# Sonida Senior Living, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Sonida Senior Living, Inc.](/companies/snda.md) (CIK 1043000)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:47 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038986
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1043000/000162828023038986/snda-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1043000/000162828023038986/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $64.7m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $189.6m | us-gaap:Revenues |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $9.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $26.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $83.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $205.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$18.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$6.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$2.79 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$2.79 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.54 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 7,050,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 6,602,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $10.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $14.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $3.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $33.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $629.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $120.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $685.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $565.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $64.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | −$103.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,661 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of our business and results of operations. This MD&A should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 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” above in this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 30, 2023, or “2022 Annual Report,” as well as “Item. 1A. Risk Factors” in this Quarterly Report on Form 10-Q. Actual results may differ materially from those projected in such statements as a result of such risks, uncertainties and other factors. Unless otherwise specified or where the context otherwise requires, references in this Report to “our,” “we,” “us,” “Sonida”, the “Company” and “our business” refer to Sonida Senior Living, Inc., together with its consolidated subsidiaries.

### Overview

The following discussion and analysis addresses (i) the Company’s results of operations for the three and nine months ended September 30, 2023 and 2022, and (ii) liquidity and capital resources of the Company.

The Company is one of the leading 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 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 each of their resident’s needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care that 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 September 30, 2023, the Company operated 71 senior housing communities in 18 states with an aggregate capacity of approximately 8,000 residents, including 61 owned senior housing communities and 10 communities that we manage on behalf of third parties.

### 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 September 30, 2023, 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 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.

The Company received approximately $9.1 million in the nine months ended September 30, 2022 through grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phase 4 General Distribution which was expanded by the CARES Act to provide grants or other funding mechanism to eligible healthcare providers for healthcare-related or lost revenues attributable to COVID-19. For the three and nine months ended September 30, 2023, the Company received approximately $0.5 million and $2.9 million, respectively, in various relief funds received from state departments due to financial distress impacts of COVID-19 (“State Relief Funds”). For the nine months ended September 30, 2022, the Company received approximately $1.2 million, in various State Relief Funds. The Company received no State Relief Funds for the three months ended September 30, 2022. 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.

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.

### 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 plans 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.

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 current inflationary environment and financial results; (2) recurring and non-recurring scheduled principal and interest payments due in the next 12 months; (3) recurring operating losses; (4) the Company’s working capital deficit; and (5) events of non-compliance with certain of our mortgage agreements, as noted in “Note 6–Notes Payable.” 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 September 30, 2023 financial statements are issued.

As discussed below, the Company has implemented plans that 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 September 30, 2023 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) debt modifications, refinancings and extensions to the extent available on acceptable terms; and (3) equity issuances pursuant but not limited to the equity commitment agreement defined and described below.

#### Strategic and Cash Preservation Initiatives

The Company has taken 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.
- In June 2023, the Company entered into a forbearance agreement (“Fannie Forbearance” and “Fannie Forbearance Agreement”) with the Federal National Mortgage Association (“Fannie Mae”), pursuant to which, among other things, the Company and Fannie Mae structured a loan modification agreement with terms identical to those contained within the Fannie Forbearance that significantly reduces debt service payments, improves working capital, and extends loan maturities. The Company entered into Loan Modification Agreements with Fannie Mae on October 2, 2023. Concurrent with the Fannie Mae Forbearance Agreement, the Company executed a second amendment to its Refinance Facility and Second Amended and Restated Limited Payment Guaranty with Ally Bank, which, among other things, temporarily reduced the minimum liquidity covenant under such Refinance Facility for a period of 18 months, subject to certain conditions set forth therein. See “Note 6 – Notes Payable” for more information about these agreements and transactions.
- In June 2023, the Company entered into a $13.5 million equity commitment agreement with the Conversant Investors at the Company’s right, but not the obligation.
- 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 $0.5 million in various state grants during the quarter ended September 30, 2023 and $2.9 million for the nine months ended September 30, 2023.
- Under the terms of the A&R Investment Agreement, the Company may request additional investments from Conversant Dallas Parkway (A) LP and Conversant Dallas Parkway (B) LP, (together “Conversant” or the “Conversant Investors”) in shares of Series A Convertible Preferred Stock (the “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.
- The Company filed for an employee retention credit (“ERC”) with the Internal Revenue Service after September 30, 2023. The ERC is a tax credit for businesses that had employees that were affected during the COVID-19 pandemic.

