10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020 

OR

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

For the transition period from                      to                     

Commission file number: 1-13445

Capital Senior Living Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	75-2678809
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

14160 Dallas Parkway, Suite 300, Dallas, Texas	75254
(Address of Principal Executive Offices)	(Zip Code)

(972) 770-5600

(Registrant’s Telephone Number, Including Area Code)

NONE

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.01 par value per share	CSU	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes   ☒     No   ☐

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 31, 2020, the Registrant had 31,914,264 outstanding shares of its Common Stock, $0.01 par value, per share.

CAPITAL SENIOR LIVING CORPORATION

INDEX

	Page Number
Part I. Financial Information		3
Item 1. Financial Statements.		3
Consolidated Balance Sheets — September 30, 2020 and December 31, 2019		3
Consolidated Statements of Operations and Comprehensive Loss — Three and Nine Months Ended September 30, 2020 and 2019		4
Consolidated Statements of Shareholders’ Equity (Deficit)— Three and Nine Months Ended September 30, 2020 and 2019		5
Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2020 and 2019		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		38
Item 4. Controls and Procedures		38
Part II. Other Information		38
Item 1. Legal Proceedings		38
Item 1A. Risk Factors		38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3. Defaults Upon Senior Securities		41
Item 4. Mine Safety Disclosures		41
Item 5. Other Information		41
Item 6. Exhibits		42
Signature		43

2

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,293		$	23,975
Restricted cash		3,982			13,088
Accounts receivable, net		9,107			8,143
Federal and state income taxes receivable		76			72
Property tax and insurance deposits		8,863			12,627
Prepaid expenses and other		4,764			5,308
Total current assets		41,085			63,213
Property and equipment, net		692,746			969,211
Operating lease right-of-use assets, net		3,691			224,523
Deferred taxes, net		76			76
Other assets, net		2,863			10,673
Total assets	$	740,461		$	1,267,696
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	10,398		$	10,382
Accrued expenses		56,474			46,227
Current portion of notes payable, net of deferred loan costs		263,674			15,819
Current portion of deferred income		5,885			7,201
Current portion of financing obligations		—			1,741
Current portion of lease liabilities		8,971			45,988
Federal and state income taxes payable		307			420
Customer deposits		991			1,247
Total current liabilities		346,700			129,025
Financing obligations, net of current portion		—			9,688
Lease liabilities, net of current portion		590			208,967
Notes payable, net of deferred loan costs and current portion		652,194			905,637
Commitments and contingencies
Shareholders’ equity (deficit):
Preferred stock, $.01 par value:		—			—
Authorized shares – 15,000; no shares issued or outstanding
Common stock, $.01 par value:
Authorized shares – 65,000; issued and outstanding shares – 31,429 and    31,441 in 2020 and 2019, respectively		319			319
Additional paid-in capital		191,882			190,386
Retained deficit		(447,794	)		(172,896	)
Treasury stock, at cost – 494 shares in 2020 and 2019		(3,430	)		(3,430	)
Total shareholders’ equity (deficit)		(259,023	)		14,379
Total liabilities and shareholders’ equity (deficit)	$	740,461		$	1,267,696

See accompanying notes to unaudited consolidated financial statements.

3

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues:
Resident revenue	$	85,894		$	111,110		$	290,952		$	338,412
Management fees		604			—			819			—
Community reimbursement revenue		9,555			—			11,888			—
Total revenues		96,053			111,110			303,659			338,412
Expenses:
Operating expenses (exclusive of facility lease expense and    depreciation and amortization expense shown below)		65,165			80,394			211,874			230,229
General and administrative expenses		8,128			7,554			21,036			21,766
Facility lease expense		5,926			14,233			23,234			42,706
Stock-based compensation expense		421			898			1,494			1,558
Depreciation and amortization expense		15,547			16,136			47,584			48,085
Long-lived asset impairment		3,240			—			39,194			—
Community reimbursement expense		9,555			—			11,888			—
Total expenses		107,982			119,215			356,304			344,344
Other income (expense):
Interest income		14			59			83			173
Interest expense		(11,141	)		(12,562	)		(34,044	)		(37,728	)
Write down of assets held for sale		—			—			—			(2,340	)
Gain (loss) on facility lease modification and termination, net		(753	)		—			10,487			(97	)
Gain (loss) on disposition of assets, net		(191,032	)		—			(198,388	)		38
Other income (expense)		9			1			2			8
Loss from continuing operations before provision for income taxes		(214,832	)		(20,607	)		(274,505	)		(45,878	)
Provision for income taxes		(132	)		(124	)		(393	)		(371	)
Net loss	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Per share data:							0
Basic net loss per share	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Weighted average shares outstanding — basic		30,730			30,324			30,578			30,236
Weighted average shares outstanding — diluted		30,730			30,324			30,578			30,236
Comprehensive loss	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)

See accompanying notes to unaudited consolidated financial statements.

4

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(unaudited, in thousands)

	Common Stock						Additional Paid-In			Retained			Treasury
	Shares			Amount			Capital			Deficit			Stock			Total
Balance at December 31, 2018		31,273		$	318		$	187,879		$	(149,502	)	$	(3,430	)	$	35,265
Adoption of ASC 842		—			—			—			12,636			—			12,636
Restricted stock awards (cancellations), net		(150	)		(2	)		2			—			—			—
Stock-based compensation		—			—			(978	)		—			—			(978	)
Net loss		—			—			—			(12,984	)		—			(12,984	)
Balance at March 31, 2019		31,123			316			186,903			(149,850	)		(3,430	)		33,939
Restricted stock awards (cancellations), net		346			4			(4	)		—			—			—
Stock-based compensation		—			—			1,638			—			—			1,638
Net loss		—			—			—			(12,534	)		—			(12,534	)
Balance at June 30, 2019		31,469			320			188,537			(162,384	)		(3,430	)		23,043
Restricted stock awards (cancellations), net		(6	)		—			—			—			—			—
Stock-based compensation		—			—			898			—			—			898
Net loss		—			—			—			(20,731	)		—			(20,731	)
Balance at September 30, 2019		31,463			320			189,435			(183,115	)		(3,430	)		3,210
Balance at December 31, 2019		31,441		$	319		$	190,386		$	(172,896	)	$	(3,430	)	$	14,379
Restricted stock awards (cancellations), net		(52	)		—			—			—			—			—
Stock-based compensation		—			—			597			—			—			597
Net loss		—			—			—			(47,181	)		—			(47,181	)
Balance at March 31, 2020		31,389		$	319		$	190,983		$	(220,077	)	$	(3,430	)	$	(32,205	)
Restricted stock awards (cancellations), net		43			—			—			—			—			—
Stock-based compensation		—			—			478			—			—			478
Net loss		—			—			—			(12,753	)		—			(12,753	)
Balance at June 30, 2020		31,432		$	319		$	191,461		$	(232,830	)	$	(3,430	)	$	(44,480	)
Restricted stock awards (cancellations), net		(3	)		—			—			—			—			—
Stock-based compensation		—			—			421			—			—			421
Net loss		—			—			—			(214,964	)		—			(214,964	)
Balance at September 30, 2020		31,429		$	319		$	191,882		$	(447,794	)	$	(3,430	)	$	(259,023	)

See accompanying notes to unaudited consolidated financial statements.

5

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Nine Months Ended September 30,
	2020			2019
Operating Activities
Net loss	$	(274,898	)	$	(46,249	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		47,584			48,085
Amortization of deferred financing charges		1,399			1,237
Deferred income		(217	)		790
Operating lease expense adjustment		(18,460	)		(4,285	)
Loss on disposition of assets, net		198,388			59
Gain on facility lease modification and termination, net		(10,487	)		—
Long-lived asset impairment		39,194			—
Write-down of assets held for sale		—			2,340
Provision for bad debts		2,190			2,182
Stock-based compensation expense		1,494			1,558
Changes in operating assets and liabilities:
Accounts receivable		(3,616	)		(385	)
Property tax and insurance deposits		1,091			690
Prepaid expenses and other		911			(2,001	)
Other assets		(2,056	)		(373	)
Accounts payable		1,101			(4,683	)
Accrued expenses		11,317			430
Federal and state income taxes receivable/payable		(117	)		(103	)
Deferred resident revenue		1			(6	)
Customer deposits		(189	)		(38	)
Net cash used in operating activities		(5,370	)		(752	)
Investing Activities
Capital expenditures		(11,211	)		(14,271	)
Proceeds from disposition of assets		6,396			4,888
Net cash used in investing activities		(4,815	)		(9,383	)
Financing Activities
Proceeds from notes payable		3,673			5,268
Repayments of notes payable		(11,901	)		(16,884	)
Cash payments for financing lease and financing obligations		(361	)		(1,095	)
Deferred financing charges paid		(14	)		(698	)
Net cash used in financing activities		(8,603	)		(13,409	)
Decrease in cash and cash equivalents		(18,788	)		(23,544	)
Cash and cash equivalents and restricted cash at beginning of period		37,063			44,320
Cash and cash equivalents and restricted cash at end of period	$	18,275		$	20,776
Supplemental Disclosures
Cash paid during the period for:
Interest	$	25,855		$	35,723
Lease modification and termination	$	6,791		$	—
Income taxes	$	13		$	505

See accompanying notes to unaudited consolidated financial statements.

6

CAPITAL SENIOR LIVING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

1. BASIS OF PRESENTATION

Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates, and manages senior housing communities throughout the United States. As of September 30, 2020, the Company operated 119 senior housing communities in 22 states with an aggregate capacity of approximately 14,700 residents, including 61 senior housing communities that the Company owned, 34 senior housing communities that the Company leased, and 24 communities that the Company managed on behalf of third parties. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying Consolidated Balance Sheet, as of December 31, 2019, has been derived from audited consolidated financial statements of the Company for the year ended December 31, 2019, and the accompanying unaudited consolidated financial statements, as of and for the three and nine month periods ended September 30, 2020 and 2019, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have not been included pursuant to those rules and regulations. For further information, refer to the financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2020.  The Company meets the SEC’s definition of a “Smaller Reporting Company,” and therefore qualifies for the SEC’s reduced disclosure requirements for smaller reporting companies.

In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position as of September 30, 2020, results of operations for the three and nine month periods ended September 30, 2020 and 2019, and cash flows for the nine month periods ended September 30, 2020 and 2019. The results of operations for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020.

2. GOING CONCERN UNCERTAINTY

A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business.

In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, COVID-19 has caused, and management expects will continue to cause, a decline in the occupancy levels at the Company’s communities, which has negatively impacted, and likely will continue to negatively impact, the Company’s revenues and operating results, which depend significantly on such occupancy levels.  Reduced controllable move-out activity during the pandemic may partially offset future adverse revenue impacts.

In addition, the outbreak of COVID-19 has required the Company to incur, and management expects will require the Company to continue to incur, significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents, including increased costs and expenses relating to supplies and personal protective equipment, testing of the Company’s residents and employees, labor and specialized disinfecting and cleaning services. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents and resulted in reduced occupancies at such communities. At September 30, 2020, the Company had incurred $4.6 million in COVID-19 related expenses since the onset of the pandemic, $1.4 million of which was incurred in the third quarter of 2020.

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 one year 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.

7

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) uncertainty around the impact of COVID-19 on the Company’s operations and financial results, and (2) operating losses and negative cash flows from operations for projected fiscal years 2020 and 2021. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

The Company is implementing plans as discussed below, which includes strategic and cash-preservation initiatives, which are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) improved operating cash flows due to strategic and cash preservation initiatives discussed below, (2) debt forbearance, to the extent available on acceptable terms, and (3) forbearance on rent payments to landlords, to the extent available on acceptable terms.

Strategic and Cash Preservation Initiatives

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

• In the first quarter of 2019, the Company implemented a 3-year operational improvement plan which began to show improved operating results during 2020, prior to the onset of COVID-19, and is expected to continue to drive incremental profitability improvements.

• The Company has implemented additional proactive spending reductions to improve liquidity, including reduced discretionary spending and monitoring capital spending.

• The Company has recently taken measures to exit underperforming leases in order to strengthen the Company’s balance sheet and allow the Company to strategically invest in certain existing communities (see “Note 5- Dispositions and Other Significant Transactions”). Recent actions the Company has taken to improve the Company’s future financial position include:

o In the first quarter of 2020, the Company entered into agreements with two of its largest landlords, Welltower, Inc. (“Welltower”) and Ventas, Inc. (“Ventas”) providing for the early termination of the Master Lease Agreements with such landlords covering certain of its senior housing communities. Pursuant to such agreements, the Company agreed to pay Welltower and Ventas reduced monthly rental amounts, beginning February 1, 2020, and to convert such lease agreements into property management agreements with the Company as manager on December 31, 2020, if such communities have not been transitioned to a successor operator.  At September 30, 2020, five communities had transitioned to a successor operator.  On November 1, 2020, subsequent to quarter-end, 14 Welltower communities transitioned to different operators.  See “Note 12- Subsequent Events.”

o In the first quarter of 2020, the Company also entered into an agreement with Healthpeak Properties, Inc. (“Healthpeak”) providing for the early termination of one of two Master Lease Agreements with Healthpeak covering six of its senior housing communities. This Master Lease Agreement was converted to a management agreement under a REIT Investment Diversification Act (“RIDEA”) structure pursuant to which the Company agreed to manage the communities that were subject to such lease agreement until such communities are sold by Healthpeak.

o In the first quarter of 2020, the Company transitioned one of the communities leased from Healthpeak to a new operator.  On October 15, 2020, subsequent to quarter-end, the Company transitioned a second Healthpeak community to a new operator.  See “Note 12- Subsequent Events.”

• The Company is currently evaluating the opportunity to sell certain communities that would provide positive net proceeds.

• In May 2020, the Company entered into short-term debt forbearance agreements with a number of its lenders and continues to discuss further debt relief with its lenders (see “Note 6- Debt Transactions”). In October 2020, the Company entered into an additional short-term forbearance agreement with Protective Life.

• In May 2020, the Company entered into an agreement with Healthpeak effective April 1, 2020, through the end of the lease term, under which the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities.  The remaining rent is subject to payment by the Company pursuant to a three-year note payable with final payment to be on or before November 1, 2023.  Effective as of November 1, 2020, subsequent to quarter-end, the Company entered into an agreement with Healthpeak to extend the end of the lease term from October 31, 2020 to April 30, 2021 (subject to two possible three-month extensions) and modify the monthly rent such that the amount owed to Healthpeak will be equal to any excess cash flows of these

8

communities.  In addition, the Company will earn a management fee for continuing to manage these communities.  See “Note 12- Subsequent Events.”

• The Company has elected to utilize the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes estimated to be incurred from April 2020 through December 2020.  At September 30, 2020, the Company had deferred $5.0 million in payroll taxes, which was included in accrued expenses on the Company’s Consolidated Balance Sheets.

• In conjunction with the CARES Act, the Company had received approximately $0.6 million in relief from state agencies at September 30, 2020 and has applied for additional federal and state funding.  On November 6, 2020, subsequent to quarter-end, the Company accepted $8.1 million of cash for grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phase 2 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.  See “Note 12- Subsequent Events.”  The Company has also applied for additional grants pursuant to the Provider Relief Fund’s Phase 3 General Distribution, for which the U.S. Department of Health and Human Services (“HHS”) allocated up to $20 billion.  According to HHS' guidance, eligible applicants will receive grant amounts to ensure that they have received approximately 2% of their annual patient care revenue, plus an additional percentage of their change in revenues minus their operating expenses, in each case from patient care attributable to COVID-19.  

• In July 2020, the Company initiated a process which is intended to transfer the operations and ownership of 18 communities that are either underperforming or are in underperforming loan pools to Fannie Mae, the holder of nonrecourse debt on such communities. In conjunction with the agreement, the Company discontinued recognizing revenues and expenses on the properties as of August 1, 2020 but continues to manage the communities on behalf of Fannie Mae.  The Company earns a management fee for providing such services.  As a result of events of default and the appointment of a receiver to take possession of the communities, the Company concluded that, in accordance with ASC 610-20, “Gains and Losses from the Derecognition of Nonfinancial Assets” a $191.0 million loss should be taken due to the derecognition of the assets as a result of the loss of control of the assets, which occurred during the three months ended September 30, 2020.  See “Note 6- Debt Transactions.”  Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities is extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, “Debt.”  At September 30, 2020, the Company included $217.7 million in outstanding debt in the current portion of notes payable, net of deferred loan costs, and $6.1 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties.  

• The Company is evaluating possible debt and capital options.

The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, or at all, many of which have been made worse or more unpredictable by COVID-19.  Accordingly, management determined it was not probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.  If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued.  

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

9

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenders as collateral pursuant to letters of credit. The deposits must remain so long as the letters of credit are outstanding which are subject to renewal annually.

The following table sets forth the Company’s cash and cash equivalents and restricted cash (in thousands):

	September 30,
	2020		2019
Cash and cash equivalents	$	14,293	$	7,703
Restricted cash		3,982		13,073
	$	18,275	$	20,776

Long-Lived Assets and Impairment

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information to determine whether impairment indicators exist.

If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. 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 and disposition, calculated utilizing the lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period.  Asset groups were established at the individual property level and consist of property and equipment, net for owned properties and property and equipment, net and right-of-use assets, net for leased properties.  Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the Company’s assumptions. Impairment, if any, is recorded in the period in which the impairment occurred.

Assets Held for Sale

Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends, and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates.

During the first quarter of 2019, the Company classified one senior housing community located in Kokomo, Indiana, as held for sale, resulting in $4.9 million being reclassified as assets held for sale and $3.5 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value, net of costs of disposal of $4.9 million. As the fair value was less than the carrying value of $7.2 million, a remeasurement write-down of approximately $2.3 million was recorded to adjust the carrying values of the assets held for sale at March 31, 2019. The senior living community was sold during the second quarter of 2019 for its carrying value.  

During the third quarter of fiscal 2019, the Company classified two communities, located in Springfield, Missouri and Peoria, Illinois, as assets held for sale resulting in net assets of $24.4 million being reclassified to assets held for sale and $44.4 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Company’s Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value of $62.8 million, net of disposal costs. The two senior living communities were sold during the fourth quarter of 2019.  There were no senior housing communities classified as held for sale by the Company at September 30, 2020 or December 31, 2019.

10

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements at September 30, 2020 or December 31, 2019.

Revenue Recognition

Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided, which totaled approximately $84.7 million and $286.1 million for the three and nine months ended September 30, 2020, respectively, and approximately $109.4 million and $333.4 million for the three and nine months ended September 30, 2019, respectively. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. At June 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred resident fees paid by residents prior to the month housing and support services were to be provided totaling approximately $5.0 million and $4.3 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2020. At June 30, 2019 and December 31, 2018, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.1 million and $4.5 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2019. The Company had contract liabilities for deferred resident fees totaling approximately $4.3 million, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at September 30, 2020 and December 31, 2019. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears and totaled approximately $0.1 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, and approximately $1.0 million and $3.1 million for the three and nine months ended September 30, 2019, respectively, as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The Company's senior housing communities have residency agreements that generally require the resident to pay a community fee prior to moving into the community and are recorded initially by the Company as deferred revenue. At September 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred community fees totaling approximately $1.6 million and $2.2 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets.

The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $1.0 million and $3.2 million during the three and nine months ended September 30, 2020, respectively.  The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $0.7 million and $1.9 million during the three and nine months ended September 30, 2019, respectively.

