fair values were determined for these certain properties, and we recorded asset impairment charges. The following is a summary of asset impairment expense for these assets.
For the Years Ended December 31,
(in millions)
Property, plant and equipment and leasehold intangibles, net
Operating lease right-of-use assets
Total
These impairment charges are primarily due to the planned disposition of certain underperforming communities resulting in a change in their intended holding periods and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.
Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there have been changes in circumstances that indicate the carrying amount may not be recoverable, the recoverability of asset groups, and, if necessary, the fair value of our assets. As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the accuracy of our estimate of the future cash flows of assets, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss. Additionally, future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.
Self-Insurance Liability Accruals
We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain general liability and professional liability insurance policies for our owned, leased, and managed communities under a master insurance program, our current policies provide for deductibles for each claim and contain various exclusions from coverage. We use our wholly-owned captive insurance company for the purpose of insuring certain portions of our risk retention under our general and professional liability insurance programs. Accordingly, we are, in effect, self-insured for claims that are less than the deductible amounts, for claims that exceed the funding level of our wholly-owned captive insurance company, and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. In addition, we maintain a high-deductible workers' compensation program. Third-party insurers are responsible for claim costs above program deductibles and retentions.
Outstanding losses and expenses for general liability, professional liability, and workers' compensation are estimated based on the recommendations of independent actuaries and management's estimates. The actuarial methods develop estimates of the future ultimate claim costs based on the claims incurred as of the balance sheet date. We review the adequacy of our accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates,
consultants, advice from legal counsel, and industry data, and adjust accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. These estimates require significant judgment, and as a result these estimates are uncertain and our actual exposure may be different from our estimates. Subsequent changes in actual experience are monitored and estimates are updated as information becomes available.
As of December 31, 2025, we accrued liabilities of $109.0 million for general liability, professional liability, and workers' compensation programs. During the years ended December 31, 2025 and 2024, we increased our estimate of the amount of aggregate accrued liabilities for these programs based on recent claims experience, resulting in an increase to operating expenses of $2.5 million and $13.5 million, respectively. During the year ended December 31, 2023, there was no significant adjustment to our operating expenses for any change in our estimate of the amount of these liabilities.
Non-GAAP Financial Measures
This Annual Report on Form 10-K contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with GAAP. Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, legal, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, operating lease expense adjustment, non-cash stock-based compensation expense, gain/loss on sale of communities, gain/loss on facility operating lease termination, and transaction, legal, and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third-party costs. Legal costs include charges associated with putative class action . Organizational costs include those related to our efforts to reduce general and administrative expense and our senior changes, including severance.
We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods; (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry; and (iv) we use the measure for components of executive compensation.
Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility operating lease termination, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction, legal, and other costs, and such income/expense may significantly affect our operating results.
The table below reconciles Adjusted EBITDA from net income (loss).
Years Ended December 31,
(in thousands)
Net income (loss)
Provision (benefit) for income taxes
Loss (gain) on debt modification and extinguishment, net
Non-operating loss (gain) on sale of assets, net
Other non-operating (income) loss
Interest expense
Interest income
Income (loss) from operations
Depreciation and amortization
Asset impairment
Loss (gain) on sale of communities, net
Loss (gain) on facility operating lease termination, net
Operating lease expense adjustment
Non-cash stock-based compensation expense
Transaction, legal, and organizational restructuring costs
Adjusted EBITDA
Adjusted Free Cash Flow
Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease assets and liabilities for lease termination, cash paid/received for gain/loss on facility operating lease termination, and lessor capital expenditure reimbursements under operating leases; plus: property and casualty insurance proceeds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures for: community expansions, major community redevelopment and repositioning projects, and the development of new communities.
We believe that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.
Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.
The table below reconciles Adjusted Free Cash Flow from net cash provided by operating activities.
Years Ended December 31,
(in thousands)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Net cash provided by operating activities
Changes in operating lease assets and liabilities for lease termination
Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases
Non-development capital expenditures, net
Property and casualty insurance proceeds
Payment of financing lease obligations
Adjusted Free Cash Flow