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. The accompanying condensed 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 condensed 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 derives its revenue primarily by providing senior living and healthcare services to seniors. During the three months ended September 30, 2023, the Company generated resident revenue of approximately $59.1 million compared to resident revenue of approximately $52.5 million in the three months ended September 30, 2022 representing an increase of 12.6%. The increase in revenue was primarily due to increased occupancy and increased average rent rates. During the nine months ended September 30, 2023, the Company generated resident revenue of approximately $172.7 million compared to approximately $155.3 million during the nine months ended September 30, 2022, representing an increase of 11.2%. The increase in revenue was primarily due to increased occupancy, increased average rent rates, and the acquisition of two new communities in early 2022.

Weighted average occupancy for the three months ended September 30, 2023 and 2022 for the communities owned by the Company was 84.9% and 83.4%, respectively, reflecting continued occupancy recovery following the onset of the COVID-19 pandemic. The average monthly rental rate for these communities for the quarter ended September 30, 2023 was 11.7% higher as compared to the quarter ended September 30, 2022.

Weighted average occupancy for the nine months ended September 30, 2023 and 2022 for the communities owned by the Company was 84.2% and 82.6%, respectively, reflecting continued occupancy recovery. The average monthly rental rate for the nine months ended September 30, 2023 was 9.4% higher when compared to the nine months ended September 30, 2022.

During the three and nine months ended September 30, 2023, the Company continued to be impacted by the senior living industry's workforce challenges related to limited staff availability, which required the use of overtime, shift bonuses and contract labor to properly support our senior living communities and residents.

### Fannie Mae Loan Modification

On June 29, 2023, the Company entered into the Fannie Forbearance with Fannie Mae for all 37 of its encumbered communities, effective as of June 1, 2023 (“Fannie Forbearance Effective Date”). Under the Fannie Forbearance, Fannie Mae agreed to forbear on its remedies otherwise available under the community mortgages and Master Credit Facility (“MCF”) in connection with reduced debt service payments made by the Company during the forbearance period. In connection with the Fannie Forbearance, the Company made a $5.0 million principal payment in July 2023. The Fannie Forbearance was the first of a two-step process to modify all existing mortgage agreements with Fannie Mae by October 1, 2023 under a proposed loan modification agreement, as defined in the Fannie Forbearance (“Loan Modification Agreement”). Terms outlined in an agreed upon term sheet accompanying the Fannie Forbearance were included in the Loan Modification Agreements as the final step to modify the various 37 Fannie Mae community mortgages and MCF prior to the expiration of the Fannie Forbearance, which was subsequently extended to October 6, 2023. The Company entered into Loan Modification Agreements with Fannie Mae on October 2, 2023.

The material terms of the Loan Modification Agreements, are as follows:

- Maturities on 18 community mortgages, ranging from July 2024 to December 2026, have been extended to December 2026. The remaining 19 communities under the MCF have existing maturities in December 2028.
- The Company is not required to make scheduled principal payments due under the 18 community mortgages and 19 communities under the MCF through the revised maturity date of December 2026 or 36 months from the Fannie Forbearance Effective Date, respectively.
- The monthly interest rate will be reduced by a 1.5% weighted average on all 37 communities for 12 months from the Fannie Forbearance Effective Date and deferred (the “Fannie Interest Abatement Period”).
- The Company is required to make a second principal payment of $5.0 million with respect to the Fannie Mae debt which is due on June 1, 2024, the one-year anniversary of the Fannie Forbearance Effective Date.
- The Company provided a full corporate guaranty in the amount of $5 million related to the second principal payment of $5.0 million (the “Second Payment Guaranty”). This guaranty will fully expire upon payment of the second $5.0 million principal payment.
- In addition to the Second Payment Guaranty above, the Company also provided a $10.0 million guaranty (the “Supplemental Fannie Guaranty”). After the expiration of 24 months from the Fannie Forbearance Effective Date,

Sonida may discharge the full amount of the Supplemental Fannie Guaranty by making a $5.0 million principal payment to Fannie Mae on its community mortgages and/or its MCF.