During the first quarter of 2020, the Company entered into management agreements whereby it manages certain communities under a contract which provides periodic management fee payments to the Company and reimbursement for costs and expenses related to such communities. In addition, during the third quarter of 2020, the Company entered into a management agreement with Fannie Mae, whereby it manages the 18 communities of which it is in the process of legally transferring the ownership to Fannie Mae.  The Company will continue to manage the communities until ownership of such communities has legally transferred to Fannie Mae.  See “Note 6- Debt Transactions.”  Management fees are generally determined by an agreed upon percentage of gross revenues (as defined in the management agreement). The Company has determined that all community management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company's estimate of the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred. Such revenue is included in "community reimbursement revenue" on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The related costs are included in "community reimbursement expense" on the Company’s Consolidated Statements of Operations and Comprehensive Loss.  The Company recognized revenue from management fees of $0.6 million and $0.8 million, during the three and nine months ended September 30, 2020, respectively.  The Company recognized revenue from reimbursed costs incurred on behalf of managed communities of $9.6 million and $11.9 million, during the three and nine months ended September 30, 2020, respectively.

Lease Accounting

11

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

Modifications to existing lease agreements, including changes to the lease term or payment amounts, are reviewed to determine whether they result in a separate contract. For modifications that do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and liabilities at the effective date of the modification.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

Credit Risk and Allowance for Doubtful Accounts

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $7.9 million and $8.6 million at September 30, 2020, and December 31, 2019, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.

Self-Insurance Liability Accruals

The Company offers full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Additionally, the Company may be liable for an Employee Shared Responsibility Payment (“ESRP”) pursuant to the Affordable Care Act. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential coverage (“MEC”) to at least 70% of full-time employees and their dependents, or did offer MEC to at least 70% of full-time employees and their dependents that did not meet the affordable or minimum value criteria and had one or more full-time employees certified as being allowed the premium tax credit. The IRS determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by employees. Management believes that the liabilities recorded and reserves established for outstanding losses and expenses are adequate to cover the ultimate cost of losses and expenses incurred at September 30, 2020; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.

12

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

Income Taxes

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. The effective tax rates for the three and nine months ended September 30, 2020 and 2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. The Company consolidates 38 Texas communities for purposes of the TMT, which contributes to the overall provision for income taxes.

Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which the Company expects those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its U.S. and state net deferred tax assets.  The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be realized. However, in the event that the Company were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period such determination was made. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.

The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that such position is “more likely than not” to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state tax audits for years prior to 2016 and 2015, respectively.

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the CARES Act were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. Future regulatory guidance under the FFCR Act and the CARES Act remains forthcoming, and such guidance could ultimately increase or lessen their impact on the Company’s business and financial condition.

13

Net Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Net loss allocated to unvested restricted shares		—			—			—			—
Undistributed net loss allocated to common shares	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Weighted average shares outstanding – basic		30,730			30,324			30,578			30,236
Effects of dilutive securities:
Employee equity compensation plans		—			—			—			—
Weighted average shares outstanding – diluted		30,730			30,324			30,578			30,236
Basic net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)

Awards of unvested restricted stock and restricted stock units representing approximately 685,000 shares, as well as 147,000 outstanding stock options, were antidilutive as a result of the net loss reported by the Company for the three and nine months ended September 30, 2020. Awards of unvested restricted stock and restricted stock units representing approximately 1,128,000 shares and approximately 147,000 stock options, were antidilutive as a result of the net loss reported by the Company for the three and nine months ended September 30, 2019. Accordingly, such shares and options were not included in the calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2020 and 2019.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity (deficit). All shares acquired by the Company have been purchased in open-market transactions. There were no repurchases of the Company’s common stock during the nine months ended September 30, 2020 or fiscal 2019.

Recently Issued Accounting Guidance

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020, the adoption of which did not have a material impact on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

4. IMPAIRMENT OF LONG-LIVED ASSETS

During the first quarter of 2020, the Company determined that the modifications of certain of its Master Lease Agreements (see “Note 5- Dispositions and Other Significant Transactions”) and adverse impacts on the Company’s operating results resulting from the COVID-19 pandemic were indicators of potential impairment of its long-lived assets.  As such, the Company evaluated its long-lived asset groups for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets.    

14

In March 2020, the Company entered into forbearance agreements with Ventas and Welltower, which, among other things, provide that the lease agreements covering the communities will be converted into property management agreements with the Company as manager on December 31, 2020 if the properties have not transitioned to a successor operator on or prior to such date (see “Note 5- Dispositions and Other Significant Transactions”). The Company’s leases with Ventas and Welltower were originally scheduled to mature during 2025 and 2026.  Due to the modification of the lease term and the expected impacts of the COVID-19 pandemic, the Company evaluated certain owned communities and all leased communities for impairment and tested the recoverability of these assets by comparing projected undiscounted cash flows associated with these assets to their respective historical carrying values.  For communities in which the historical carrying value was not recoverable, the Company compared the estimated fair value of the assets to their carrying amount and recorded an impairment charge for the excess of carrying amount over fair value.  For the operating lease right-of-use assets, fair value was estimated utilizing a discounted cash flow approach based on historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio.  The fair values of the property and equipment, net of these communities, were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage.  These fair value measurements are considered Level 3 measurements within the valuation hierarchy.  During the first quarter of 2020, the Company recorded non-cash impairment charges of $6.2 million and $29.8 million to operating lease right-of-use assets, net and property and equipment, net, respectively.

During the three months ended September 30, 2020, the Company recorded non-cash impairment charges of $1.3 million and $1.1 million to operating lease right-of-use assets, net and property and equipment, net, respectively, due to a change in the useful life of 15 of its communities, all of which transferred to new operators subsequent to quarter-end (see “Note 12, Subsequent Events,” for discussion of these properties’ transitions).  Due to the changes in useful lives, the Company concluded the assets related to those properties had indicators of impairment and the carrying values were not fully recoverable.  The fair values of the right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio.  In addition, during the three months ended September 30, 2020 the Company recorded a non-cash impairment charge of $0.8 million to property and equipment, net of one owned community.  The fair value of the property and equipment, net of this community was determined was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities.  This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their fair value.  In total, the Company recognized non-cash impairment charges of $3.2 million and $39.2 million for the three and nine months ended September 30, 2020, respectively.  The Company did not record any impairment charges for the three or nine months ended September 30, 2019.

5. DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS

Disposition of Boca Raton, Florida Community

Effective January 15, 2020, the Company’s leased senior living community located in Boca Raton, Florida transitioned to a new operator.  In conjunction with the transition, the Company paid the lessor, Healthpeak, a one-time $0.3 million termination payment as a prepayment against the remaining lease payments and was relieved of any additional obligation to Healthpeak with regard to that property and the lease was terminated as to this property.  The Company recorded an approximate $1.8 million gain on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

Disposition of Merrillville, Indiana Community

Effective March 31, 2020, the Company sold one community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in cash proceeds after paying customary closing costs.  The community was unencumbered by any mortgage debt.  The Company recognized a loss of $7.4 million on the disposition, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.  The community was comprised of 171 assisted living units and 42 memory care units.

Early Termination of Master Lease Agreements

As of December 31, 2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”).  The Company transitioned one community to a different operator effective January 15, 2020. During the first quarter of 2020, the Company entered into agreements, which restructured or terminated certain of its Master Lease Agreements with each of its landlords as further described below.  After giving effect to such transactions, the disposition of the Company’s Boca Raton community in January 2020, and the disposition of five communities in September 2020, as of September 30, 2020, the Company leased 34 senior living communities from the REITs and managed six senior living communities for the account of Healthpeak.

15

Ventas

As of December 31, 2019, the Company leased seven senior housing communities from Ventas.  The term of the Ventas lease agreement was scheduled to expire on September 30, 2025.  On March 10, 2020, the Company entered into an agreement with Ventas (as amended, the “Ventas Agreement”), providing for the early termination of its Master Lease Agreement with Ventas covering all seven communities.  Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreement.  In addition, the Ventas Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreement during the forbearance period, which terminates on December 31, 2020 absent any defaults by the Company.  In conjunction with the Ventas Agreement, the Company released to Ventas $4.1 million in security deposits and $2.5 million in escrow deposits held by Ventas, and Ventas reduced the amounts and term of the Company’s lease payments, and effectively eliminated the Company’s lease termination obligation, which was $11.4 million at December 31, 2019.  The Ventas Agreement provides that Ventas can terminate the Master Lease Agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Ventas may elect to enter into a property management agreement with the Company as manager or transition the properties to a new operator. If, as of December 1, 2020, Ventas has not delivered a termination notice for any communities subject to the Master Lease Agreement, then, with respect to any such communities, Ventas will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Ventas Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreement during the applicable forbearance period and Ventas will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Ventas and modification of the lease term pursuant to the Ventas Agreement was determined to be a modification of the Master Lease Agreement.  As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the modified terms and determined that the lease continued to be classified as an operating lease until the communities transitioned to a different operator or management agreement, at which time the lease would terminate.  The modification resulted in a reduction to the lease termination obligation, lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets by approximately $11.4 million, $51.6 million, and $47.8 million, respectively, during the first quarter of 2020.  The Company recognized a net gain of approximately $8.4 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020 and was primarily due to the impact of the change in lease term on certain of the right-of-use asset balances.  As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020.  See “Note 4- Impairment of Long Lived Assets.”

Welltower

As of December 31, 2019, the Company leased 24 senior housing communities from Welltower. The initial terms of the Welltower lease agreements were scheduled to expire on various dates from April 2025 through April 2026. On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between it and Welltower covering all 24 communities.  Pursuant to the Welltower Agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements.  In addition, the Welltower Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company.  In conjunction with the Welltower Agreement, the Company agreed to release $6.5 million in letters of credit to Welltower, which were released during the three months ended June 30, 2020.  The Welltower Agreement provides that Welltower can terminate the agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Welltower may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Welltower has not delivered a termination notice for any communities subject to the Master Lease Agreements, then, with respect to any such communities, Welltower will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Welltower Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and Welltower will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then- existing Master Lease Agreements with Welltower and modification to the lease term pursuant to the Welltower Agreement was determined to be a

16

modification of the Master Lease Agreements.  As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that the each of the leases continued to be classified as an operating lease until the applicable communities transitioned to a different operator or management agreement, at which time such lease would terminate.  The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020.  The Company recognized a gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.  As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020.  See “Note 4- Impairment of Long Lived Assets.”

During the three months ended September 30, 2020, Welltower elected to terminate the agreement with respect to five communities, all of which transferred to a different operator on September 10, 2020.  The Company recorded an approximate $0.7 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020.

Healthpeak

On March 1, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026.  Such Master Lease Agreement terminated and was converted into a Management Agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak.  Pursuant to the Management Agreement, the Company will receive a management fee equal to 5% of gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities.  In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak.  The Company remeasured the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets at December 31, 2019 to zero, resulting in a net loss of $7.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

On May 20, 2020, the Company entered into an additional agreement with Healthpeak, effective April 1, 2020 until the end of the lease term. Pursuant to such agreement, the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities.  The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment including accrued interest from November 1, 2021, to be made on or before November 1, 2023.  At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  Given that the total minimum lease payments and the lease term remain unchanged, the Company has elected not to evaluate the deferral as a rent concession and will not account for the deferral as a modification to the existing lease agreement.  The Company concluded the concessions provided to the Company were not contemplated by the existing lease. The Company will account for the concession in the form of a deferral as if the lease terms were unchanged.  Accordingly, once interest begins to accrue on the deferral amount, the Company will record interest expense and accrued interest payable on the portion of the deferral amount that has yet to be paid on a monthly basis until such interest payments become due.  The Company will continue to account for the lease liability and right-of-use asset using the rights and obligations of the existing lease through the end of the lease term.

Disposition of Kokomo, Indiana Community

Effective May 1, 2019, the Company closed the sale of one senior housing community located in Kokomo, Indiana, for a total purchase price of $5.0 million and received approximately $1.4 million in net proceeds after retiring outstanding mortgage debt of $3.5 million and paying customary transaction and closing costs (the “Kokomo Sale Transaction”). The community was comprised of 138 assisted living units. The Company had reported these assets as held for sale at March 31, 2019 and recorded a remeasurement write-down of approximately $2.3 million to adjust the carrying values of these assets to the sales price, less costs to sell, which is included in the write down of assets held for sale net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2019.

6. DEBT TRANSACTIONS

Transactions Involving Certain Fannie Mae Loans

The CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties.  On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer

17

of one Fannie Mae loan covering one property.  On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of three Fannie Mae loans covering two properties.   The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and June 2020 and Fannie Mae agreed to forbear in exercising its rights and remedies during such period.  During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.  

On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one month extension of the forbearance agreements between it and Fannie Mae covering 23 properties.   The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period.  By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.  

On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for five properties with forbearance agreements.  The Company elected not to pay $3.9 million on the loans for the remaining 18 properties as of that date as it initiated a process which is 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 default, Fannie Mae filed a motion with the United States District Court requesting that a receiver be appointed over the 18 properties, which was approved by the court.  The Company agreed to continue to manage the 18 communities, subject to earning a management fee, until legal ownership of the properties is transferred to Fannie Mae.  Management fees earned from the properties are recognized as revenue when earned.  In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for reasonable operating expenses incurred on behalf of any of the 18 communities under the receivership order.  As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default.  In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance ASC 610-20.  As such, the Company derecognized the assets and recorded a loss of $191.0 million on the transaction, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss during the three and nine months ended September 30, 2020.  Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470.  At September 30, 2020, the Company included $217.7 million in outstanding debt in current portion of notes payable, net of deferred loan costs, and $6.1 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties.

Debt Forbearance Agreement on BBVA Loan

The Company also entered into a loan amendment with another lender, BBVA, USA, related to a loan covering three properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to principal and due in June 2021.  At September 30, 2020, the Company had deferred payments of $0.9 million related to the BBVA loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

Debt Forbearance Agreement on HUD Loan

The Company also entered into a debt forbearance agreement with ORIX Real Estate Capital, LLC (“ORIX”), related to a U.S. Department of Housing and Urban Development (“HUD”) loan covering one property pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period.  At September 30, 2020, the Company had deferred payments of $0.1 million related to the ORIX loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company (“Protective Life”), related to loans covering 10 properties.  These amendments allow the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.  At September 30, 2020, the Company had deferred payments of $3.2 million related to the Protective Life loans, of which $1.7 million was included in accrued expenses in the Company’s Consolidated Balance Sheets.  The remaining $1.5 million of which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  Subsequent to quarter-end, the Company entered into amendments to its loan agreements with Protective Life, which allow the Company to defer principal and interest

18

payments for October, November, and December 2020 and to continue to defer principal payments through September 30, 2021.  See “Note 12- Subsequent Events.”

Letters of Credit

The Company previously issued standby letters of credit with Wells Fargo, totaling approximately $3.4 million, for the benefit of Hartford Financial Services (“Hartford”) in connection with the administration of workers’ compensation.  On August 27, 2020, the available letters of credit were increased to $4.0 million, all of which remained outstanding as of September 30, 2020.

The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately $6.5 million, for the benefit of Welltower, in connection with certain leases between Welltower and the Company.  The letters of credit were surrendered and paid to Welltower in conjunction with the Welltower Agreement during the quarter ended June 30, 2020.

The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of Healthpeak in connection with certain leases between Healthpeak and the Company.  The letters of credit were released to the Company during the first quarter of 2020 and were included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.

Notes Payable

The senior housing communities owned by the Company and encumbered by mortgage debt are provided as collateral under their respective loan agreements. At September 30, 2020 and December 31, 2019, these communities carried a total net book value of approximately $883.7 million and $898.0 million, respectively, with total mortgage loans outstanding, excluding deferred loan costs, of approximately $921.6 million and $926.5 million, respectively.

On June 15, 2020, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $2.2 million. The finance agreement has a fixed interest rate of 4.60% with the principal being repaid over a 10-month term.  On May 20, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Forbearance”), effective April 1, 2020, through the lease term ending October 31, 2020, to defer a percentage of rent payments.  At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  See “Note 5- Dispositions and Other Significant Transactions.” In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the terms of the respective notes. At September 30, 2020 and December 31, 2019, the Company had gross deferred loan costs of approximately $14.3 million and $14.3 million, respectively. Accumulated amortization was approximately $7.1 million and $5.7 million at September 30, 2020 and December 31, 2019, respectively. Except as noted below, the Company was in compliance with all aspects of its outstanding indebtedness as of September 30, 2020 and December 31, 2019.  Pursuant to the forbearance agreements described above under “Transactions Involving Certain Fannie Mae Loans,” the Company withheld loan payments due under loan agreements with Fannie Mae covering certain of the Company’s communities for the months of April through September of 2020.  Additionally, the Company does not expect to be in compliance with a certain financial covenant of its loan agreement with Fifth Third Bank, on the Company’s Autumn Glen and Cottonwood Village properties, as of September 30, 2020, in which a minimum debt service coverage ratio must be maintained.  However, cure provisions within the debt agreement allow the Company to make a principal payment to bring the debt service coverage ratio into compliance.  The Company is in active negotiations with Fifth Third Bank to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be reached. If a mutually agreed upon solution is not reached and the Company does not exercise its rights to cure the noncompliance with the debt covenant, the Company may be found in default of the debt agreement.  In the event of default, Fifth Third has the right to declare all amounts outstanding to be immediately due and payable.  As such, the Company included $31.5 million in outstanding debt related to those properties in current portion of notes payable, net of deferred loan costs, on the Company’s Consolidated Balance Sheets at September 30, 2020.  

7. EQUITY

Preferred Stock

The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Company’s board of directors without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock. No preferred stock was outstanding as of September 30, 2020 or December 31, 2019.

19

Share Repurchases

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. Shares of stock repurchased under the program will be held as treasury shares. Pursuant to this authorization, during fiscal 2009, the Company purchased 349,800 shares at an average cost of $2.67 per share for a total cost to the Company of approximately $0.9 million. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during the first quarter of fiscal 2016, the Company purchased 144,315 shares of its common stock at an average cost of $17.29 per share for a total cost to the Company of approximately $2.5 million. All such purchases were made in open market transactions. The Company has not purchased any additional shares of its common stock pursuant to the Company’s share repurchase program during the three or nine months ended September 30, 2020 or fiscal 2019.

8. STOCK-BASED COMPENSATION

The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Loss based on their fair values.

On May 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”). The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000 shares of common stock plus reserved shares not issued or subject to outstanding awards under the 2007 Plan, and the Company has reserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. Effective March 26, 2019, the 2007 Plan was terminated and no additional awards will be granted under the 2007 Plan.

Stock Options

The Company may periodically grant stock options as a long-term retention tool that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder interests with those of our employees and directors. The Company’s stock options generally vest over a period of one to five years and the related expense is amortized on a straight-line basis over the vesting period. A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2020 is presented below:

	Outstanding at Beginning of Period		Granted	Exercised	Cancelled	Outstanding at End of Period
Options		147,239	–	–	–		147,239

At September 30, 2020, the options outstanding had no intrinsic value, a weighted-average remaining contractual life of 8.25 years, and a weighted average exercise price of $7.46.  At September 30, 2020, there was approximately $0.2 million of total unrecognized compensation expense, which is expected to be recognized over a weighted average period of 1.25 years.  At September 30, 2020, 48,588 options were exercisable, and the remaining options were unvested.  There were no stock options granted during the three or nine months ended September 30, 2020.

20

Restricted Stock

The Company periodically grants restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance and market-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock awards with performance and market-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement.  Performance goals are evaluated periodically, and if such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed for performance-based awards.

The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted stock awards activity and related information for the nine months ended September 30, 2020 is presented below:

	Outstanding at Beginning of Period		Granted	Vested			Cancelled			Outstanding at End of Period
Shares		1,089,346	–		(301,740	)		(102,359	)		685,247

The restricted stock outstanding at September 30, 2020 had an intrinsic value of approximately $0.5 million.  There were no grants of restricted stock awards or restricted stock units during the three or nine months ended September 30, 2020.

The Company recognized $0.4 million and $1.5 million in stock-based compensation expense during the three and nine months ended September 30, 2020, respectively, and $0.9 million and $1.6 million during the three and nine months ended September 30, 2019, respectively, which is primarily associated with employees whose corresponding salaries and wages are included within general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Unrecognized stock-based compensation expense was $1.7 million as of September 30, 2020. If all awards granted are earned, the Company expects this expense to be recognized over a one to three-year period for performance and market-based stock awards and a one to four-year period for nonperformance-based stock awards, options and units.

9. CONTINGENCIES

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

10. FAIR VALUE MEASUREMENTS

Financial Instruments

The carrying amounts and fair values of financial instruments at September 30, 2020 and December 31, 2019, are as follows (in thousands):

	September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	14,293	$	14,293	$	23,975	$	23,975
Restricted cash		3,982		3,982		13,088		13,088
Notes payable, excluding deferred loan costs		923,048		921,567		930,085		899,326

The following methods and assumptions were used in estimating the Company’s fair value disclosures for financial instruments:

Cash and cash equivalents and Restricted cash: The carrying amounts reported in the Company’s Consolidated Balance Sheets for cash and cash equivalents and restricted cash approximate fair value, which represent level 1 inputs as defined in the accounting standards codification.

21

Notes payable, excluding deferred loan costs: The fair value of notes payable, excluding deferred loan costs, is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent level 2 inputs as defined in the accounting standards codification.

Assets Held for Sale: During the three and nine months ended September 30, 2020, no senior living communities were classified as assets held for sale.  During the first quarter of 2019, the Company classified one senior living community as held for sale and recognized a remeasurement write-down of approximately $2.3 million to adjust the carrying values of the assets to their fair value, net of cost of disposal.  The senior living community was sold during the second quarter of 2019 for its carrying value.  During the third quarter of 2019, the Company classified two senior living communities as held for sale, which required no remeasurement to adjust the carrying values to the fair values.

The Company determines, using level 2 inputs as defined in the accounting standards codification, the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions.

Operating Lease Right-Of-Use Assets

The Company recorded non-cash impairment charges to operating lease right-of-use assets, net of $1.3 million and $7.5 million for the three and nine months ended September 30, 2020, respectively.  The Company recognized impaired operating lease right-of-use assets, net at their fair values of $15.0 million and $0.5 million at March 31, 2020 and September 30, 2020 respectively.  The fair values of the right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio of 1.1. The range of discount rates utilized was 7.7% to 10.3%, depending upon the property type and geographical location of the respective community.  See “Note 4- Impairment of Long-Lived Assets.”

Property and Equipment, Net

During the three and nine months ended September 30, 2020, the Company recorded non-cash impairment charges of $1.9 million and $31.7 million to property and equipment, net, respectively.  The fair value of the impaired assets was $10.5 million and $12.5 million at March 31, 2020 and September 30, 2020, respectively.  At March 31, 2020, the fair values of the property and equipment, net of these communities were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage.  At September 30, 2020, the fair value of the property and equipment, net of the owned community was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities.  The fair values of the property and equipment, net of the leased communities were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market capitalization rates. All of the aforementioned fair value measurements are considered Level 3 measurements within the valuation hierarchy.

The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.

As of September 30, 2020, there was a wide range of possible outcomes as a result of the COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impacts. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease, the duration and degree to which visitors are restricted from the Company's communities, the effect of the pandemic on the demand for senior living communities, the degree to which the Company may receive government financial relief and the timing thereof, and the duration and costs of the Company’s response efforts. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

11. LEASES

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present

22

value of future minimum lease payments. As of September 30, 2020, the weighted average discount rate and average remaining lease terms of the Company's operating leases was 4.1% and 0.4 years, respectively. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method.  As of September 30, 2020, the weighted average discount rate and average remaining lease term of the Company's financing leases was 7.0% and 3.3 years, respectively. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

The Company has operating leases for various real estate (primarily senior housing communities) and equipment as well as financing leases for certain vehicles. As of September 30, 2020, the Company leased 34 senior housing communities from certain REITs. Under these facility lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. Additionally, facility leases may include contingent rent increases when certain operational performance thresholds are surpassed, at which time the right-of-use assets and lease liability will be remeasured.

The recoverability of assets and depreciable life of leasehold improvements are limited by expected lease terms. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees. As of September 30, 2020, the Company was not in compliance with certain provisions of the Welltower Agreement and the Ventas Agreement due to the Company’s events of default regarding certain Fannie Mae loan agreements (see “Note 6- Debt Transactions”).  Ventas and Welltower subsequently waived the defaults under the Ventas Agreement and the Welltower Agreement, respectively.  The Company was in compliance with all other lease covenants at September 30 2020.  As of December 31, 2019, the Company was not in compliance with certain financial covenants with regard to its Master Lease Agreements with Ventas and Welltower.  The Company subsequently entered into the Ventas Agreement and the Welltower Agreement with respect to such defaults. Under the agreements, the Company does not have to comply with certain financial covenants of the respective Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company under such agreements.  The Company was in compliance with all other lease covenants at December 31, 2019.

A summary of operating and financing lease expense (including the respective presentation on the consolidated statement of operations) and cash flows from leasing transactions is as follows:

	Nine Months Ended September 30,
Operating Leases (in thousands)	2020		2019
Facility lease expense	$	23,234	$	42,706
General and administrative expenses		495		238
Operating expenses, including variable lease expense of    $4,499 and $4,616 in 2020 and 2019, respectively		4,760		5,070
Total operating lease costs	$	28,489	$	48,014
Operating lease expense adjustment		18,460		4,285
Operating cash flows from operating leases	$	46,949	$	52,299

	Nine Months Ended September 30,
Financing Leases (in thousands)	2020		2019
Depreciation and amortization	$	110	$	—
Interest expense: financing lease obligations		25		—
Total financing lease costs		135		—
Operating cash flows from financing leases	$	110	$	—
Financing cash flows from financing leases		25		—
Total cash flows from financing leases	$	135	$	—

23

Future minimum lease payments associated with operating lease liabilities recognized on the Company’s Consolidated Balance Sheets as of September 30, 2020, are as follows (in thousands):

Year Ending December 31,	Operating Leases			Financing Leases
2020 (excluding the nine months ended September 30, 2020)	$	8,727		$	39
2021		321			155
2022		132			155
2023		85			145
2024		47			7
Thereafter		3			2
Total	$	9,315		$	503
Less: Amount representing interest (present value discount)		(205	)		(52	)
Present value of lease liabilities	$	9,110		$	451
Less: Current portion of lease liabilities		(8,845	)		(126	)
Lease liabilities, net of current portion	$	265		$	325

12. SUBSEQUENT EVENTS

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

Effective October 1, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties.  These amendments allow the Company to defer interest payments for October, November, and December 2020 and to extend the deferral period of principal payments through September 1, 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.

Disposition of St. Louis, Missouri Community

Effective October 15, 2020, the Company’s leased senior living community located in St. Louis, Missouri transitioned to a new operator.  In conjunction with the transition, the Company was relieved of any additional obligation to Healthpeak with regard to that property.  The transition was the second transaction under the Company’s October 22, 2019 agreement with Healthpeak.  

Disposition of 14 Welltower Communities

Effective November 1, 2020, 14 of the Company’s leased senior living communities transitioned to new operators.  The transitions were the second and third transactions under the Welltower Agreement.

Healthpeak Lease Amendment

Effective as of November 1, 2020, subsequent to quarter-end, the Company entered into an agreement with Healthpeak to extend the end of the lease term from October 31, 2020 to April 30, 2021 (subject to two possible three month extensions).  Pursuant to such agreement, the Company will begin paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities.

Acceptance of Provider Relief Fund Grant

On November 6, 2020, the Company accepted $8.1 million of cash for grants from the Provider Relief Fund’s Phase 2 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

24

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Certain information contained in this report constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. Examples of forward-looking statements, include, without limitation, those relating to the Company’s future business prospects and strategies, financial results, working capital, liquidity, capital needs and expenditures, interest costs, insurance availability and contingent liabilities. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially from those indicated in the forward-looking statements, including, but not limited to, continued spread of COVID-19, including the speed, depth, geographic reach and duration of such spread, new information that may emerge concerning the severity of COVID-19, the actions taken to prevent or contain the spread of COVID or treat its impact, the legal, regulatory and administrative developments that occur at the federal, state and local levels in response to the COVID-19 pandemic, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company’s response efforts; the impact of COVID-19 on Company’s ability to continue as a going concern; the Company’s ability to generate sufficient cash flows from operations, additional proceeds from debt refinancing, and proceeds from the sale of assets to satisfy its short and long-term debt and lease obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities; the Company’s ability to obtain additional capital on terms acceptable to it; the Company’s ability to extend or refinance its existing debt as such debt matures; the Company’s compliance with its debt and lease agreements, including certain financial covenants, and the risk of cross-default in the event such non-compliance occurs; the Company’s ability to complete acquisitions and dispositions upon favorable terms or at all, including the transfer of legal ownership of certain communities currently managed by the Company on behalf of Fannie Mae, which holds non-recourse debt on such communities; the risk of oversupply and increased competition in the markets which the Company operates; the risk of oversupply and increased competition in the markets which the Company operates; the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirements; the departure of the Company’s key officers and personnel; the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes; the risks associated with a decline in economic conditions generally; the adequacy and continued availability of the Company’s insurance policies and the Company’s ability to recover any losses it sustains under such policies; changes in accounting principles and interpretations; and the other risks and factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission (“SEC”), including those set forth under “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q.

Overview

The following discussion and analysis addresses (i) the Company’s results of operations for the three and nine months ended September 30, 2020 and 2019, and (ii) liquidity and capital resources of the Company, and should be read in conjunction with the Company’s consolidated financial statements contained elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The Company is one of the largest operators of senior housing communities in the United States. Our operating strategy is to provide value to our 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. We provide senior living services to the 75+ population, including independent living, assisted living, and memory care services at reasonable prices. Many of our communities offer a continuum of care to meet its residents’ needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care, and is bridged by home care through independent home care agencies, sustains residents’ autonomy and independence based on their physical and mental abilities.

As of September 30, 2020, the Company operated 119 senior housing communities in 22 states with an aggregate capacity of approximately 14,700 residents, including 61 senior housing communities that the Company owned, 34 senior housing communities that the Company leased, and 24 senior housing communities that the Company managed on behalf of third parties.

COVID-19 Pandemic

A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from COVID-19. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business.

25

In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, COVID-19 has caused, and management expects will continue to cause, a decline in the occupancy levels at the Company’s communities, which has negatively impacted, and will likely continue to negatively impact the Company’s revenues and operating results, which depend significantly on such occupancy levels.  During the second half of March, new resident leads, visits, and move-in activity began to decline compared to typical levels. This trend intensified throughout the third quarter of 2020, and began to adversely impact occupancy, resulting in decrease in consolidated senior housing occupancy (excluding the community sold effective March 31, 2020) from 79.9% for the first quarter to 77.6% for the third quarter of 2020. We expect further deterioration of resident fee revenue resulting from fewer move-ins and typical resident attrition inherent in our business, which may increase due to the impacts of COVID-19.  Lower than normal controllable move-out activity during the COVID-19 pandemic may partially offset future adverse revenue impacts.

In addition, the outbreak of COVID-19 has required the Company to incur, and management expects will require the Company to continue to incur, significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents at such communities and has resulted in reduced occupancies at such communities. During the second half of March 2020, the Company began to incur incremental direct costs to prepare for and respond to the COVID-19 pandemic, and such costs increased throughout the third quarter of 2020.  Facility operating expense for the three and nine months ended September 30, 2020 includes $1.4 million and $4.6 million, respectively, of incremental and direct costs as a result of the COVID-19 pandemic, including costs for acquisition of additional personal protective equipment (“PPE”), cleaning and disposable food service supplies, testing of the Company’s residents and employees, enhanced cleaning and environmental sanitation costs, and increased labor expense. The Company expects such costs to continue.  We are unable to reasonably predict the total amount of costs we will incur related to the pandemic, but such costs are likely to be substantial.

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

Going Concern and Management’s Plan

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 for the 12-month period following 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) uncertainty around the impact of COVID-19 on the Company’s operations and financial results (see “COVID-19 Pandemic” above), and (2) operating losses and negative cash flows from operations for projected fiscal year 2020 and 2021. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

The Company is implementing plans as discussed below, which includes strategic and cash-preservation initiatives, which are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the

26

date its financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) improved operating cash flows due to strategic and cash preservation initiatives discussed below, (2) debt forbearance, to the extent available on acceptable terms, and (3) forbearance on rent payments to landlords, to the extent available on acceptable terms.

Strategic and Cash Preservation Initiatives

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

• In the first quarter of 2019, the Company implemented a three-year operational improvement plan which began to show improved operating results in 2020, prior to the onset of COVID-19, and is expected to continue to drive incremental profitability improvements.

• The Company has implemented additional proactive spending reductions to improve liquidity, including reduced discretionary spending and monitoring capital spending.

• The Company has recently taken measures to exit underperforming leases in order to strengthen the Company’s balance sheet and allow the Company to strategically invest in certain existing communities. Recent actions the Company has taken to improve the Company’s future financial position include:

o In the first quarter of 2020, the Company entered into agreements with two of its largest landlords, Welltower, Inc. (“Welltower”) and Ventas, Inc. (“Ventas”) providing for the early termination of the Master Lease Agreements with such landlords covering certain of our senior housing communities. Pursuant to such agreements, the Company agreed to pay Welltower and Ventas reduced monthly rental amounts, beginning February 1, 2020, and to convert such lease agreements into property management agreements with the Company as manager on December 31, 2020, if such communities have not been transitioned to a successor operator.  At September 30, 2020, five communities had transitioned to a successor operator.  On November 1, 2020, 14 Welltower communities transitioned to different operators.  

o In the first quarter of 2020, the Company also entered into an agreement with Healthpeak Properties, Inc. (“Healthpeak”) providing for the early termination of one of two Master Lease Agreements with Healthpeak covering six of its senior housing communities. This Master Lease Agreement was converted to a management agreement under a REIT Investment Diversification Act (“RIDEA”) structure pursuant to which the Company agreed to manage the communities that were subject to such lease agreement until such communities are sold by Healthpeak.  

o In the first quarter of 2020, the Company transitioned one of the communities leased from Healthpeak to a new operator.  On October 15, 2020, the Company transitioned a second Healthpeak community to a new operator.

• The Company is currently evaluating the opportunity to sell certain communities that would provide positive net proceeds.

• In May 2020, the Company entered into short-term debt forbearance agreements with a number of its lenders and continues to discuss further debt relief with its lenders.  In October 2020, the Company enhanced and extended its short-term forbearance agreement with Protective Life.

• In May 2020, the Company entered into an agreement with Healthpeak effective April 1, 2020, through the end of the lease term, under which the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities.  The remaining rent is subject to payment by the Company pursuant to a three-year note payable with final payment to be on or before November 1, 2023.  On November 2, 2020, subsequent to quarter-end, the Company entered into an agreement with Healthpeak to extend the end of the lease term from October 31, 2020 to April 30, 2021 (with two possible three-month extensions) and modify the monthly rent such that the amount owed to Healthpeak will be equal to any excess cash flows of the communities.  In addition, the Company will earn a management fee for continuing to manage the communities.

• The Company has elected to utilize the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program and expects to delay payment of approximately $7.0 million of the employer portion of payroll taxes estimated to be incurred from April 2020 through December 2020.

• In conjunction with the CARES Act, the Company had received approximately $0.6 million in relief from state agencies at September 30, 2020 and has applying for additional federal and state funding.  On November 6, 2020, subsequent to quarter-end, the Company accepted $8.1 million of cash for grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phase 2 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.  The Company has also applied for additional grants pursuant to the Provider Relief Fund’s Phase 3 General Distribution, for which the U.S. Department of Health and Human Services (“HHS”) allocated up to $20 billion.  According to HHS' guidance, eligible applicants will receive grant amounts to ensure that they have received approximately 2% of their

27

annual patient care revenue, plus an additional percentage of their change in revenues minus their operating expenses, in each case from patient care attributable to COVID-19.  

• In July 2020, the Company initiated a process which is intended to transfer the operations and ownership of 18 communities that are either underperforming or are in underperforming loan pools to Fannie Mae, the holder of nonrecourse debt on such communities. In conjunction with the agreement, the Company discontinued recognizing revenues and expenses on the properties as of August 1, 2020 but continues to manage the communities on behalf of Fannie Mae.  The Company earns a management fee for providing such services.  As a result of these events of default and the appointment of a receiver to take possession of the communities, the Company concluded that, in accordance with ASC 610-20, “Gains and Losses from the Derecognition of Nonfinancial Assets,” a $191.0 million loss should be taken due to the derecognition of the assets as a loss of control of the assets occurred during the three months ended September 30, 2020.  Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities are extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, “Debt.”  At September 30, 2020, the Company included $217.7 million in outstanding debt in current portion of notes payable, net of deferred loan costs, and $6.1 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties.

• The Company is evaluating possible debt and capital options.

The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, or at all, many of which have been made worse or more unpredictable by COVID-19.  Accordingly, management determined it was not probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.  If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued.  

As a result of COVID-19’s short- and long-term impact to the Company’s financial position, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern.  The Company’s continuation as a going concern depends upon many factors, including the ability to increase its revenues, reduce costs and/or pursue other transactions to raise capital, including, without limitation, by selling assets, and no assurances can be given that the Company will be able to successfully do so.

Significant Financial and Operational Highlights

The Company primarily derives its revenue by providing senior living and healthcare services to seniors. When comparing the third quarter of fiscal 2020 to the third quarter of fiscal 2019, the Company generated resident revenue of approximately $85.9 million compared to resident revenue of approximately $111.1 million, respectively, representing a decrease of approximately $25.0 million, or 22.5%.  The decrease in revenue is primarily due to the disposition of three communities since the second quarter of 2019 and the Company transitioning six of its senior housing communities to different operators and 24 communities to management agreements during 2020, which together accounted for a decrease in revenue of approximately $21.0 million.  The remaining decrease of approximately $4.0 million was primarily due to a decrease of 520 basis points in total occupancies at the Company’s remaining senior housing communities.  The decrease in the total occupancy was primarily due to reduced move-in activity, which began in the second half of March 2020 and intensified through the end of third quarter of 2020, related to the COVID-19 pandemic and our response efforts.  The decreases in total revenue were partially offset by increases in management fees and community reimbursement revenue of $0.6 million and $9.6 million, respectively, which were due to the Company’s management of six and 18 communities on the behalf of third parties, which commenced on March 1, 2020 and August 1, 2020, respectively.

The Company continues to evaluate its portfolio of senior housing communities and explore opportunities to monetize certain of its assets, including through the sale of various owned communities that it believes are operating in challenging markets or that no longer fit its portfolio criteria. During the first nine months of 2020, the Company transitioned six communities to a different operator, transitioned 24 properties to a management agreement, and sold one property.

28

Consolidated financial occupancy for the third quarters of fiscal 2020 and 2019 was 76.1% and 81.3%, respectively. Although average financial occupancies decreased for such periods, the Company experienced an increase in average monthly rental rates of 270 basis points when comparing the third quarter of fiscal 2020 to the third quarter of fiscal 2019.