- In the first twelve months following the effective date of the Loan Modification Agreements, the Company is required to escrow 50% of Net Cash Flow less Debt Service (as defined in the Fannie mortgages and MCF) on an aggregate basis over all 37 Fannie Mae communities. The excess cash flow will be deposited into a lender-controlled capital expenditure reserve on a monthly basis to support the re-investment into certain communities, as mutually determined by the Company and Fannie Mae. The Company will be able to draw down such amounts on qualifying projects as the capital expenditures are incurred.

The Company has determined that the Fannie loan modification is a troubled debt restructuring where the total cash outflows exceed the current carrying value of the debt. The Company incurred restructuring costs of $0.7 million in the nine months ended September 30, 2023. These costs are included in deferred loan costs as of September 30, 2023 and will be amortized over the new lives of the Fannie Mae loans.

### Other Significant Transactions

### Ally Loan Amendment

On June 29, 2023, and concurrent with the Fannie Forbearance, Sonida executed a second amendment (“Ally Amendment”) to its Refinance Facility (“Ally Term Loan” or “Ally Term Loan Agreement”) and an amended guaranty (“Second Amended and Restated Limited Payment Guaranty”) with Ally Bank with terms as follows:

- With respect to the Second Amended and Restated Limited Payment Guaranty, Ally will grant Sonida, as Guarantor, a waiver (“Limited Payment Guaranty Waiver” or “Waiver”) of the Liquid Assets minimum requirement of $13.0 million for a 12-month period. On July 1, 2024, a new Liquid Assets Threshold of $7.0 million will be effective, with such threshold increasing $1.0 million per month through the earlier of the release of the Waiver period or December 31, 2024.
- During the Waiver period, a new and temporary Liquid Assets minimum threshold (“Limited Payment Guaranty Waiver Minimum Threshold”) will be established. The Limited Payment Guaranty Waiver Minimum Threshold is $6.0 million and is measured weekly. If breached, the “Excess Cash Flow Sweep” is triggered and all excess cash from the communities collateralizing the Ally Term Loan will be swept into an “Equity Cure Fund”, as defined in the Ally Term Loan Agreement. As provided for in the Ally Amendment, the Excess Cash Flow Sweep, if triggered, will cease upon the achievement of meeting or exceeding the Limited Payment Guaranty Waiver Minimum Threshold for four consecutive weeks. Consistent with the Ally Term Loan, all amounts held in escrow (i.e. Debt Service Escrow and IRC Reserve) will be included and combined with the Company’s unrestricted cash for purposes of measurement against the Limited Payment Guaranty Waiver Minimum Threshold.
- During the Waiver period, the Company cannot avail itself to (1) its two potential $5.0 million draw-downs, (2) the release of its Debt Service Escrow Account and Waiver Principal Reserve Account (defined below), or (3) its interest rate margin reduction, all otherwise provided for in the Ally Term Loan, subject to achievement of certain financial performance metrics as more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
- During the Waiver period, Ally will collect the equivalent of the monthly Ally Term Loan principal payment (as provided for in the Ally Term Loan Agreement) of approximately $117,000 through an Ally controlled escrow (“Waiver Principal Reserve Account”).
- Upon meeting the Ally Term Loan’s Liquid Assets Threshold of $13.0 million, the Company may elect to remove the Waiver, with initial terms in the Ally Term Loan applicable again, except as described further below.
- Sonida is required to fund $2.3 million to an interest rate cap reserve (“IRC Reserve”) held by Ally, which represents the quoted cost of a one-year interest rate cap on the full $88.1 million notional value of the Ally Term Loan at a 2.25% SOFR strike rate. The valuation date used for pricing the interest rate cap is November 30, 2023, the date on which the current interest rate cap expires. At each month-end subsequent to the effective date of the Ally Amendment and through its next required annual interest rate cap purchase under the Ally Term Loan, Sonida is required to fund an additional IRC Reserve amount such that the then estimated interest rate cap cost is fully escrowed. An additional