Facility Lease Transactions

As of December 31, 2019, the Company leased 46 senior housing communities from certain real estate investment trusts and transitioned one community to a different operator effective January 15, 2020. During the first nine months of fiscal 2020, the Company restructured certain of its Master Lease Agreements with each of its landlords as further described below, and after giving effect to such transactions and as of September 30, 2020, the Company leased 34 senior living communities and managed six senior living communities for the account of Healthpeak.

Ventas

As of December 31, 2019, the Company leased seven senior housing communities from Ventas.  The term of the Ventas lease agreement was scheduled to expire on September 30, 2025.  On March 10, 2020, the Company entered into the Ventas Agreement providing for the early termination of its Master Lease Agreement with Ventas covering all seven communities.  Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreement.  In addition, the Ventas Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreement during the forbearance period, which terminates on December 31, 2020 absent any defaults by the Company.  In conjunction with the Ventas Agreement, the Company released to Ventas $4.1 million in security deposits and $2.5 million in escrow deposits held by Ventas, and Ventas forgave the Company’s lease termination obligation, which was $11.4 million at December 31, 2019.  The Ventas Agreement provides that Ventas can terminate the Master Lease Agreement with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Ventas may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Ventas has not delivered a termination notice for any communities subject to the Master Lease Agreement, then, with respect to any such communities, Ventas will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of the gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Ventas Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreement during the applicable forbearance period and Ventas will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Ventas and modification of the lease term pursuant to the Ventas Agreement was determined to be a modification of the Master Lease Agreement.  As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the modified terms and determined that the lease continued to be classified as an operating lease until the communities transitioned to a different operator or management agreement, at which time the lease would terminate.  During the first quarter of 2020, the Company reduced the lease termination obligation, lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets at September 30, 2020 by approximately $11.1 million, $51.6 million, and $47.8 million, respectively, and recognized a net gain of approximately $8.4 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.  

Welltower

As of December 31, 2019, the Company leased 24 senior housing communities from Welltower. The initial terms of the Welltower lease agreements were scheduled to expire on various dates from April 2025 through April 2026. On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between it and Welltower covering all 24 communities.  Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements.  In addition, the Welltower Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company.  In conjunction with the Welltower Agreement, the Company released $6.5 million in letters of credit to Welltower during the second quarter of 2020.  The Welltower Agreement provides that Welltower can terminate the agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Welltower may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Welltower has not delivered a termination notice for any communities subject to the Master Lease Agreements, then, with respect to any such communities, Welltower will be deemed to have

29

delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of the gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Welltower Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and Welltower will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then existing Master Lease Agreements with Welltower and modification to the lease term pursuant to the Welltower Agreement was determined to be a modification of the Master Lease Agreements.  As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that the leases continued to be classified as operating leases until the community transitioned to a different operator or management agreement, at which time the lease would terminate.  The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets at September 30, 2020 by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020.  The Company recognized a net gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

During the three months ended September 30, 2020, Welltower elected to terminate the agreement with respect to five communities, all of which transferred to a different operator on September 10, 2020.  The Company recorded an approximate $0.7 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020.

Healthpeak

On March 1, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026.  Such Master Lease Agreement terminated and was converted into a Management Agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak.  Pursuant to the Management Agreement, the Company will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities.  In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak. The Company remeasured the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets at December 31, 2019 to zero, which resulted in the Company recognizing an approximate $7.0 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

On May 20, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Forbearance”), effective April 1, 2020 through the end of the lease term, pursuant to which the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities.  The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment to be made on or before November 1, 2023.  At September 30, 2020, the Company had deferred $1.4 million of monthly rent, which was included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

On November 1, 2020, subsequent to quarter-end, the Company entered into an agreement to extend the end of the lease term from October 31, 2020 to April 30, 2021 (subject to two possible three month extensions).  Pursuant to such agreement, the Company will begin paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities.  

Recent Accounting Developments

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020, the adoption of which did not have a material impact on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles require an “incurred loss” methodology for recognizing credit

30

losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

Website

The Company’s Internet website, www.capitalsenior.com, contains an Investor Relations section, which provides links to the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and Section 16 filings and any amendments to those reports and filings. These reports and filings are available free of charge through the Company’s Internet website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

Results of Operations

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

	Three Months Ended September 30,												Nine Months Ended September 30,
	2020						2019						2020						2019
	$			%			$			%			$			%			$			%
Revenues:
Resident revenue	$	85,894			89.4		$	111,110			100.0		$	290,952			95.8		$	338,412			100.0
Management fees		604			0.6			—			0.0			819			0.3			—			0.0
Community reimbursement revenue		9,555			10.0			—			0.0			11,888			3.9			—			0.0
Total revenues		96,053			100.0			111,110			100.0			303,659			100.0			338,412			100.0
Expenses:
Operating expenses (exclusive of facility lease expense    and depreciation and amortization expense shown    below)		65,165			67.8			80,394			72.4			211,874			69.8			230,229			68.0
General and administrative expenses		8,128			8.5			7,554			6.8			21,036			6.9			21,766			6.4
Facility lease expense		5,926			6.2			14,233			12.8			23,234			7.7			42,706			12.6
Stock-based compensation expense		421			0.4			898			0.8			1,494			0.5			1,558			0.5
Depreciation and amortization expense		15,547			16.2			16,136			14.5			47,584			15.7			48,085			14.2
Long-lived asset impairment		3,240			3.4			—			0.0			39,194			12.9			—			0.0
Community reimbursement expense		9,555			10.0			—			0.0			11,888			3.9			—			0.0
Total expenses		107,982			112.4			119,215			107.3			356,304			117.3			344,344			101.8
Other income (expense):
Interest income		14			0.0			59			0.1			83			0.0			173			0.1
Interest expense		(11,141	)		(11.6	)		(12,562	)		(11.3	)		(34,044	)		(11.2	)		(37,728	)		(11.2	)
Write-down of assets held for sale		—			0.0			—			0.0			—			0.0			(2,340	)		(0.7	)
Gain (loss) on facility lease modification and termination, net		(753	)		(0.8	)		—			0.0			10,487			3.5			(97	)		(0.0	)
Gain (loss) on disposition of assets, net		(191,032	)		(198.9	)		—			0.0			(198,388	)		(65.3	)		38			0.0
Other income		9			0.0			1			0.0			2			0.0			8			0.0
Loss from continuing operations before provision for income taxes		(214,832	)		(223.7	)		(20,607	)		(18.6	)		(274,505	)		(90.4	)		(45,878	)		(13.6	)
Provision for income taxes		(132	)		(0.1	)		(124	)		(0.1	)		(393	)		(0.1	)		(371	)		(0.1	)
Net loss from operations	$	(214,964	)		(223.8	)	$	(20,731	)		(18.7	)	$	(274,898	)		(90.5	)	$	(46,249	)		(13.7	)

31

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Revenues.

Revenue was $96.1 million for the three month period ended September 30, 2020 compared to $111.1 million for the three month period ended September 30, 2019, representing a decrease of $15.0 million, or approximately 13.3%. The decrease in revenue is primarily due to the disposition of three communities since the second quarter of 2019 and the Company transitioning six of its senior housing communities to different operators and 24 communities to management agreements during 2020, which together accounted for a decrease in revenue of approximately $21.0 million.  The remaining decrease in resident revenue at the Company’s remaining senior housing communities of approximately $4.0 million was primarily due to a decrease of 520 basis points in total occupancy.  The decrease in the financial occupancy was primarily due to reduced move-in activity, which began in the second half of March 2020 and intensified through the end of the third quarter of 2020, related to the COVID-19 pandemic and our response efforts.  The decreases in total revenue were partially offset by increases in management fees and community reimbursement revenue of $0.6 million and $9.6 million, respectively, which were due to the Company’s management of six and 18 communities on the behalf of third parties, which commenced on March 1, 2020 and August 1, 2020, respectively.

Expenses.

Total expenses were $108.0 million in the third quarter of fiscal 2020 compared to $119.2 million in the third quarter of fiscal 2019, representing a decrease of $11.2 million, or 9.4%. This decrease is primarily the result of a $15.2 million decrease in operating expenses, an $8.1 million decrease in facility lease expenses, a $0.6 million decrease in depreciation expense, and a $0.5 million decrease in stock-based compensation expense, partially offset by a $3.2 million increase in impairment expense, a $9.6 million increase in community reimbursement expense and a $0.6 million increase in general and administrative expenses.  

• The quarter-over-quarter decrease in operating expenses of $15.2 million is primarily due to a $1.4 million decrease in food expense, a $7.4 million decrease in labor and employee-related expenses, a $0.9 million decrease in promotion expenses, a $0.7 million decrease in property tax expense, a $1.2 million decrease in utilities, a $0.5 million decrease in service contracts, a $0.5 million decrease in insurance-related expenses, a $0.2 million decrease in travel and a $2.4 million decrease in all other operating expenses, all of which were primarily due to the disposition of three communities since the second quarter of 2019, the transition of 24 communities to management agreements during 2020 and reduced occupancy levels at our communities.

• The increase in general and administrative expenses of $0.6 million is primarily due to a $0.5 million increase in contract labor and consulting expenses to supplement and maintain current staffing levels in a competitive labor market and due to COVID-19, increases in transaction and conversion costs of $0.5 million, a $0.3 million increase in separation, placement, and retention costs due to a reduction in force during the third quarter of 2020, and an increase in all other general and administrative expenses of $0.1 million, partially offset by decreases in labor-related costs of $0.8 million.

• The $8.3 million decrease in facility lease expense is primarily attributable to the Company transitioning six communities to property management agreements effective March 1, 2020, the renegotiation of lease agreements with two of the Company’s landlords, which resulted in reduced rent obligations, and the transition of five communities to a different operator on September 10, 2020.

• The $0.5 million decrease in stock-based compensation expense is primarily attributable to previously issued stock awards vesting and becoming fully amortized.  The Company did not issue any stock awards during the nine months ended September 30, 2020.

• The $0.6 million decrease in depreciation and amortization expense primarily results from a decrease in depreciable assets at the Company’s communities resulting from the transition of 24 properties to management agreements during 2020 and impairment on fixed assets recorded during the first quarter of 2020, partially offset by an increase in expense due to a decrease in the useful lives of fixed assets related to leased properties due to the decrease in the remaining lease term as a result of the Ventas Agreement and the Welltower Agreement.

• During the third quarter of 2020, the Company recorded $3.2 million of non-cash impairment charges, of which $0.8 million related to property and equipment for one owned community due to the COVID-19 pandemic and lower than expected operating performance at the community, as well as $1.1 million related to property and equipment for certain leased communities, and $1.3 million related to operating lease right-of-use assets.

32

• The $9.6 million increase in community reimbursement expense includes reimbursements due from the owners of six and 18 communities for which the Company began providing management services on March 1, 2020 and August 1, 2020, respectively.

Other income and expense.

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

• Interest expense decreased in the third quarter of fiscal 2020 when compared to the third quarter of fiscal 2019 primarily due to the early repayment of mortgage debt associated with the disposition of four senior housing communities since the first quarter of 2019 and a decrease in variable interest rates quarter over quarter.

• The $0.7 million decrease in gain (loss) on facility lease modification and termination, net, is due to the Company recognizing a $0.7 million loss on the transition of five properties to a different operator during the third quarter of 2020.

• The Company recognized a $191.0 million loss on the disposition of 18 communities during the third quarter of 2020, which occurred in conjunction with the Company’s planned transition of the legal ownership of such communities to Fannie Mae.  The Company wrote off all fixed assets, accounts receivable, and amounts held in escrow by the communities, and will extinguish the debt and certain liabilities once legal ownership of the properties transfers to Fannie Mae.

Provision for income taxes.

Provision for income taxes for the third quarter of fiscal 2020 was $0.1 million, or 0.05% of loss before income taxes, compared to a provision for income taxes of $0.1 million, or 0.6% of loss before income taxes, for the third quarter of fiscal 2019. The effective tax rates for the first quarters of fiscal 2020 and 2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. The Company consolidates 38 Texas communities, which contributes to the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its net deferred tax assets. The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be realized.

Net loss and comprehensive loss.

As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $215.0 million for the three months ended September 30, 2020, compared to net loss and comprehensive loss of $20.7 million for the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Revenues.

Revenue was $303.7 million for the nine month period ended September 30, 2020 compared to $338.4 million for the nine month period ended September 30, 2019, representing a decrease of $14.9 million, or approximately 13.4%. The decrease in revenue is primarily due to the disposition of four communities since the first quarter of 2019 and the Company transitioning six of its senior housing communities to different operators and 24 communities to management agreements during 2020, which together accounted for a decrease to resident revenues of approximately $40.1 million, and a decrease in resident revenue at the Company’s remaining senior housing communities of approximately $7.5 million, which was primarily due to a decrease of 430 basis points in financial occupancy.  The decrease in the financial occupancy was primarily due to reduced move-in activity, which began in the second half of March 2020 and continued throughout the third quarter of 2020, related to the COVID-19 pandemic and our response efforts.  The decreases in revenue were partially offset by increases in management fees and community reimbursement revenue of $0.8 million and $11.9 million, respectively, which were due to the Company’s management of six and 18 communities on the behalf of third parties, which commenced on March 1, 2020 and August 1, 2020, respectively.

33

Expenses.

Total expenses were $356.3 million in the first nine months of fiscal 2020 compared to $344.3 million in the first nine months of fiscal 2019, representing an increase of $12.0 million, or 3.5%. This increase is primarily the result of a $39.2 million increase in impairment expenses and a $11.9 million increase in community reimbursement expense, partially offset by a $18.4 million decrease in operating expenses, a $0.7 million decrease in general and administrative expenses, a $19.5 million decrease in facility lease expense, a $0.5 million decrease in depreciation and amortization expense, and a $0.1 million decrease in stock-based compensation expense.

• The $18.4 million decrease in operating expenses primarily results from a $2.8 million decrease in food expenses, a $1.5 million decrease in promotion expenses, a $2.0 million decrease in property tax expense, a $2.4 million decrease in utilities, a $7.1 million decrease in labor and employee-related expenses, a $0.7 million decrease in service contracts, and a $1.9 million decrease in all other operating expenses, all of which were primarily due to the disposition of four communities since the first quarter of 2019, the transition of 24 communities to management agreements during the first nine months of 2020 and reduced occupancy levels at our communities.  

• The decrease in general and administrative expenses of $0.7 million is primarily due to a $3.5 million decrease in employee insurance costs, primarily related to a decrease in claims paid, a $0.7 million decrease in separation, placement, and retention costs primarily due to the replacement of the Company’s CEO and the separation of the Company’s COO during the first quarter of fiscal 2019, and a $1.1 million decrease in labor-related expenses, primarily due to a change in the Company’s paid time off policy in 2019, partially offset by increases in transaction and conversion costs of $1.8 million and contract labor and consulting expenses of $1.2 million to supplement and maintain current staffing levels in a competitive labor market, a $0.9 million increase in legal and filing fees, an increase in other insurance related expenses of $0.3 million, and a $0.4 million increase in all other general and administrative expenses.

• During the first nine months of 2020, the Company recorded $39.2 million of non-cash impairment charges, of which $0.8 million related to property and equipment for one owned community due to the COVID-19 pandemic and lower than expected operating performance at the community, as well as $30.9 million related to property and equipment for certain leased communities, and $7.5 million related to operating lease right-of-use assets.

• The $19.5 million decrease in facility lease expense is primarily attributable to the Company transitioning six communities to property management agreements, effective March 1, 2020, and the renegotiation of lease agreements with two of the Company’s landlords, which resulted in reduced rent obligations.

• The decrease in stock-based compensation expense is primarily attributable to previously issued stock awards vesting and becoming fully amortized.  The Company did not issue any stock awards during the nine months ended September 30, 2020. The decrease was partially offset due to increases resulting from the retirement of the Company’s CEO and separation of the Company’s COO during the first quarter of fiscal 2019, which resulted in the cancellation of their unvested restricted stock awards. Additionally, the Company concluded performance metrics associated with certain performance-based restricted stock awards were no longer probable of achievement which resulted in remeasurement adjustments.

• The $11.9 million increase in community reimbursement expense includes reimbursements due from the owners of communities for which the Company began providing management services during the first nine months 2020.

Other income and expense.

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

• Interest expense decreased in the first nine months of fiscal 2020 when compared to the first nine months of fiscal 2019 primarily due to the early repayment of mortgage debt associated with the closing of the Company’s sale of communities located in Kokomo, Indiana, Springfield, Missouri, and Peoria, Illinois in 2019 and a decrease in variable interest rates year-over-year.

• The write-down of assets held for sale during the first nine months of 2019 was attributable to a fair value remeasurement adjustment recorded by the Company upon classifying one senior living community as held for sale.  This reclassification resulted in the Company determining that the assets had an aggregate fair value, net of costs of disposal, that exceeded the carrying values by $2.3 million.

• The $10.5 million increase in gain (loss) on facility lease modification and termination, net, is due to the Company recognizing a $8.4 million gain on the Ventas Agreement, an $8.0 million gain on the Welltower Agreement, and a $1.8 million gain on the transition of a property to a different operator, partially offset by a $7.0 million loss on the Healthpeak Agreement and a $0.7 million loss on the transition of five properties a different operator during the third quarter of 2020.

• The $198.4 million net loss was due to the Company recognizing a $7.4 million loss on the sale of a senior housing community located in Merrillville, Indiana during the first quarter of 2020 and a $191.0 million loss on the disposition of 18

34

communities during the third quarter of 2020, which occurred in conjunction with the Company’s planned transition of the legal ownership of such communities to Fannie Mae. The Company wrote off all fixed assets, accounts receivable, and amounts held in escrow by the communities, and will extinguish the debt and certain liabilities once legal ownership of the properties transfers to Fannie Mae.  

Provision for income taxes.

Provision for income taxes for the first nine months of fiscal 2020 was $0.4 million, or 0.1% of loss before income taxes, compared to a provision for income taxes of $0.4 million, or 0.8% of loss before income taxes, for the first nine months of fiscal 2019. The effective tax rates for the first nine months of fiscal 2020 and 2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax, which effectively imposes tax on modified gross revenues for communities within the State of Texas. The Company consolidates 38 Texas communities, which contributes to the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its net deferred tax assets. The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be realized.

Net loss and comprehensive loss.

As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $274.9 million for the nine months ended September 30, 2020, compared to net loss and comprehensive loss of $46.2 million for the nine months ended September 30, 2019.

Liquidity and Capital Resources

In addition to approximately $14.3 million of unrestricted cash balances on hand as of September 30, 2020, the Company’s principal sources of liquidity are expected to be cash flows from operations, additional proceeds from debt refinancings, COVID-19 relief funding (including the $8.1 million of cash the Company accepted pursuant to the Provider Relief Fund’s Phase 2 General Distribution on November 6, 2020, subsequent to quarter-end), equity issuances, and/or proceeds from the sale of owned assets. The Company is implementing plans, which includes strategic and cash-preservation initiatives, which are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. See “Going Concern and Management’s Plan.”  The Company’s long-term capital requirements are and will be dependent on its ability to access additional funds through the debt and/or equity markets or additional sales of assets. The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio including debt refinancings, equity issuances, purchases and sales of assets, reorganizations and other transactions. If capital were obtained through the issuance of Company equity, the issuance of Company securities would dilute the ownership of our existing stockholders and any newly issued securities may have rights, preferences, and/or privileges senior to those of our common stock. 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 tightening 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.