$0.1 million was funded to the IRC Reserve during the three months ended September 30, 2023. Until the terms of the Limited Payment Guaranty Waiver have expired or have been met and elected at the Company’s discretion, the IRC Reserve is required to be replenished to its replacement cost.

- To the extent either the Second Payment Guaranty or Supplemental Fannie Guaranty have not been discharged, any uncured monetary event of default under the Fannie Forbearance will constitute a cross default under the Ally Amendment, resulting in the immediate trigger of a full excess cash flow sweep for the communities collateralizing the Ally Term Loan as well as additional performance and liquidity reporting requirements.
- Subsequent to the Waiver period, all funds in the Waiver Principal Reserve Account as well as any funds swept into the Equity Cure Fund will be released to the Company.
- In consideration for the terms contemplated in the Ally Amendment and upon execution of the same, Sonida paid Ally an Amendment Fee of $0.1 million, which is included in deferred loan costs as of September 30, 2023 and will be amortized over the life of the Ally Term Loan.

### Conversant Equity Commitment

In connection with the Fannie Forbearance and Ally Amendment signed on June 29, 2023, the Company entered into a $13.5 million equity commitment agreement (“Equity Commitment”) with Conversant Investors for a term of 18 months. The Equity Commitment had a commitment fee of $675,000 payable through the issuance of 67,500 shares of common stock of the Company. The commitment fee shares were issued to Conversant on June 29, 2023. Sonida has the right, but not the obligation, to utilize Conversant’s equity commitment and may draw on the commitment in whole or in part. The Company made an equity draw in July 2023 of $6.0 million and issued 600,000 shares of common stock to Conversant. The Company used $5.0 million of the proceeds to make principal payments on two of its Fannie Mae loan balances. Subsequent to September 30, 2023, the Company elected to draw down an additional $4.0 million of the Equity Commitment in October which was received on November 1, 2023. The Company issued 400,000 shares of common stock to Conversant on November 1, 2023.

The foregoing description of the Fannie Forbearance, the Ally Amendment, Second Amended and Restated Limited Payment Guaranty, the Loan Modification Agreements, and Equity Commitment and the transactions contemplated thereby do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Fannie Forbearance, the Ally Amendment, Second Amended and Restated Limited Payment Guaranty and Equity Commitment, which are filed as Exhibits 10.1, 10.2, 10.3 and 10.6, respectively, and the Loan Modification Agreements, which are filed as Exhibits 10.4 and 10.5 to this Quarterly Report on Form 10-Q. See “Item 6. Exhibits.”

### 2022 Ally Loan Mortgage Refinance

In March 2022, the Company completed the refinancing of certain existing mortgage debt (“Refinance Facility”) for ten of its communities. The Refinance Facility includes an initial term loan of $80.0 million. In addition, $10.0 million is available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements and up to an additional uncommitted $40.0 million may be available to fund future growth initiatives. In addition, the Company provided a limited payment guaranty. In conjunction with the Refinance Facility, the Company incurred costs of $2.2 million in March 2022. These costs, net of amortization of $0.7 million, are included in deferred loan costs as of September 30, 2023.

On December 13, 2022, the Company amended the Refinance Facility with Ally Bank by adding two additional subsidiaries of the Company as borrowers and mortgaging their communities. 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 loan costs as of September 30, 2023 and will be deferred and amortized over the remaining life of the term loan.

The Refinance Facility 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 Agreement) with a first measurement date as of June 30, 2022 and quarterly measurement dates thereafter. As of September 30, 2023, 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 required 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 6–Notes Payable” in the Notes to Condensed Consolidated Financial Statements.