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

	Nine Months Ended September 30,
	2020			2019
Net cash provided by (used in) operating activities	$	(5,370	)	$	(752	)
Net cash used in investing activities		(4,815	)		(9,383	)
Net cash used in financing activities		(8,603	)		(13,409	)
Net decrease in cash and cash equivalents	$	(18,788	)	$	(23,544	)

Operating activities.

The net cash used in operating activities for the nine months ended September 30, 2020 primarily results from a net loss of $274.9 million, decreases in cash flows from current assets of $3.7 million and decreases from current liabilities of $12.1 million, partially offset by net non-cash charges of $261.1 million. The net cash used in operating activities for the nine months ended September 30,

35

2019 primarily results from by a net loss of $46.2 million, decreases in cash flows from current assets of $2.1 million and decreases from current liabilities of $4.4 million, partially offset by net non-cash charges of $52.0 million.

Investing activities.

The net cash used in investing activities for the nine months ended September 30, 2020 primarily results from ongoing capital improvements and refurbishments at the Company’s senior housing communities of $11.2 million, partially offset by $6.4 million in proceeds from the disposition of assets.  The net cash used in investing activities for the nine months ended September 30, 2019 primarily results from capital expenditures of $14.3 million associated with ongoing capital improvements and refurbishments at the Company’s senior housing communities and $4.9 million of proceeds from the disposition of assets associated with the Kokomo Sale Transaction.

Financing activities.

The net cash used in financing activities for the nine months ended September 30, 2020 primarily results from proceeds from notes payable of $2.2 million, repayments of notes payable of $10.4 million, and payments on financing obligations of $0.4 million. The net cash used in financing activities for the nine months ended September 30, 2019 primarily results from $5.3 million of proceeds from notes payable related to insurance premium financing, repayments of notes payable of $16.9 million, and payments on financing obligations of $1.1 million.

Debt transactions.

Transactions Involving Certain Fannie Mae Loans

The CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties. On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer of one Fannie Mae loan covering one property.  On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of three Fannie Mae loans covering two properties.   The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and June 2020 ("Deferred Payments") and Fannie Mae agreed to forbear in exercising its rights and remedies during such period.  During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance. 

On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one month extension of the forbearance agreements between it and Fannie Mae covering 23 properties.   The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period.  By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.  

On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for five properties with forbearance agreements.  The Company elected not to pay $3.8 million on the loans for the remaining 18 properties as of that date as it initiated a process which is 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 default, Fannie Mae filed a motion with the United States District Court requesting that a receiver be appointed over the 18 properties, which was approved by the court.  The Company agreed to continue to manage the 18 communities, subject to earning a management fee, until legal ownership of the properties is transferred to Fannie Mae.  In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for any payments made on behalf of any of the 18 communities under the receivership order.  As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default.  Management fees earned from the properties are recognized as revenue when earned.  In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance ASC 610-20.  As such, the Company derecognized the assets and recorded a loss of $191.0 million on the transaction for the three and nine months ended September 30, 2020.  Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470.  At September 30, 2020, the Company included $217.7 million in outstanding debt and $6.1 million of accrued interest on the Company’s Consolidated Balance Sheets related to these properties.

Debt Forbearance Agreement on BBVA Loan

The Company also entered into a loan amendment with another lender, BBVA, USA, related to a loan covering three properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to and due in June 2021.

36

Debt Forbearance Agreement on HUD Loan

The Company also entered into a debt forbearance agreement with ORIX Real Estate Capital, LLC (“ORIX”), related to a U.S. Department of Housing and Urban Development (“HUD”) loan covering one property pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period.  

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties.  These amendments allowed the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021.  The Company made all required debt service payments in July, August, and September 2020.  On October 1, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties.  These amendments allow the Company to defer interest payments for October, November, and December 2020 and to extend the deferral period of principal payments through September 1, 2021, with all such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.

Letters of Credit

The Company previously issued standby letters of credit with Wells Fargo, totaling approximately $3.4 million, for the benefit of Hartford Financial Services in connection with the administration of workers’ compensation.  On August 27, 2020, the available letters of credit were increased to $4.0 million, all of which remained outstanding as of September 30, 2020.

The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately $6.5 million, for the benefit of Welltower, in connection with certain leases between Welltower and the Company.  The letters of credit were surrendered to Welltower in conjunction with the Welltower Agreement during the quarter ended June 30, 2020.

The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of Healthpeak in connection with certain leases between Healthpeak and the Company.  The letters of credit were released to the Company during the first quarter of 2020 and were subsequently included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.

Notes Payable

On June 15, 2020, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $2.2 million. The finance agreement has a fixed interest rate of 4.60% with the principal being repaid over a 10-month term.

On May 20, 2020, the Company entered into an agreement with Healthpeak, effective April 1, 2020, through the lease term ending October 31, 2020, to defer a percentage of rent payments.  At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

There are various financial covenants and other restrictions within the Company’s debt agreements.  Except as noted below, the Company was in compliance with all of its outstanding indebtedness at September 30, 2020 and December 31, 2019.  Pursuant to the forbearance agreements described above under “Transactions Involving Certain Fannie Mae Loans,” the Company withheld loan payments due under loan agreements with Fannie Mae covering certain of the Company’s communities for the months of April through September of 2020.  Additionally, the Company does not expect to be in compliance with a certain financial covenant of its loan agreement with Fifth Third Bank, on the Company’s Autumn Glen and Cottonwood Village properties, as of September 30, 2020, in which a minimum debt service coverage ratio must be maintained.  However, cure provisions within the debt agreement allow the Company to make a principal payment to bring the debt service coverage ratio into compliance.  The Company is in active negotiations with Fifth Third Bank to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be reached. If a mutually agreed upon solution is not reached, the Company may be found in default of the debt agreement.  In the event of default, Fifth Third has the right to declare all amounts outstanding to be immediately due and payable.  

37

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

Item 4. CONTROLS AND PROCEDURES.

Effectiveness of Controls and Procedures

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

Based upon the controls and procedures evaluation, the Company’s CEO and PFO have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

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, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

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

Item 1A. RISK FACTORS.

The following risk factors are in addition to the risks and uncertainties described under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 31, 2020.  The effects of the events and circumstances described in the following risk factors may, directly or indirectly, heighten, exacerbate or otherwise bring to fruition many of the risks and uncertainties contained in our annual, quarterly and periodic reports filed with the SEC.

The sudden onset of COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses and operating results at our communities. Although we are unable to predict the full nature and extent of the impact of COVID-19 at this time, we expect COVID-19 will continue to have a significant adverse effect on our business, financial condition, liquidity and results of operations.

We face risks related to an epidemic, pandemic or other health crisis. A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from COVID-19. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business

In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, COVID-19 has caused, and management expects will continue to cause, a decline in the occupancy levels at the Company’s communities, which has negatively impacted , and will likely continue to negatively impact the Company’s revenues and operating results, which depend significantly on such occupancy levels.  During the second half of March 2020, new resident leads, visits, and move-in activity began to decline compared to typical levels. This trend intensified throughout the third quarter of 2020, and began to adversely impact occupancy, resulting in a decrease in consolidated senior housing occupancy (excluding the community sold

38

effective March 31, 2020), decreasing from 79.9% for the first quarter of 2020 to 77.6% for the third quarter of 2020. We expect further deterioration of resident fee revenue resulting from fewer move-ins and typical resident attrition inherent in our business, which may increase due to the impacts of COVID-19.  

In addition, the recent outbreak of COVID-19 has required the Company to incur, and management expects will require the Company to continue to incur, significant additional operating costs and expenses in order to care for its residents. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents at such communities and has resulted in reduced occupancies at such communities. During the second half March 2020, the Company began to incur incremental direct costs to prepare for and respond to the COVID-19 pandemic and such costs increased throughout the third quarter of 2020.  Facility operating expense for the three and nine months ended September 30, 2020 includes $2.9 million and $3.2 million, respectively, of incremental and direct costs as a result of the COVID-19 pandemic, including costs for acquisition of additional PPE, cleaning and disposable food service supplies, testing of the Company’s residents and employees, enhanced cleaning and environmental sanitation costs, and increased labor expense. The Company expects such costs to continue.  We are unable to reasonably predict the total amount of costs we will incur related to the pandemic, but such costs are likely to be substantial.

As a result, we expect COVID-19 will have a significant adverse effect on our business, financial condition, liquidity, and results of operations. It has resulted in the Company’s management concluding that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date on which the Company’s financial statements are issued.

The COVID-19 pandemic has also caused substantial volatility in the market prices and trading volumes in the equity markets, including our stock. Our stock price and trading volume may continue to be subject to wide fluctuations as a result of the pandemic, and may decline in the future.

The ultimate impacts of COVID-19 on our business, results of operations, cash flow, liquidity, and stock price will depend on many factors, some of which cannot be foreseen, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease; the impact of COVID-19 on the nation’s economy and debt and equity markets and the local economies in our markets; the development and availability of COVID-19 infection and antibody testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents’ and their families’ ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our preparation and response efforts, including increased supplies, labor, litigation, and other expenses; the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements and enforcement actions resulting from COVID-19, including those that may limit our collection efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.

If the Company is unable to successfully implement its business plans and strategies, the Company’s consolidated results of operations, financial position, liquidity and ability to continue as a going concern could be negatively affected.

As noted elsewhere in this Quarterly Report on Form 10-Q, due to the impact of COVID-19 on the Company’s financial position, the Company’s management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company has taken and intends to take actions to improve its liquidity position and to address the uncertainty about its ability to operate as a going concern, but these actions are subject to a number of assumptions, projections, and analyses. If these assumptions prove to be incorrect, the Company may be unsuccessful in executing its business plans or achieving the projected results, which could adversely impact its financial results and liquidity. Those plans include various cost-cutting, efficiency and profitability initiatives. There are no assurances such initiatives will prove to be successful or the cost savings, profitability or other results the Company achieves through those plans will be consistent with its expectations. As a result, the Company’s results of operations, financial position and liquidity could be negatively impacted. If we become insolvent or fail to continue as a going concern, our common stock may become worthless.

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

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

39

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

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

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

• require us to maintain the physical condition of the community and meet certain minimum spending levels for capital and leasehold improvements; and

•require consent for changes in control of us.

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

Pursuant to the forbearance agreements described in Management’s Discussion and Analysis under “Transactions Involving Certain Fannie Mae Loans,” we withheld loan payments due under loan agreements with Fannie Mae covering certain of our communities for the months of April through September of 2020.  In addition, we were not in compliance with certain financial covenants of our loan agreement with Fifth Third Bank covering two properties at September 30, 2020.  We are in active negotiations with Fifth Third Bank to resolve this default.  However, we cannot give any assurance that a mutually agreeable resolution will be reached.  

If we cannot regain compliance with the continued listing requirements of the New York Stock Exchange (“NYSE”), the NYSE will delist our common stock.

Our common stock is currently listed on the NYSE. On April 10, 2020, we received notice (the “Notice”) from the NYSE that the Company is no longer in compliance with NYSE continued listing standards set forth in Section 802.01B (the “Minimum Market Capitalization Standard”) and Section 802.01C (the “Minimum Stock Price Standard”) of the NYSE’s Listed Company Manual due to the fact that (i) the Company’s average global market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, its stockholders’ equity was less than $50 million, and (ii) the average closing price of the Company’s common stock was less than $1.00 over a consecutive 30 trading-day period. If we are unable to regain compliance with such continued listing requirements within the time periods prescribed by the NYSE’s rules, our common stock will be delisted.  Due to recent market conditions, the NYSE temporarily tolled the applicable cure periods for complying with the Minimum Market Capitalization Standard and the Minimum Stock Price Standard, through and including June 30, 2020, and as such, the NYSE has informed the Company that it has until December 19, 2021 to regain compliance with the Minimum Market Capitalization Statement and until December 19, 2020, to regain compliance with the Minimum Stock Price Standard.

In accordance with the NYSE’s listing requirements, the Company submitted its plan to the NYSE advising the NYSE of definitive action the Company has taken, or is taking, to bring it into conformity with the Minimum Market Capitalization Standard within 18 months after the Company’s receipt of the Notice. The NYSE accepted the Company’s plan in July 2020, and as a result, the Company’s common stock will continue to be listed and traded on the NYSE during the cure period, subject to the Company’s compliance with the plan and other continued listing standards. The NYSE will review the Company on a quarterly basis to confirm compliance with the plan. If the Company fails to comply with the plan or does not meet continued listing standards at the end of the 18-month cure period, it will be subject to the prompt initiation of NYSE suspension and delisting procedures.

The Company also responded to the NYSE within 10 business days after the Company’s receipt of the Notice stating its intent to cure the Minimum Stock Price Standard, including through a reverse stock split of the Company’s common stock, subject to stockholder approval, if such action is necessary to cure the non-compliance.  The Company’s Board of Directors has approved, and is submitting for stockholder approval at the Company’s 2020 Annual Meeting of Stockholders, a reverse stock split of the Company’s common stock.

A delisting of our common stock could negatively impact us by, among other things:

• reducing the liquidity and market price of our common stock;

• reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could negatively impact our ability to raise equity;

• decreasing the amount of news and analyst coverage relating to us;

• limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; and

• impacting our reputation and, as a consequence, our ability to attract new business.

40

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

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

The following information is provided pursuant to Item 703 of Regulation S-K. The information set forth in the table below reflects shares purchased by the Company pursuant to its share repurchase program (as described below) as September 30, 2020.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
Total at June 30, 2020		494,115	$	6.94		494,115	$	6,570,222
July 1 – July 31, 2020		—		—		—		6,570,222
August 1 – August 31, 2020		—		—		—		6,570,222
September 1 – September 30, 2020		—		—		—		6,570,222
Total at September 30, 2020		494,115	$	6.94		494,115	$	6,570,222

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. All shares that have been acquired by the Company under this program were purchased in open-market transactions.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

Not applicable.

41

Item 6. EXHIBITS.

The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted.

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to exhibit 3.1 to the Registration Statement No. 333-33379 on Form S-1/A filed by the Company with the Securities and Exchange Commission on September 8, 1997.)
3.1.1	Amendment to Amended and Restated Certificate of Incorporation of the Registrant. (Incorporated by reference to exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed by the Company with the Securities and Exchange Commission.)
3.2	Second Amended and Restated Bylaws of the Registrant. (Incorporated by reference to exhibit 3.1 to the Company’s Current Report filed by the Company on Form 8-K with the Securities and Exchange Commission on March 8, 2013.)
31.1*	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32.1*	Certification of Kimberly S. Lody pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Tiffany L. Dutton pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
104*	Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

42

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Capital Senior Living Corporation (Registrant)
By:	/s/ Tiffany L. Dutton
	Tiffany L. Dutton
	Vice President- Accounting and Principal Accounting Officer
	(Principal Financial Officer and Duly Authorized Officer)
	Date: November 9, 2020

43

EX-31.1

EXHIBIT 31.1

CAPITAL SENIOR LIVING CORPORATION

CERTIFICATIONS

I, Kimberly S. Lody, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Capital Senior Living Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Kimberly S. Lody

Kimberly S. Lody

President, Chief Executive Officer, and Director

November 9, 2020

EX-31.2

EXHIBIT 31.2

CAPITAL SENIOR LIVING CORPORATION

CERTIFICATIONS

I, Tiffany L. Dutton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Capital Senior Living Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Tiffany L. Dutton

Tiffany L. Dutton

Vice President- Accounting and Principal Accounting Officer

November 9, 2020

EX-32.1

EXHIBIT 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Quarterly Report of Capital Senior Living Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kimberly S. Lody, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kimberly S. Lody

Kimberly S. Lody

President, Chief Executive Officer, and Director

November 9, 2020

EX-32.2

EXHIBIT 32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Quarterly Report of Capital Senior Living Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tiffany L. Dutton, Vice President- Accounting and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Tiffany L. Dutton

Tiffany L. Dutton

Vice President- Accounting and Principal Accounting Officer

November 9, 2020

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Oct. 31, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Trading Symbol	CSU
Title of 12(b) Security	Common Stock, $0.01 par value per share
Security Exchange Name	NYSE
Entity Registrant Name	Capital Senior Living Corporation
Entity Central Index Key	0001043000
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		31,914,264
Entity File Number	1-13445
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	75-2678809
Entity Address, Address Line One	14160 Dallas Parkway
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	Dallas
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75254
City Area Code	972
Local Phone Number	770-5600
Document Quarterly Report	true
Document Transition Report	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 14,293	$ 23,975
Restricted cash	3,982	13,088
Accounts receivable, net	9,107	8,143
Federal and state income taxes receivable	76	72
Property tax and insurance deposits	8,863	12,627
Prepaid expenses and other	4,764	5,308
Total current assets	41,085	63,213
Property and equipment, net	692,746	969,211
Operating lease right-of-use assets, net	3,691	224,523
Deferred taxes, net	76	76
Other assets, net	2,863	10,673
Total assets	740,461	1,267,696
Current liabilities:
Accounts payable	10,398	10,382
Accrued expenses	56,474	46,227
Current portion of notes payable, net of deferred loan costs	263,674	15,819
Current portion of deferred income	5,885	7,201
Current portion of financing obligations		1,741
Current portion of lease liabilities	8,971	45,988
Federal and state income taxes payable	307	420
Customer deposits	991	1,247
Total current liabilities	346,700	129,025
Financing obligations, net of current portion		9,688
Lease liabilities, net of current portion	590	208,967
Notes payable, net of deferred loan costs and current portion	652,194	905,637
Commitments and contingencies
Shareholders’ equity (deficit):
Preferred stock, $.01 par value: Authorized shares - 15,000; no shares issued or outstanding
Common stock, $.01 par value: Authorized shares - 65,000; issued and outstanding shares - 31,429 and 31,463 in 2020 and 2019, respectively	319	319
Additional paid-in capital	191,882	190,386
Retained deficit	(447,794)	(172,896)
Treasury stock, at cost – 494 shares in 2020 and 2019	(3,430)	(3,430)
Total shareholders’ equity (deficit)	(259,023)	14,379
Total liabilities and shareholders’ equity (deficit)	$ 740,461	$ 1,267,696

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	15,000,000	15,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	65,000,000	65,000,000
Common stock, shares issued	31,429,000	31,441,000
Common stock, shares outstanding	31,429,000	31,441,000
Treasury stock, shares	494,000	494,000

XML

Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues:
Total revenues	$ 96,053	$ 111,110	$ 303,659	$ 338,412
Expenses:
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below)	65,165	80,394	211,874	230,229
General and administrative expenses	8,128	7,554	21,036	21,766
Facility lease expense	5,926	14,233	23,234	42,706
Stock-based compensation expense	421	898	1,494	1,558
Depreciation and amortization expense	15,547	16,136	47,584	48,085
Long-lived asset impairment	3,240		39,194
Community reimbursement expense	9,555		11,888
Total expenses	107,982	119,215	356,304	344,344
Other income (expense):
Interest income	14	59	83	173
Interest expense	(11,141)	(12,562)	(34,044)	(37,728)
Write down of assets held for sale				(2,340)
Gain (loss) on facility lease modification and termination, net	(753)		10,487	(97)
Gain (loss) on disposition of assets, net	(191,032)		(198,388)	38
Other income (expense)	9	1	2	8
Loss from continuing operations before provision for income taxes	(214,832)	(20,607)	(274,505)	(45,878)
Provision for income taxes	(132)	(124)	(393)	(371)
Net loss	$ (214,964)	$ (20,731)	$ (274,898)	$ (46,249)
Per share data:
Basic net loss per share	$ (7.00)	$ (0.68)	$ (8.99)	$ (1.53)
Diluted net loss per share	$ (7.00)	$ (0.68)	$ (8.99)	$ (1.53)
Weighted average shares outstanding — basic	30,730	30,324	30,578	30,236
Weighted average shares outstanding — diluted	30,730	30,324	30,578	30,236
Comprehensive loss	$ (214,964)	$ (20,731)	$ (274,898)	$ (46,249)
Resident Revenue [Member]
Revenues:
Total revenues	85,894	$ 111,110	290,952	$ 338,412
Management Fees [Member]
Revenues:
Total revenues	604		819
Community Reimbursement Revenue [Member]
Revenues:
Total revenues	$ 9,555		$ 11,888

XML

Consolidated Statements of Shareholders' Equity (Deficit) - USD ($) shares in Thousands, $ in Thousands	Total	Cumulative Effect Period of Adoption Adjustment [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Deficit [Member]	Retained Deficit [Member] Cumulative Effect Period of Adoption Adjustment [Member]	Treasury Stock [Member]
Beginning Balance at Dec. 31, 2018	$ 35,265	$ 12,636	$ 318	$ 187,879	$ (149,502)	$ 12,636	$ (3,430)
Beginning Balance, Shares at Dec. 31, 2018			31,273
Accounting Standards Update [Extensible List]		us-gaap:AccountingStandardsUpdate201602Member				us-gaap:AccountingStandardsUpdate201602Member
Restricted stock awards (cancellations), net			$ (2)	2
Restricted stock awards (cancellations), net, Shares			(150)
Stock-based compensation	(978)			(978)
Net loss	(12,984)				(12,984)
Ending Balance at Mar. 31, 2019	33,939		$ 316	186,903	(149,850)		(3,430)
Ending Balance, Shares at Mar. 31, 2019			31,123
Beginning Balance at Dec. 31, 2018	35,265	$ 12,636	$ 318	187,879	(149,502)	$ 12,636	(3,430)
Beginning Balance, Shares at Dec. 31, 2018			31,273
Net loss	(46,249)
Ending Balance at Sep. 30, 2019	3,210		$ 320	189,435	(183,115)		(3,430)
Ending Balance, Shares at Sep. 30, 2019			31,463
Beginning Balance at Mar. 31, 2019	33,939		$ 316	186,903	(149,850)		(3,430)
Beginning Balance, Shares at Mar. 31, 2019			31,123
Restricted stock awards (cancellations), net			$ 4	(4)
Restricted stock awards (cancellations), net, Shares			346
Stock-based compensation	1,638			1,638
Net loss	(12,534)				(12,534)
Ending Balance at Jun. 30, 2019	23,043		$ 320	188,537	(162,384)		(3,430)
Ending Balance, Shares at Jun. 30, 2019			31,469
Restricted stock awards (cancellations), net, Shares			(6)
Stock-based compensation	898			898
Net loss	(20,731)				(20,731)
Ending Balance at Sep. 30, 2019	3,210		$ 320	189,435	(183,115)		(3,430)
Ending Balance, Shares at Sep. 30, 2019			31,463
Beginning Balance at Dec. 31, 2019	14,379		$ 319	190,386	(172,896)		(3,430)
Beginning Balance, Shares at Dec. 31, 2019			31,441
Restricted stock awards (cancellations), net, Shares			(52)
Stock-based compensation	597			597
Net loss	(47,181)				(47,181)
Ending Balance at Mar. 31, 2020	(32,205)		$ 319	190,983	(220,077)		(3,430)
Ending Balance, Shares at Mar. 31, 2020			31,389
Beginning Balance at Dec. 31, 2019	14,379		$ 319	190,386	(172,896)		(3,430)
Beginning Balance, Shares at Dec. 31, 2019			31,441
Net loss	(274,898)
Ending Balance at Sep. 30, 2020	(259,023)		$ 319	191,882	(447,794)		(3,430)
Ending Balance, Shares at Sep. 30, 2020			31,429
Beginning Balance at Mar. 31, 2020	(32,205)		$ 319	190,983	(220,077)		(3,430)
Beginning Balance, Shares at Mar. 31, 2020			31,389
Restricted stock awards (cancellations), net, Shares			43
Stock-based compensation	478			478
Net loss	(12,753)				(12,753)
Ending Balance at Jun. 30, 2020	(44,480)		$ 319	191,461	(232,830)		(3,430)
Ending Balance, Shares at Jun. 30, 2020			31,432
Restricted stock awards (cancellations), net, Shares			(3)
Stock-based compensation	421			421
Net loss	(214,964)				(214,964)
Ending Balance at Sep. 30, 2020	$ (259,023)		$ 319	$ 191,882	$ (447,794)		$ (3,430)
Ending Balance, Shares at Sep. 30, 2020			31,429

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Operating Activities
Net loss	$ (274,898)	$ (46,249)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	47,584	48,085
Amortization of deferred financing charges	1,399	1,237
Deferred income	(217)	790
Operating lease expense adjustment	(18,460)	(4,285)
Loss on disposition of assets, net	198,388	59
Gain on facility lease modification and termination, net	(10,487)
Long-lived asset impairment	39,194
Write-down of assets held for sale		2,340
Provision for bad debts	2,190	2,182
Stock-based compensation expense	1,494	1,558
Changes in operating assets and liabilities:
Accounts receivable	(3,616)	(385)
Property tax and insurance deposits	1,091	690
Prepaid expenses and other	911	(2,001)
Other assets	(2,056)	(373)
Accounts payable	1,101	(4,683)
Accrued expenses	11,317	430
Federal and state income taxes receivable/payable	(117)	(103)
Deferred resident revenue	1	(6)
Customer deposits	(189)	(38)
Net cash used in operating activities	(5,370)	(752)
Investing Activities
Capital expenditures	(11,211)	(14,271)
Proceeds from disposition of assets	6,396	4,888
Net cash used in investing activities	(4,815)	(9,383)
Financing Activities
Proceeds from notes payable	3,673	5,268
Repayments of notes payable	(11,901)	(16,884)
Cash payments for financing lease and financing obligations	(361)	(1,095)
Deferred financing charges paid	(14)	(698)
Net cash used in financing activities	(8,603)	(13,409)
Decrease in cash and cash equivalents	(18,788)	(23,544)
Cash and cash equivalents and restricted cash at beginning of period	37,063	44,320
Cash and cash equivalents and restricted cash at end of period	18,275	20,776
Cash paid during the period for:
Interest	25,855	35,723
Lease modification and termination	6,791
Income taxes	$ 13	$ 505

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

1. BASIS OF PRESENTATION

Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates, and manages senior housing communities throughout the United States. As of September 30, 2020, the Company operated 119 senior housing communities in 22 states with an aggregate capacity of approximately 14,700 residents, including 61 senior housing communities that the Company owned, 34 senior housing communities that the Company leased, and 24 communities that the Company managed on behalf of third parties. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying Consolidated Balance Sheet, as of December 31, 2019, has been derived from audited consolidated financial statements of the Company for the year ended December 31, 2019, and the accompanying unaudited consolidated financial statements, as of and for the three and nine month periods ended September 30, 2020 and 2019, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have not been included pursuant to those rules and regulations. For further information, refer to the financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2020.  The Company meets the SEC’s definition of a “Smaller Reporting Company,” and therefore qualifies for the SEC’s reduced disclosure requirements for smaller reporting companies.

In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position as of September 30, 2020, results of operations for the three and nine month periods ended September 30, 2020 and 2019, and cash flows for the nine month periods ended September 30, 2020 and 2019. The results of operations for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020.

XML

Going Concern Uncertainty

9 Months Ended

Sep. 30, 2020

Risks And Uncertainties [Abstract]

Going Concern Uncertainty

2. GOING CONCERN UNCERTAINTY

A new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The United States broadly continues to experience the pandemic caused by COVID-19, which has significantly disrupted, and likely will continue to disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business.

In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to recent quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company has restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As a result, COVID-19 has caused, and management expects will continue to cause, a decline in the occupancy levels at the Company’s communities, which has negatively impacted, and likely will continue to negatively impact, the Company’s revenues and operating results, which depend significantly on such occupancy levels.  Reduced controllable move-out activity during the pandemic may partially offset future adverse revenue impacts.

In addition, the outbreak of COVID-19 has required the Company to incur, and management expects will require the Company to continue to incur, significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents, including increased costs and expenses relating to supplies and personal protective equipment, testing of the Company’s residents and employees, labor and specialized disinfecting and cleaning services. Further, residents at certain of its senior housing communities have tested positive for COVID-19, which has increased the costs of caring for the residents and resulted in reduced occupancies at such communities. At September 30, 2020, the Company had incurred $4.6 million in COVID-19 related expenses since the onset of the pandemic, $1.4 million of which was incurred in the third quarter of 2020.

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 one year 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) uncertainty around the impact of COVID-19 on the Company’s operations and financial results, and (2) operating losses and negative cash flows from operations for projected fiscal years 2020 and 2021. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern for the twelve-month period following the date the financial statements are issued.

The Company is implementing plans as discussed below, which includes strategic and cash-preservation initiatives, which are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued. The Company’s primary sources of near- and medium-term liquidity are expected to be (1) improved operating cash flows due to strategic and cash preservation initiatives discussed below, (2) debt forbearance, to the extent available on acceptable terms, and (3) forbearance on rent payments to landlords, to the extent available on acceptable terms.

Strategic and Cash Preservation Initiatives

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

• In the first quarter of 2019, the Company implemented a 3-year operational improvement plan which began to show improved operating results during 2020, prior to the onset of COVID-19, and is expected to continue to drive incremental profitability improvements.

• The Company has implemented additional proactive spending reductions to improve liquidity, including reduced discretionary spending and monitoring capital spending.

• The Company has recently taken measures to exit underperforming leases in order to strengthen the Company’s balance sheet and allow the Company to strategically invest in certain existing communities (see “Note 5- Dispositions and Other Significant Transactions”). Recent actions the Company has taken to improve the Company’s future financial position include:

o In the first quarter of 2020, the Company entered into agreements with two of its largest landlords, Welltower, Inc. (“Welltower”) and Ventas, Inc. (“Ventas”) providing for the early termination of the Master Lease Agreements with such landlords covering certain of its senior housing communities. Pursuant to such agreements, the Company agreed to pay Welltower and Ventas reduced monthly rental amounts, beginning February 1, 2020, and to convert such lease agreements into property management agreements with the Company as manager on December 31, 2020, if such communities have not been transitioned to a successor operator.  At September 30, 2020, five communities had transitioned to a successor operator.  On November 1, 2020, subsequent to quarter-end, 14 Welltower communities transitioned to different operators.  See “Note 12- Subsequent Events.”

o In the first quarter of 2020, the Company also entered into an agreement with Healthpeak Properties, Inc. (“Healthpeak”) providing for the early termination of one of two Master Lease Agreements with Healthpeak covering six of its senior housing communities. This Master Lease Agreement was converted to a management agreement under a REIT Investment Diversification Act (“RIDEA”) structure pursuant to which the Company agreed to manage the communities that were subject to such lease agreement until such communities are sold by Healthpeak.

o In the first quarter of 2020, the Company transitioned one of the communities leased from Healthpeak to a new operator.  On October 15, 2020, subsequent to quarter-end, the Company transitioned a second Healthpeak community to a new operator.  See “Note 12- Subsequent Events.”

• The Company is currently evaluating the opportunity to sell certain communities that would provide positive net proceeds.

• In May 2020, the Company entered into short-term debt forbearance agreements with a number of its lenders and continues to discuss further debt relief with its lenders (see “Note 6- Debt Transactions”). In October 2020, the Company entered into an additional short-term forbearance agreement with Protective Life.

• In May 2020, the Company entered into an agreement with Healthpeak effective April 1, 2020, through the end of the lease term, under which the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities.  The remaining rent is subject to payment by the Company pursuant to a three-year note payable with final payment to be on or before November 1, 2023.  Effective as of November 1, 2020, subsequent to quarter-end, the Company entered into an agreement with Healthpeak to extend the end of the lease term from October 31, 2020 to April 30, 2021 (subject to two possible three-month extensions) and modify the monthly rent such that the amount owed to Healthpeak will be equal to any excess cash flows of these

communities.  In addition, the Company will earn a management fee for continuing to manage these communities.  See “Note 12- Subsequent Events.”

• The Company has elected to utilize the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) payroll tax deferral program to delay payment of a portion of payroll taxes estimated to be incurred from April 2020 through December 2020.  At September 30, 2020, the Company had deferred $5.0 million in payroll taxes, which was included in accrued expenses on the Company’s Consolidated Balance Sheets.

• In conjunction with the CARES Act, the Company had received approximately $0.6 million in relief from state agencies at September 30, 2020 and has applied for additional federal and state funding.  On November 6, 2020, subsequent to quarter-end, the Company accepted $8.1 million of cash for grants from the Public Health and Social Services Emergency Fund’s (the “Provider Relief Fund”) Phase 2 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.  See “Note 12- Subsequent Events.”  The Company has also applied for additional grants pursuant to the Provider Relief Fund’s Phase 3 General Distribution, for which the U.S. Department of Health and Human Services (“HHS”) allocated up to $20 billion.  According to HHS' guidance, eligible applicants will receive grant amounts to ensure that they have received approximately 2% of their annual patient care revenue, plus an additional percentage of their change in revenues minus their operating expenses, in each case from patient care attributable to COVID-19.  

• In July 2020, the Company initiated a process which is intended to transfer the operations and ownership of 18 communities that are either underperforming or are in underperforming loan pools to Fannie Mae, the holder of nonrecourse debt on such communities. In conjunction with the agreement, the Company discontinued recognizing revenues and expenses on the properties as of August 1, 2020 but continues to manage the communities on behalf of Fannie Mae.  The Company earns a management fee for providing such services.  As a result of events of default and the appointment of a receiver to take possession of the communities, the Company concluded that, in accordance with ASC 610-20, “Gains and Losses from the Derecognition of Nonfinancial Assets” a $191.0 million loss should be taken due to the derecognition of the assets as a result of the loss of control of the assets, which occurred during the three months ended September 30, 2020.  See “Note 6- Debt Transactions.”  Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities is extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470, “Debt.”  At September 30, 2020, the Company included $217.7 million in outstanding debt in the current portion of notes payable, net of deferred loan costs, and $6.1 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties.  

• The Company is evaluating possible debt and capital options.

The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, or at all, many of which have been made worse or more unpredictable by COVID-19.  Accordingly, management determined it was not probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.  If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued.  

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

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenders as collateral pursuant to letters of credit. The deposits must remain so long as the letters of credit are outstanding which are subject to renewal annually.

The following table sets forth the Company’s cash and cash equivalents and restricted cash (in thousands):

	September 30,
	2020		2019
Cash and cash equivalents	$	14,293	$	7,703
Restricted cash		3,982		13,073
	$	18,275	$	20,776

Long-Lived Assets and Impairment

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information to determine whether impairment indicators exist.

If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. 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 and disposition, calculated utilizing the lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period.  Asset groups were established at the individual property level and consist of property and equipment, net for owned properties and property and equipment, net and right-of-use assets, net for leased properties.  Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the Company’s assumptions. Impairment, if any, is recorded in the period in which the impairment occurred.

Assets Held for Sale

Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends, and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates.

During the first quarter of 2019, the Company classified one senior housing community located in Kokomo, Indiana, as held for sale, resulting in $4.9 million being reclassified as assets held for sale and $3.5 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value, net of costs of disposal of $4.9 million. As the fair value was less than the carrying value of $7.2 million, a remeasurement write-down of approximately $2.3 million was recorded to adjust the carrying values of the assets held for sale at March 31, 2019. The senior living community was sold during the second quarter of 2019 for its carrying value.  

During the third quarter of fiscal 2019, the Company classified two communities, located in Springfield, Missouri and Peoria, Illinois, as assets held for sale resulting in net assets of $24.4 million being reclassified to assets held for sale and $44.4 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Company’s Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value of $62.8 million, net of disposal costs. The two senior living communities were sold during the fourth quarter of 2019.  There were no senior housing communities classified as held for sale by the Company at September 30, 2020 or December 31, 2019.

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements at September 30, 2020 or December 31, 2019.

Revenue Recognition

Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided, which totaled approximately $84.7 million and $286.1 million for the three and nine months ended September 30, 2020, respectively, and approximately $109.4 million and $333.4 million for the three and nine months ended September 30, 2019, respectively. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. At June 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred resident fees paid by residents prior to the month housing and support services were to be provided totaling approximately $5.0 million and $4.3 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2020. At June 30, 2019 and December 31, 2018, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.1 million and $4.5 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2019. The Company had contract liabilities for deferred resident fees totaling approximately $4.3 million, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at September 30, 2020 and December 31, 2019. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears and totaled approximately $0.1 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, and approximately $1.0 million and $3.1 million for the three and nine months ended September 30, 2019, respectively, as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The Company's senior housing communities have residency agreements that generally require the resident to pay a community fee prior to moving into the community and are recorded initially by the Company as deferred revenue. At September 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred community fees totaling approximately $1.6 million and $2.2 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets.

The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $1.0 million and $3.2 million during the three and nine months ended September 30, 2020, respectively.  The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $0.7 million and $1.9 million during the three and nine months ended September 30, 2019, respectively.

During the first quarter of 2020, the Company entered into management agreements whereby it manages certain communities under a contract which provides periodic management fee payments to the Company and reimbursement for costs and expenses related to such communities. In addition, during the third quarter of 2020, the Company entered into a management agreement with Fannie Mae, whereby it manages the 18 communities of which it is in the process of legally transferring the ownership to Fannie Mae.  The Company will continue to manage the communities until ownership of such communities has legally transferred to Fannie Mae.  See “Note 6- Debt Transactions.”  Management fees are generally determined by an agreed upon percentage of gross revenues (as defined in the management agreement). The Company has determined that all community management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company's estimate of the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred. Such revenue is included in "community reimbursement revenue" on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The related costs are included in "community reimbursement expense" on the Company’s Consolidated Statements of Operations and Comprehensive Loss.  The Company recognized revenue from management fees of $0.6 million and $0.8 million, during the three and nine months ended September 30, 2020, respectively.  The Company recognized revenue from reimbursed costs incurred on behalf of managed communities of $9.6 million and $11.9 million, during the three and nine months ended September 30, 2020, respectively.

Lease Accounting

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

Modifications to existing lease agreements, including changes to the lease term or payment amounts, are reviewed to determine whether they result in a separate contract. For modifications that do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and liabilities at the effective date of the modification.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

Credit Risk and Allowance for Doubtful Accounts

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $7.9 million and $8.6 million at September 30, 2020, and December 31, 2019, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.

Self-Insurance Liability Accruals

The Company offers full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Additionally, the Company may be liable for an Employee Shared Responsibility Payment (“ESRP”) pursuant to the Affordable Care Act. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential coverage (“MEC”) to at least 70% of full-time employees and their dependents, or did offer MEC to at least 70% of full-time employees and their dependents that did not meet the affordable or minimum value criteria and had one or more full-time employees certified as being allowed the premium tax credit. The IRS determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by employees. Management believes that the liabilities recorded and reserves established for outstanding losses and expenses are adequate to cover the ultimate cost of losses and expenses incurred at September 30, 2020; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.

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

Income Taxes

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. The effective tax rates for the three and nine months ended September 30, 2020 and 2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. The Company consolidates 38 Texas communities for purposes of the TMT, which contributes to the overall provision for income taxes.

Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which the Company expects those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its U.S. and state net deferred tax assets.  The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be realized. However, in the event that the Company were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period such determination was made. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.

The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that such position is “more likely than not” to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state tax audits for years prior to 2016 and 2015, respectively.