### 2020 Foreclosure Proceedings on Fannie Mae Loans (18 properties)

The Coronavirus Aid, Relief and Economic Security (“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. During 2020, the Company entered into several loan forbearance agreements with Fannie Mae. In July 2020, the Company elected not to pay $3.8 million on the loans for 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.

As a result of the events of default and receivership order obtained by Fannie Mae, 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, that all amounts held in escrow by Fannie Mae were forfeited, and that the Company no longer had control of the properties in accordance with GAAP. Accordingly, the Company derecognized the net carrying value of the properties and related assets from the financial statements and recorded a loss from the forbearance. The Company continued to recognize the related debt and liabilities until the debt was formally released. Once the debts were formally released, the net carrying value of the debts were derecognized and a gain on extinguishment of debt was recognized. As of December 31, 2022, Fannie Mae had completed the transition of legal ownership of 16 of the Company's properties.

In January 2023, the Company received notice that the foreclosure sales conducted by Fannie Mae had successfully transitioned the remaining two properties to new owners. This event relieved the Company of the existing Fannie Mae debt relating to the two properties. Accordingly, the Company recognized a total of $36.3 million for the gain on debt extinguishments for the nine months ended September 30, 2023. With the transition of these two remaining properties, the 18 total Fannie Mae properties’ foreclosure that commenced in 2020 was complete.

### Protective Life Insurance Company Non-recourse Mortgages

During 2023, the Company elected to not make principal and interest payments due under certain non-recourse mortgage loan agreements with Protective Life Insurance Company (“Protective Life”). As of September 30, 2023 there are three communities with an aggregate outstanding principal amount as of $55.8 million that are in default. The Company has presented the total amount due on these three communities as current notes payable on the condensed consolidated balance sheets.

In August 2023, Protective Life sold three different mortgages that were not in default to other lenders. The total outstanding debt balance for the mortgages sold as of September 30, 2023 was $43.2 million.

### Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. For a discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes to our critical accounting policies since December 31, 2022.

#### Recent Accounting Guidance Adopted

See “Note 3–Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements and our assessment of any expected impact of these pronouncements, if known.

### Results of Operations

### Three months ended September 30, 2023 as compared to three months ended September 30, 2022

### Revenues

Resident revenue for the three months ended September 30, 2023 was $59.1 million as compared to $52.5 million for the three months ended September 30, 2022, an increase of $6.6 million, or 12.6%. The increase in revenue was primarily due to increased occupancy and increased average rent rates.

Managed community reimbursement revenue for the three months ended September 30, 2023 was $5.0 million as compared to $7.7 million for the three months ended September 30, 2022, representing a decrease of $2.7 million. The decrease was primarily a result of managing fewer communities in 2023.

### Expenses

Operating expenses for the three months ended September 30, 2023 were $44.5 million as compared to $43.1 million for the three months ended September 30, 2022, an increase of $1.4 million, or 3.2%. The increase is primarily due to a $2.2 million increase in labor and employee-related expenses and a $0.3 million increase in computer software/ internet costs, partially offset by a reduction in real estate taxes of $0.4 million and $0.7 million in other expenses.

General and administrative expenses for the three months ended September 30, 2023 were $8.6 million as compared to $5.9 million for the three months ended September 30, 2022, representing an increase of $2.7 million. This increase is primarily due to a $1.4 million increase in transaction costs due to our loan modification and a $1.2 million increase in stock-based compensation expense as a result of prior quarter forfeiture credits in connection with executive personnel changes.

During the three months ended September 30, 2023, the Company recorded a non-cash impairment charge of $6.0 million related to one owned community as a result of recurring net operating losses. There were no impairments on long-lived assets during the three months ended September 30, 2022.

Managed community reimbursement expense for the three months ended September 30, 2023 was $5.0 million as compared to $7.7 million for the three months ended September 30, 2022, representing a decrease of $2.7 million. The decrease was primarily a result of managing fewer communities in 2023.

Interest expense for the three months ended September 30, 2023 was $9.0 million as compared to $8.2 million for the three months ended September 30, 2022, representing a increase of $0.8 million primarily due to the change in our derivative assets, and the additional interest expense on the two Indiana communities financed during December 2022.

### Nine months ended September 30, 2023 as compared to nine months ended September 30, 2022

### Revenues

Resident revenue for the nine months ended September 30, 2023 was $172.7 million as compared to $155.3 million for the nine months ended September 30, 2022, an increase of $17.4 million, or 11.2%. The increase in revenue was primarily due to increased occupancy and increased average rent rates.

Managed community reimbursement revenue for the nine months ended September 30, 2023 was $15.3 million as compared to $21.8 million for the nine months ended September 30, 2022, representing a decrease of $6.5 million. The decrease was primarily a result of managing fewer communities in 2023.

### Expenses

Operating expenses for the nine months ended September 30, 2023 were $133.0 million as compared to $126.6 million for the nine months ended September 30, 2022, an increase of $6.4 million, or 5.1%. The increase is primarily due to a $5.8 million increase in labor and employee-related expenses, a $0.4 million increase in service contracts, a $0.8 million increase in computer software/ internet costs, partially offset by a $0.6 million decrease in food costs and a $0.2 million decrease in real estate taxes.

General and administrative expenses for the nine months ended September 30, 2023 were $22.3 million as compared to $23.6 million for the nine months ended September 30, 2022, representing a decrease of $1.3 million. This decrease is primarily due to a $1.9 million decrease in recurring general and administrative expenses and a $1.3 million decrease in stock-based compensation expense as a result of prior year forfeiture credits in connection with executive personnel changes. Partially offsetting the decrease in general and administrative expense is $1.9 million related to transaction costs associated with our 2023 loan modifications.

During the nine months ended September 30, 2023, the Company recorded a non-cash impairment charge of $6.0 million related to one owned community as a result of recurring net operating losses. There were no impairments on long-lived assets during the nine months ended September 30, 2022.

Managed community reimbursement expense for the nine months ended September 30, 2023 was $15.3 million as compared to $21.8 million for the nine months ended September 30, 2022, representing a decrease of $6.5 million. The decrease was primarily a result of managing fewer communities in 2023.

Interest expense for the nine months ended September 30, 2023 was $26.4 million as compared to $23.7 million for the nine months ended September 30, 2022, representing an increase of $2.7 million primarily due to increased interest rates associated with the Company’s variable rate mortgages and the additional interest expense on the two Indiana communities financed during December 2022.

Gain on extinguishment of debt for the nine months ended September 30, 2023 was $36.3 million. The gain related to the derecognition of notes payable and liabilities as a result of the transition of legal ownership of two communities to Fannie Mae, the holder of the related non-recourse debt. Loss on extinguishment of debt for the nine months ended September 30, 2022 was $0.6 million related to the 2022 debt refinancing.

Other income for the nine months ended September 30, 2022 was $8.7 million and includes cash received for CARES Act funding for healthcare-related expenses or lost revenues attributable to COVID-19.

### Liquidity and Capital Resources

In addition to approximately $3.6 million of unrestricted cash balances on hand as of September 30, 2023, our future liquidity will depend in part upon our operating performance, which will be affected by prevailing economic conditions, including those related to the COVID-19 pandemic, and financial, business and other factors, some of which are beyond our control. Principal sources of liquidity are expected to be cash flows from operations, proceeds from debt refinancings or loan modifications, proceeds from the issuance of common or preferred stock (including under the Equity Commitment Agreement), COVID-19 or related relief grants from various state agencies, and/or proceeds from the sale of owned assets. In June 2023, the Company entered into the Fannie Forbearance, the Ally Amendment, Second Amended and Restated Limited Payment Guaranty, and the Equity Commitment Agreement, as disclosed above. In October 2023, the Company entered into Loan Modification Agreements with Fannie Mae. These transactions are expected to provide additional financial flexibility to the Company and increase its liquidity position. In March 2022, the Company completed the refinancing of certain existing mortgage debt, which was amended in December 2022 and June 2023. See “Note 6–Notes Payable” in the Notes to Condensed Consolidated Financial Statements.