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the CARES Act were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. Future regulatory guidance under the FFCR Act and the CARES Act remains forthcoming, and such guidance could ultimately increase or lessen their impact on the Company’s business and financial condition.

Net Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Net loss allocated to unvested restricted shares		—			—			—			—
Undistributed net loss allocated to common shares	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Weighted average shares outstanding – basic		30,730			30,324			30,578			30,236
Effects of dilutive securities:
Employee equity compensation plans		—			—			—			—
Weighted average shares outstanding – diluted		30,730			30,324			30,578			30,236
Basic net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)

Awards of unvested restricted stock and restricted stock units representing approximately 685,000 shares, as well as 147,000 outstanding stock options, were antidilutive as a result of the net loss reported by the Company for the three and nine months ended September 30, 2020. Awards of unvested restricted stock and restricted stock units representing approximately 1,128,000 shares and approximately 147,000 stock options, were antidilutive as a result of the net loss reported by the Company for the three and nine months ended September 30, 2019. Accordingly, such shares and options were not included in the calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2020 and 2019.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity (deficit). All shares acquired by the Company have been purchased in open-market transactions. There were no repurchases of the Company’s common stock during the nine months ended September 30, 2020 or fiscal 2019.

Recently Issued Accounting Guidance

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020, the adoption of which did not have a material impact on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

XML

Impairment of Long-Lived Assets

9 Months Ended

Sep. 30, 2020

Asset Impairment Charges [Abstract]

Impairment of Long-Lived Assets

4. IMPAIRMENT OF LONG-LIVED ASSETS

During the first quarter of 2020, the Company determined that the modifications of certain of its Master Lease Agreements (see “Note 5- Dispositions and Other Significant Transactions”) and adverse impacts on the Company’s operating results resulting from the COVID-19 pandemic were indicators of potential impairment of its long-lived assets.  As such, the Company evaluated its long-lived asset groups for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets.    

In March 2020, the Company entered into forbearance agreements with Ventas and Welltower, which, among other things, provide that the lease agreements covering the communities will be converted into property management agreements with the Company as manager on December 31, 2020 if the properties have not transitioned to a successor operator on or prior to such date (see “Note 5- Dispositions and Other Significant Transactions”). The Company’s leases with Ventas and Welltower were originally scheduled to mature during 2025 and 2026.  Due to the modification of the lease term and the expected impacts of the COVID-19 pandemic, the Company evaluated certain owned communities and all leased communities for impairment and tested the recoverability of these assets by comparing projected undiscounted cash flows associated with these assets to their respective historical carrying values.  For communities in which the historical carrying value was not recoverable, the Company compared the estimated fair value of the assets to their carrying amount and recorded an impairment charge for the excess of carrying amount over fair value.  For the operating lease right-of-use assets, fair value was estimated utilizing a discounted cash flow approach based on historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio.  The fair values of the property and equipment, net of these communities, were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage.  These fair value measurements are considered Level 3 measurements within the valuation hierarchy.  During the first quarter of 2020, the Company recorded non-cash impairment charges of $6.2 million and $29.8 million to operating lease right-of-use assets, net and property and equipment, net, respectively.

During the three months ended September 30, 2020, the Company recorded non-cash impairment charges of $1.3 million and $1.1 million to operating lease right-of-use assets, net and property and equipment, net, respectively, due to a change in the useful life of 15 of its communities, all of which transferred to new operators subsequent to quarter-end (see “Note 12, Subsequent Events,” for discussion of these properties’ transitions).  Due to the changes in useful lives, the Company concluded the assets related to those properties had indicators of impairment and the carrying values were not fully recoverable.  The fair values of the right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio.  In addition, during the three months ended September 30, 2020 the Company recorded a non-cash impairment charge of $0.8 million to property and equipment, net of one owned community.  The fair value of the property and equipment, net of this community was determined was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities.  This impairment charge is primarily due to the COVID-19 pandemic and lower than expected operating performance at the community and reflects the amount by which the carrying amount of these assets exceeded their fair value.  In total, the Company recognized non-cash impairment charges of $3.2 million and $39.2 million for the three and nine months ended September 30, 2020, respectively.  The Company did not record any impairment charges for the three or nine months ended September 30, 2019.

XML

Dispositions and Other Significant Transactions

9 Months Ended

Sep. 30, 2020

Dispositions And Other Significant Transactions [Abstract]

Dispositions and Other Significant Transactions

5. DISPOSITIONS AND OTHER SIGNIFICANT TRANSACTIONS

Disposition of Boca Raton, Florida Community

Effective January 15, 2020, the Company’s leased senior living community located in Boca Raton, Florida transitioned to a new operator.  In conjunction with the transition, the Company paid the lessor, Healthpeak, a one-time $0.3 million termination payment as a prepayment against the remaining lease payments and was relieved of any additional obligation to Healthpeak with regard to that property and the lease was terminated as to this property.  The Company recorded an approximate $1.8 million gain on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

Disposition of Merrillville, Indiana Community

Effective March 31, 2020, the Company sold one community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in cash proceeds after paying customary closing costs.  The community was unencumbered by any mortgage debt.  The Company recognized a loss of $7.4 million on the disposition, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.  The community was comprised of 171 assisted living units and 42 memory care units.

Early Termination of Master Lease Agreements

As of December 31, 2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”).  The Company transitioned one community to a different operator effective January 15, 2020. During the first quarter of 2020, the Company entered into agreements, which restructured or terminated certain of its Master Lease Agreements with each of its landlords as further described below.  After giving effect to such transactions, the disposition of the Company’s Boca Raton community in January 2020, and the disposition of five communities in September 2020, as of September 30, 2020, the Company leased 34 senior living communities from the REITs and managed six senior living communities for the account of Healthpeak.

Ventas

As of December 31, 2019, the Company leased seven senior housing communities from Ventas.  The term of the Ventas lease agreement was scheduled to expire on September 30, 2025.  On March 10, 2020, the Company entered into an agreement with Ventas (as amended, the “Ventas Agreement”), providing for the early termination of its Master Lease Agreement with Ventas covering all seven communities.  Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreement.  In addition, the Ventas Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreement during the forbearance period, which terminates on December 31, 2020 absent any defaults by the Company.  In conjunction with the Ventas Agreement, the Company released to Ventas $4.1 million in security deposits and $2.5 million in escrow deposits held by Ventas, and Ventas reduced the amounts and term of the Company’s lease payments, and effectively eliminated the Company’s lease termination obligation, which was $11.4 million at December 31, 2019.  The Ventas Agreement provides that Ventas can terminate the Master Lease Agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Ventas may elect to enter into a property management agreement with the Company as manager or transition the properties to a new operator. If, as of December 1, 2020, Ventas has not delivered a termination notice for any communities subject to the Master Lease Agreement, then, with respect to any such communities, Ventas will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Ventas Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreement during the applicable forbearance period and Ventas will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Ventas and modification of the lease term pursuant to the Ventas Agreement was determined to be a modification of the Master Lease Agreement.  As such, the Company reassessed the classification of the Master Lease Agreement with Ventas based on the modified terms and determined that the lease continued to be classified as an operating lease until the communities transitioned to a different operator or management agreement, at which time the lease would terminate.  The modification resulted in a reduction to the lease termination obligation, lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets by approximately $11.4 million, $51.6 million, and $47.8 million, respectively, during the first quarter of 2020.  The Company recognized a net gain of approximately $8.4 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020 and was primarily due to the impact of the change in lease term on certain of the right-of-use asset balances.  As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020.  See “Note 4- Impairment of Long Lived Assets.”

Welltower

As of December 31, 2019, the Company leased 24 senior housing communities from Welltower. The initial terms of the Welltower lease agreements were scheduled to expire on various dates from April 2025 through April 2026. On March 15, 2020, the Company entered into an agreement with Welltower (the “Welltower Agreement”), providing for the early termination of three Master Lease Agreements between it and Welltower covering all 24 communities.  Pursuant to the Welltower Agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements.  In addition, the Welltower Agreement provides that the Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company.  In conjunction with the Welltower Agreement, the Company agreed to release $6.5 million in letters of credit to Welltower, which were released during the three months ended June 30, 2020.  The Welltower Agreement provides that Welltower can terminate the agreement, with respect to any or all communities upon 30 days’ notice. The effective date of termination may not be later than December 31, 2020. Upon termination, Welltower may elect to enter into a property management agreement with the Company as manager or to transition the properties to a new operator. If, as of December 1, 2020, Welltower has not delivered a termination notice for any communities subject to the Master Lease Agreements, then, with respect to any such communities, Welltower will be deemed to have delivered a termination notice electing to enter into a property management agreement with the Company as manager for such communities with an effective date of December 31, 2020. Any such management agreement will provide for a management fee equal to 5% of gross revenues of the applicable community payable to the Company and other customary terms and conditions. The Welltower Agreement also provides that the Company will not be obligated to fund certain capital expenditures under the Master Lease Agreements during the applicable forbearance period and Welltower will reimburse the Company for certain specified capital expenditures.

In accordance with ASC Topic 842, the reduction in the monthly minimum rent payable to Welltower under the then- existing Master Lease Agreements with Welltower and modification to the lease term pursuant to the Welltower Agreement was determined to be a

modification of the Master Lease Agreements.  As such, the Company reassessed the classification of the Master Lease Agreements based on the modified terms and determined that the each of the leases continued to be classified as an operating lease until the applicable communities transitioned to a different operator or management agreement, at which time such lease would terminate.  The modification resulted in a reduction to the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets by approximately $129.9 million, and $121.9 million, respectively, during the first quarter of 2020.  The Company recognized a gain of approximately $8.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.  As a result of the lease modification, the Company assessed the operating lease right-of-use assets for impairment during the first quarter of 2020.  See “Note 4- Impairment of Long Lived Assets.”

During the three months ended September 30, 2020, Welltower elected to terminate the agreement with respect to five communities, all of which transferred to a different operator on September 10, 2020.  The Company recorded an approximate $0.7 million loss on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020.

Healthpeak

On March 1, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Agreement”), effective February 1, 2020, providing for the early termination of one of its Master Lease Agreements with Healthpeak, which was previously scheduled to mature in April 2026.  Such Master Lease Agreement terminated and was converted into a Management Agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that were subject to the Master Lease Agreement until such communities are sold by Healthpeak.  Pursuant to the Management Agreement, the Company will receive a management fee equal to 5% of gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities.  In conjunction with the Healthpeak Agreement, the Company released to Healthpeak approximately $2.6 million of security deposits held by Healthpeak.  The Company remeasured the lease liability and operating lease right-of-use asset recorded in the Company's Consolidated Balance Sheets at December 31, 2019 to zero, resulting in a net loss of $7.0 million on the transaction, which is included in gain (loss) on facility lease modification and termination, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2020.

On May 20, 2020, the Company entered into an additional agreement with Healthpeak, effective April 1, 2020 until the end of the lease term. Pursuant to such agreement, the Company began paying Healthpeak rent of approximately $0.7 million per month for eight senior housing communities subject to a Master Lease Agreement with Healthpeak in lieu of approximately $0.9 million of monthly rent due and payable under the Master Lease Agreement covering such communities.  The rents paid to Healthpeak represent approximately 75% of their scheduled rates, with the remaining rent being subject to payment by the Company pursuant to a three-year note payable with final payment including accrued interest from November 1, 2021, to be made on or before November 1, 2023.  At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  Given that the total minimum lease payments and the lease term remain unchanged, the Company has elected not to evaluate the deferral as a rent concession and will not account for the deferral as a modification to the existing lease agreement.  The Company concluded the concessions provided to the Company were not contemplated by the existing lease. The Company will account for the concession in the form of a deferral as if the lease terms were unchanged.  Accordingly, once interest begins to accrue on the deferral amount, the Company will record interest expense and accrued interest payable on the portion of the deferral amount that has yet to be paid on a monthly basis until such interest payments become due.  The Company will continue to account for the lease liability and right-of-use asset using the rights and obligations of the existing lease through the end of the lease term.

Disposition of Kokomo, Indiana Community

Effective May 1, 2019, the Company closed the sale of one senior housing community located in Kokomo, Indiana, for a total purchase price of $5.0 million and received approximately $1.4 million in net proceeds after retiring outstanding mortgage debt of $3.5 million and paying customary transaction and closing costs (the “Kokomo Sale Transaction”). The community was comprised of 138 assisted living units. The Company had reported these assets as held for sale at March 31, 2019 and recorded a remeasurement write-down of approximately $2.3 million to adjust the carrying values of these assets to the sales price, less costs to sell, which is included in the write down of assets held for sale net on the Company’s Consolidated Statements of Operations and Comprehensive Loss for the nine months ended September 30, 2019.

XML

Debt Transactions

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt Transactions

6. DEBT TRANSACTIONS

Transactions Involving Certain Fannie Mae Loans

The CARES Act, among other things, permitted borrowers with mortgages from Government Sponsored Enterprises who experienced a financial hardship related to COVID-19 to obtain forbearance of their loans for up to 90 days. On May 7, 2020, the Company entered into forbearance agreements with Berkadia Commercial Mortgage LLC, as servicer of 23 of its Fannie Mae loans covering 20 properties.  On May 9, 2020, the Company entered into a forbearance agreement with Wells Fargo Bank (“Wells Fargo”), as servicer

of one Fannie Mae loan covering one property.  On May 20, 2020, the Company entered into forbearance agreements with KeyBank, as servicer of three Fannie Mae loans covering two properties.   The forbearance agreements allowed the Company to withhold the loan payments due under the loan agreements for the months of April, May and June 2020 and Fannie Mae agreed to forbear in exercising its rights and remedies during such period.  During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.  

On July 8, 2020, the Company entered into forbearance extension agreements with Fannie Mae, which provided for a one month extension of the forbearance agreements between it and Fannie Mae covering 23 properties.   The forbearance extension agreements extended the forbearance period until July 31, 2020, and Fannie Mae agreed to forbear in exercising its rights and remedies during such period.  By July 31, 2020, the Company was required to repay to Fannie Mae the deferred payments, less payments made during the forbearance period.  

On July 31, 2020, the Company made required payments to Fannie Mae totaling $0.6 million, which included the deferred payments, less payments made during the forbearance period, for five properties with forbearance agreements.  The Company elected not to pay $3.9 million on the loans for the remaining 18 properties as of that date as it initiated a process which is 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 default, Fannie Mae filed a motion with the United States District Court requesting that a receiver be appointed over the 18 properties, which was approved by the court.  The Company agreed to continue to manage the 18 communities, subject to earning a management fee, until legal ownership of the properties is transferred to Fannie Mae.  Management fees earned from the properties are recognized as revenue when earned.  In conjunction with the receivership order, the Company must obtain approval from the receiver for all payments, but will receive reimbursements from Fannie Mae for reasonable operating expenses incurred on behalf of any of the 18 communities under the receivership order.  As a result of the events of default and receivership order, the Company discontinued recognizing revenues and expenses related to the 18 properties effective August 1, 2020, which was the date of default.  In addition, the Company concluded it was no longer entitled to receive any existing accounts receivable or revenue related to the properties, all amounts held in escrow by Fannie Mae had been forfeited, and that the Company no longer has control of the properties in accordance ASC 610-20.  As such, the Company derecognized the assets and recorded a loss of $191.0 million on the transaction, which is included in loss on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss during the three and nine months ended September 30, 2020.  Once legal ownership of the properties transfers to Fannie Mae and the liabilities relating to such communities have been extinguished, the Company expects to recognize a gain related to the extinguishment in accordance with ASC 470.  At September 30, 2020, the Company included $217.7 million in outstanding debt in current portion of notes payable, net of deferred loan costs, and $6.1 million of accrued interest in accrued expenses on the Company’s Consolidated Balance Sheets related to these properties.

Debt Forbearance Agreement on BBVA Loan

The Company also entered into a loan amendment with another lender, BBVA, USA, related to a loan covering three properties pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to principal and due in June 2021.  At September 30, 2020, the Company had deferred payments of $0.9 million related to the BBVA loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.

Debt Forbearance Agreement on HUD Loan

The Company also entered into a debt forbearance agreement with ORIX Real Estate Capital, LLC (“ORIX”), related to a U.S. Department of Housing and Urban Development (“HUD”) loan covering one property pursuant to which the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period.  At September 30, 2020, the Company had deferred payments of $0.1 million related to the ORIX loan, which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

On May 21, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company (“Protective Life”), related to loans covering 10 properties.  These amendments allow the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.  At September 30, 2020, the Company had deferred payments of $3.2 million related to the Protective Life loans, of which $1.7 million was included in accrued expenses in the Company’s Consolidated Balance Sheets.  The remaining $1.5 million of which were included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  Subsequent to quarter-end, the Company entered into amendments to its loan agreements with Protective Life, which allow the Company to defer principal and interest

payments for October, November, and December 2020 and to continue to defer principal payments through September 30, 2021.  See “Note 12- Subsequent Events.”

Letters of Credit

The Company previously issued standby letters of credit with Wells Fargo, totaling approximately $3.4 million, for the benefit of Hartford Financial Services (“Hartford”) in connection with the administration of workers’ compensation.  On August 27, 2020, the available letters of credit were increased to $4.0 million, all of which remained outstanding as of September 30, 2020.

The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately $6.5 million, for the benefit of Welltower, in connection with certain leases between Welltower and the Company.  The letters of credit were surrendered and paid to Welltower in conjunction with the Welltower Agreement during the quarter ended June 30, 2020.

The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of Healthpeak in connection with certain leases between Healthpeak and the Company.  The letters of credit were released to the Company during the first quarter of 2020 and were included in cash and cash equivalents on the Company’s Consolidated Balance Sheets.

Notes Payable

The senior housing communities owned by the Company and encumbered by mortgage debt are provided as collateral under their respective loan agreements. At September 30, 2020 and December 31, 2019, these communities carried a total net book value of approximately $883.7 million and $898.0 million, respectively, with total mortgage loans outstanding, excluding deferred loan costs, of approximately $921.6 million and $926.5 million, respectively.

On June 15, 2020, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $2.2 million. The finance agreement has a fixed interest rate of 4.60% with the principal being repaid over a 10-month term.  On May 20, 2020, the Company entered into an agreement with Healthpeak (“the Healthpeak Forbearance”), effective April 1, 2020, through the lease term ending October 31, 2020, to defer a percentage of rent payments.  At September 30, 2020, the Company had deferred $1.4 million in rent payments, which is included in notes payable, net of deferred loan costs and current portion on the Company’s Consolidated Balance Sheets.  See “Note 5- Dispositions and Other Significant Transactions.” In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the terms of the respective notes. At September 30, 2020 and December 31, 2019, the Company had gross deferred loan costs of approximately $14.3 million and $14.3 million, respectively. Accumulated amortization was approximately $7.1 million and $5.7 million at September 30, 2020 and December 31, 2019, respectively. Except as noted below, the Company was in compliance with all aspects of its outstanding indebtedness as of September 30, 2020 and December 31, 2019.  Pursuant to the forbearance agreements described above under “Transactions Involving Certain Fannie Mae Loans,” the Company withheld loan payments due under loan agreements with Fannie Mae covering certain of the Company’s communities for the months of April through September of 2020.  Additionally, the Company does not expect to be in compliance with a certain financial covenant of its loan agreement with Fifth Third Bank, on the Company’s Autumn Glen and Cottonwood Village properties, as of September 30, 2020, in which a minimum debt service coverage ratio must be maintained.  However, cure provisions within the debt agreement allow the Company to make a principal payment to bring the debt service coverage ratio into compliance.  The Company is in active negotiations with Fifth Third Bank to resolve this noncompliance, but cannot give any assurance that a mutually agreed resolution will be reached. If a mutually agreed upon solution is not reached and the Company does not exercise its rights to cure the noncompliance with the debt covenant, the Company may be found in default of the debt agreement.  In the event of default, Fifth Third has the right to declare all amounts outstanding to be immediately due and payable.  As such, the Company included $31.5 million in outstanding debt related to those properties in current portion of notes payable, net of deferred loan costs, on the Company’s Consolidated Balance Sheets at September 30, 2020.  