The Company has 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 third quarter 2023 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 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. See “Note 2–Going Concern Uncertainty” in the Notes to Condensed Consolidated Financial Statements.

The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio, including debt refinancings, purchases and sales of assets, equity financings 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.

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 or refinancings for the Company or buyers of the Company’s properties more difficult or on terms not acceptable to the Company. The Company’s actual liquidity and capital funding requirements depend on numerous factors, including its operating results, its capital expenditures for community investment, and general economic conditions, as well as other factors described in “Item 1A. Risk Factors” of our 2022 Annual Report.

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

|  | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | 10,643 | 2,903 |
| Net cash used in investing activities | (12,792) | (30,659) |
| Net cash used in financing activities | (7,441) | (24,304) |
| Decrease in cash and cash equivalents | $(9,590) | $(52,060) |

33

### Operating activities

Net cash provided by operating activities for the nine months ended September 30, 2023 was $10.6 million as compared to $2.9 million for the nine months ended September 30, 2022, an increase of $7.7 million. Changes between the periods are primarily due to the increase in income from operations. Additionally, we received grants of $2.9 million in the nine months ended September 30, 2023 from state departments due to financial distress impacts of COVID-19, as compared to $1.2 million in the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the Company received $9.1 million in Provider Relief Funds from the Federal Government due to financial distress impacts of COVID-19.

### Investing activities

Net cash used in investing activities was $12.8 million in the nine months ended September 30, 2023 due to $14.2 million of capital expenditures, offset by $1.4 million from the proceeds from sale of fixed assets. Net cash used in investing activities was $30.7 million for the nine months ended September 30, 2022 primarily due to the acquisition of two new communities for $12.3 million and $18.3 million due to ongoing capital improvements and refurbishments at existing communities.

### Financing activities

Net cash used in financing activities for the nine months ended September 30, 2023 was $7.4 million primarily due to repayments of notes payable of $12.5 million and deferred financing costs paid of $0.8 million, partially offset by proceeds of $6.0 million from our equity draw. The net cash used in financing activities for the nine months ended September 30, 2022 was $24.3 million primarily due to repayments of notes payable and deferred financing costs paid, net of proceeds from notes payable of $20.7 million, related to our 2022 debt refinancing and $3.0 million of dividends paid to Series A Preferred Stockholders.

## Market risk

As filed, 329 characters.

As of September 30, 2023, the Company was in default for non-compliance on its required debt service payments under non-recourse mortgage loan agreements with Protective Life for three communities. As of September 30, 2023, we had an aggregate outstanding principal amount of $55.8 million outstanding under such loan agreements.

## Controls and procedures

As filed, 3,156 characters.

### Effectiveness of Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief 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 Quarterly Report on Form 10-Q. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

Based upon the controls evaluation, procedures evaluation and the material weakness described in our Annual Report on Form 10-K, which was filed with the SEC on March 30, 2023, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures are 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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

### Remediation Plan

As disclosed in our 2022 Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 30, 2023, we identified a material weakness in our internal control over financial reporting. Due to challenges in hiring and maintaining necessary accounting staffing levels, this material weakness has not been remediated as of September 30, 2023, as disclosed above.

We have developed and initiated a plan for remediation of the material weakness, including developing and maintaining appropriate management review and process level controls. 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, and we will make any changes to the design of our plan and take such other actions that we deem appropriate given the circumstances. Based on the current remediation plan, we expect to have implemented the remediation process, including developing and maintaining appropriate management review and process level controls, by the end of the fourth quarter of 2023. 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.

## Risk factors

As filed, 156 characters.

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038986. Last ingested by Listed: Oct 24, 2026, 14:52 ET. No prices; not investment advice.