XML

Equity

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

Equity

7. EQUITY

Preferred Stock

The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Company’s board of directors without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock. No preferred stock was outstanding as of September 30, 2020 or December 31, 2019.

Share Repurchases

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. Shares of stock repurchased under the program will be held as treasury shares. Pursuant to this authorization, during fiscal 2009, the Company purchased 349,800 shares at an average cost of $2.67 per share for a total cost to the Company of approximately $0.9 million. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during the first quarter of fiscal 2016, the Company purchased 144,315 shares of its common stock at an average cost of $17.29 per share for a total cost to the Company of approximately $2.5 million. All such purchases were made in open market transactions. The Company has not purchased any additional shares of its common stock pursuant to the Company’s share repurchase program during the three or nine months ended September 30, 2020 or fiscal 2019.

XML

Stock-Based Compensation

9 Months Ended

Sep. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

8. STOCK-BASED COMPENSATION

The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Loss based on their fair values.

On May 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”). The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000 shares of common stock plus reserved shares not issued or subject to outstanding awards under the 2007 Plan, and the Company has reserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. Effective March 26, 2019, the 2007 Plan was terminated and no additional awards will be granted under the 2007 Plan.

Stock Options

The Company may periodically grant stock options as a long-term retention tool that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder interests with those of our employees and directors. The Company’s stock options generally vest over a period of one to five years and the related expense is amortized on a straight-line basis over the vesting period. A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2020 is presented below:

	Outstanding at Beginning of Period		Granted	Exercised	Cancelled	Outstanding at End of Period
Options		147,239	–	–	–		147,239

At September 30, 2020, the options outstanding had no intrinsic value, a weighted-average remaining contractual life of 8.25 years, and a weighted average exercise price of $7.46.  At September 30, 2020, there was approximately $0.2 million of total unrecognized compensation expense, which is expected to be recognized over a weighted average period of 1.25 years.  At September 30, 2020, 48,588 options were exercisable, and the remaining options were unvested.  There were no stock options granted during the three or nine months ended September 30, 2020.

Restricted Stock

The Company periodically grants restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance and market-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock awards with performance and market-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement.  Performance goals are evaluated periodically, and if such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed for performance-based awards.

The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted stock awards activity and related information for the nine months ended September 30, 2020 is presented below:

	Outstanding at Beginning of Period		Granted	Vested			Cancelled			Outstanding at End of Period
Shares		1,089,346	–		(301,740	)		(102,359	)		685,247

The restricted stock outstanding at September 30, 2020 had an intrinsic value of approximately $0.5 million.  There were no grants of restricted stock awards or restricted stock units during the three or nine months ended September 30, 2020.

The Company recognized $0.4 million and $1.5 million in stock-based compensation expense during the three and nine months ended September 30, 2020, respectively, and $0.9 million and $1.6 million during the three and nine months ended September 30, 2019, respectively, which is primarily associated with employees whose corresponding salaries and wages are included within general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Unrecognized stock-based compensation expense was $1.7 million as of September 30, 2020. If all awards granted are earned, the Company expects this expense to be recognized over a one to three-year period for performance and market-based stock awards and a one to four-year period for nonperformance-based stock awards, options and units.

XML

Contingencies

9 Months Ended

Sep. 30, 2020

Commitments And Contingencies Disclosure [Abstract]

Contingencies

9. CONTINGENCIES

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

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

10. FAIR VALUE MEASUREMENTS

Financial Instruments

The carrying amounts and fair values of financial instruments at September 30, 2020 and December 31, 2019, are as follows (in thousands):

	September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	14,293	$	14,293	$	23,975	$	23,975
Restricted cash		3,982		3,982		13,088		13,088
Notes payable, excluding deferred loan costs		923,048		921,567		930,085		899,326

The following methods and assumptions were used in estimating the Company’s fair value disclosures for financial instruments:

Cash and cash equivalents and Restricted cash: The carrying amounts reported in the Company’s Consolidated Balance Sheets for cash and cash equivalents and restricted cash approximate fair value, which represent level 1 inputs as defined in the accounting standards codification.

Notes payable, excluding deferred loan costs: The fair value of notes payable, excluding deferred loan costs, is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent level 2 inputs as defined in the accounting standards codification.

Assets Held for Sale: During the three and nine months ended September 30, 2020, no senior living communities were classified as assets held for sale.  During the first quarter of 2019, the Company classified one senior living community as held for sale and recognized a remeasurement write-down of approximately $2.3 million to adjust the carrying values of the assets to their fair value, net of cost of disposal.  The senior living community was sold during the second quarter of 2019 for its carrying value.  During the third quarter of 2019, the Company classified two senior living communities as held for sale, which required no remeasurement to adjust the carrying values to the fair values.

The Company determines, using level 2 inputs as defined in the accounting standards codification, the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions.

Operating Lease Right-Of-Use Assets

The Company recorded non-cash impairment charges to operating lease right-of-use assets, net of $1.3 million and $7.5 million for the three and nine months ended September 30, 2020, respectively.  The Company recognized impaired operating lease right-of-use assets, net at their fair values of $15.0 million and $0.5 million at March 31, 2020 and September 30, 2020 respectively.  The fair values of the right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio of 1.1. The range of discount rates utilized was 7.7% to 10.3%, depending upon the property type and geographical location of the respective community.  See “Note 4- Impairment of Long-Lived Assets.”

Property and Equipment, Net

During the three and nine months ended September 30, 2020, the Company recorded non-cash impairment charges of $1.9 million and $31.7 million to property and equipment, net, respectively.  The fair value of the impaired assets was $10.5 million and $12.5 million at March 31, 2020 and September 30, 2020, respectively.  At March 31, 2020, the fair values of the property and equipment, net of these communities were primarily determined utilizing the cost approach, which determines the current replacement cost of the property being appraised and then deducts for the loss in value caused by physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage.  At September 30, 2020, the fair value of the property and equipment, net of the owned community was determined using the sales comparison approach, which utilizes the sales of comparable properties, and the income capitalization approach, which reflects the property’s income-producing capabilities.  The fair values of the property and equipment, net of the leased communities were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market capitalization rates. All of the aforementioned fair value measurements are considered Level 3 measurements within the valuation hierarchy.

The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.

As of September 30, 2020, there was a wide range of possible outcomes as a result of the COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impacts. Management’s estimates of the impacts of the pandemic are highly dependent on variables that are difficult to predict, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease, the duration and degree to which visitors are restricted from the Company's communities, the effect of the pandemic on the demand for senior living communities, the degree to which the Company may receive government financial relief and the timing thereof, and the duration and costs of the Company’s response efforts. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

XML

Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

11. LEASES

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present

value of future minimum lease payments. As of September 30, 2020, the weighted average discount rate and average remaining lease terms of the Company's operating leases was 4.1% and 0.4 years, respectively. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method.  As of September 30, 2020, the weighted average discount rate and average remaining lease term of the Company's financing leases was 7.0% and 3.3 years, respectively. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

The Company has operating leases for various real estate (primarily senior housing communities) and equipment as well as financing leases for certain vehicles. As of September 30, 2020, the Company leased 34 senior housing communities from certain REITs. Under these facility lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. Additionally, facility leases may include contingent rent increases when certain operational performance thresholds are surpassed, at which time the right-of-use assets and lease liability will be remeasured.

The recoverability of assets and depreciable life of leasehold improvements are limited by expected lease terms. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees. As of September 30, 2020, the Company was not in compliance with certain provisions of the Welltower Agreement and the Ventas Agreement due to the Company’s events of default regarding certain Fannie Mae loan agreements (see “Note 6- Debt Transactions”).  Ventas and Welltower subsequently waived the defaults under the Ventas Agreement and the Welltower Agreement, respectively.  The Company was in compliance with all other lease covenants at September 30 2020.  As of December 31, 2019, the Company was not in compliance with certain financial covenants with regard to its Master Lease Agreements with Ventas and Welltower.  The Company subsequently entered into the Ventas Agreement and the Welltower Agreement with respect to such defaults. Under the agreements, the Company does not have to comply with certain financial covenants of the respective Master Lease Agreements during the forbearance period, which terminates on December 31, 2020, absent any defaults by the Company under such agreements.  The Company was in compliance with all other lease covenants at December 31, 2019.

A summary of operating and financing lease expense (including the respective presentation on the consolidated statement of operations) and cash flows from leasing transactions is as follows:

	Nine Months Ended September 30,
Operating Leases (in thousands)	2020		2019
Facility lease expense	$	23,234	$	42,706
General and administrative expenses		495		238
Operating expenses, including variable lease expense of    $4,499 and $4,616 in 2020 and 2019, respectively		4,760		5,070
Total operating lease costs	$	28,489	$	48,014
Operating lease expense adjustment		18,460		4,285
Operating cash flows from operating leases	$	46,949	$	52,299

	Nine Months Ended September 30,
Financing Leases (in thousands)	2020		2019
Depreciation and amortization	$	110	$	—
Interest expense: financing lease obligations		25		—
Total financing lease costs		135		—
Operating cash flows from financing leases	$	110	$	—
Financing cash flows from financing leases		25		—
Total cash flows from financing leases	$	135	$	—

Future minimum lease payments associated with operating lease liabilities recognized on the Company’s Consolidated Balance Sheets as of September 30, 2020, are as follows (in thousands):

Year Ending December 31,	Operating Leases			Financing Leases
2020 (excluding the nine months ended September 30, 2020)	$	8,727		$	39
2021		321			155
2022		132			155
2023		85			145
2024		47			7
Thereafter		3			2
Total	$	9,315		$	503
Less: Amount representing interest (present value discount)		(205	)		(52	)
Present value of lease liabilities	$	9,110		$	451
Less: Current portion of lease liabilities		(8,845	)		(126	)
Lease liabilities, net of current portion	$	265		$	325

XML

Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

12. SUBSEQUENT EVENTS

Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreements

Effective October 1, 2020, the Company entered into amendments to its loan agreements with one of its lenders, Protective Life Insurance Company, related to loans covering 10 properties.  These amendments allow the Company to defer interest payments for October, November, and December 2020 and to extend the deferral period of principal payments through September 1, 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.

Disposition of St. Louis, Missouri Community

Effective October 15, 2020, the Company’s leased senior living community located in St. Louis, Missouri transitioned to a new operator.  In conjunction with the transition, the Company was relieved of any additional obligation to Healthpeak with regard to that property.  The transition was the second transaction under the Company’s October 22, 2019 agreement with Healthpeak.  

Disposition of 14 Welltower Communities

Effective November 1, 2020, 14 of the Company’s leased senior living communities transitioned to new operators.  The transitions were the second and third transactions under the Welltower Agreement.

Healthpeak Lease Amendment

Effective as of November 1, 2020, subsequent to quarter-end, the Company entered into an agreement with Healthpeak to extend the end of the lease term from October 31, 2020 to April 30, 2021 (subject to two possible three month extensions).  Pursuant to such agreement, the Company will begin paying Healthpeak monthly rent of any excess cash flow of the communities and earning a management fee for continuing to manage the communities.

Acceptance of Provider Relief Fund Grant

On November 6, 2020, the Company accepted $8.1 million of cash for grants from the Provider Relief Fund’s Phase 2 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19.

XML

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Cash and Cash Equivalents and Restricted Cash

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenders as collateral pursuant to letters of credit. The deposits must remain so long as the letters of credit are outstanding which are subject to renewal annually.

The following table sets forth the Company’s cash and cash equivalents and restricted cash (in thousands):

	September 30,
	2020		2019
Cash and cash equivalents	$	14,293	$	7,703
Restricted cash		3,982		13,073
	$	18,275	$	20,776

Long-Lived Assets and Impairment

Long-Lived Assets and Impairment

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information to determine whether impairment indicators exist.

If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. 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 and disposition, calculated utilizing the lowest level of identifiable cash flows. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the asset to its carrying amount, with any amount in excess of fair value recognized as an expense in the current period.  Asset groups were established at the individual property level and consist of property and equipment, net for owned properties and property and equipment, net and right-of-use assets, net for leased properties.  Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the Company’s assumptions. Impairment, if any, is recorded in the period in which the impairment occurred.

Assets Held for Sale

Assets Held for Sale

Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends, and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates.

During the first quarter of 2019, the Company classified one senior housing community located in Kokomo, Indiana, as held for sale, resulting in $4.9 million being reclassified as assets held for sale and $3.5 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value, net of costs of disposal of $4.9 million. As the fair value was less than the carrying value of $7.2 million, a remeasurement write-down of approximately $2.3 million was recorded to adjust the carrying values of the assets held for sale at March 31, 2019. The senior living community was sold during the second quarter of 2019 for its carrying value.  

During the third quarter of fiscal 2019, the Company classified two communities, located in Springfield, Missouri and Peoria, Illinois, as assets held for sale resulting in net assets of $24.4 million being reclassified to assets held for sale and $44.4 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Company’s Consolidated Balance Sheets. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value of $62.8 million, net of disposal costs. The two senior living communities were sold during the fourth quarter of 2019.  There were no senior housing communities classified as held for sale by the Company at September 30, 2020 or December 31, 2019.

Off-Balance Sheet Arrangements

Off-Balance Sheet Arrangements

The Company had no material off-balance sheet arrangements at September 30, 2020 or December 31, 2019.

Revenue Recognition

Revenue Recognition

Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided, which totaled approximately $84.7 million and $286.1 million for the three and nine months ended September 30, 2020, respectively, and approximately $109.4 million and $333.4 million for the three and nine months ended September 30, 2019, respectively. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. At June 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred resident fees paid by residents prior to the month housing and support services were to be provided totaling approximately $5.0 million and $4.3 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2020. At June 30, 2019 and December 31, 2018, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.1 million and $4.5 million, respectively, which were recognized into revenue during the three and nine months ended September 30, 2019. The Company had contract liabilities for deferred resident fees totaling approximately $4.3 million, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at September 30, 2020 and December 31, 2019. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears and totaled approximately $0.1 million and $1.6 million for the three and nine months ended September 30, 2020, respectively, and approximately $1.0 million and $3.1 million for the three and nine months ended September 30, 2019, respectively, as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The Company's senior housing communities have residency agreements that generally require the resident to pay a community fee prior to moving into the community and are recorded initially by the Company as deferred revenue. At September 30, 2020 and December 31, 2019, the Company had contract liabilities for deferred community fees totaling approximately $1.6 million and $2.2 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets.The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $1.0 million and $3.2 million during the three and nine months ended September 30, 2020, respectively.  The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $0.7 million and $1.9 million during the three and nine months ended September 30, 2019, respectively.

During the first quarter of 2020, the Company entered into management agreements whereby it manages certain communities under a contract which provides periodic management fee payments to the Company and reimbursement for costs and expenses related to such communities. In addition, during the third quarter of 2020, the Company entered into a management agreement with Fannie Mae, whereby it manages the 18 communities of which it is in the process of legally transferring the ownership to Fannie Mae.  The Company will continue to manage the communities until ownership of such communities has legally transferred to Fannie Mae.  See “Note 6- Debt Transactions.”  Management fees are generally determined by an agreed upon percentage of gross revenues (as defined in the management agreement). The Company has determined that all community management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company's estimate of the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred. Such revenue is included in "community reimbursement revenue" on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The related costs are included in "community reimbursement expense" on the Company’s Consolidated Statements of Operations and Comprehensive Loss.  The Company recognized revenue from management fees of $0.6 million and $0.8 million, during the three and nine months ended September 30, 2020, respectively.  The Company recognized revenue from reimbursed costs incurred on behalf of managed communities of $9.6 million and $11.9 million, during the three and nine months ended September 30, 2020, respectively.

Lease Accounting

Lease Accounting

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold improvements, net on the Company's Consolidated Balance Sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.

Modifications to existing lease agreements, including changes to the lease term or payment amounts, are reviewed to determine whether they result in a separate contract. For modifications that do not result in a separate contract, management reviews the lease classification and re-measures the related right-of-use assets and liabilities at the effective date of the modification.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

Credit Risk and Allowance for Doubtful Accounts

Credit Risk and Allowance for Doubtful Accounts

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $7.9 million and $8.6 million at September 30, 2020, and December 31, 2019, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.

Self-Insurance Liability Accruals

Self-Insurance Liability Accruals

The Company offers full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Additionally, the Company may be liable for an Employee Shared Responsibility Payment (“ESRP”) pursuant to the Affordable Care Act. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential coverage (“MEC”) to at least 70% of full-time employees and their dependents, or did offer MEC to at least 70% of full-time employees and their dependents that did not meet the affordable or minimum value criteria and had one or more full-time employees certified as being allowed the premium tax credit. The IRS determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by employees. Management believes that the liabilities recorded and reserves established for outstanding losses and expenses are adequate to cover the ultimate cost of losses and expenses incurred at September 30, 2020; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.

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

Income Taxes

Income Taxes

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. The effective tax rates for the three and nine months ended September 30, 2020 and 2019 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. The Company consolidates 38 Texas communities for purposes of the TMT, which contributes to the overall provision for income taxes.

Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which the Company expects those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. At year end, the Company had a three-year cumulative operating loss for its U.S. operations and accordingly, has provided a full valuation allowance on its U.S. and state net deferred tax assets.  The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be realized. However, in the event that the Company were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period such determination was made. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.

The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that such position is “more likely than not” to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state tax audits for years prior to 2016 and 2015, respectively.

On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the CARES Act were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. Future regulatory guidance under the FFCR Act and the CARES Act remains forthcoming, and such guidance could ultimately increase or lessen their impact on the Company’s business and financial condition.

Net Loss Per Share

Net Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Net loss allocated to unvested restricted shares		—			—			—			—
Undistributed net loss allocated to common shares	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Weighted average shares outstanding – basic		30,730			30,324			30,578			30,236
Effects of dilutive securities:
Employee equity compensation plans		—			—			—			—
Weighted average shares outstanding – diluted		30,730			30,324			30,578			30,236
Basic net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)

Awards of unvested restricted stock and restricted stock units representing approximately 685,000 shares, as well as 147,000 outstanding stock options, were antidilutive as a result of the net loss reported by the Company for the three and nine months ended September 30, 2020. Awards of unvested restricted stock and restricted stock units representing approximately 1,128,000 shares and approximately 147,000 stock options, were antidilutive as a result of the net loss reported by the Company for the three and nine months ended September 30, 2019. Accordingly, such shares and options were not included in the calculation of diluted weighted average shares outstanding for the three and nine months ended September 30, 2020 and 2019.

Treasury Stock

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity (deficit). All shares acquired by the Company have been purchased in open-market transactions. There were no repurchases of the Company’s common stock during the nine months ended September 30, 2020 or fiscal 2019

Recently Issued Accounting Guidance

Recently Issued Accounting Guidance

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the removal of the need to disclose the amount of and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, and several changes related to Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020, the adoption of which did not have a material impact on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-13 is effective for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

XML

Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Schedule of Cash and Cash Equivalents and Restricted Cash

The following table sets forth the Company’s cash and cash equivalents and restricted cash (in thousands):

	September 30,
	2020		2019
Cash and cash equivalents	$	14,293	$	7,703
Restricted cash		3,982		13,073
	$	18,275	$	20,776

Computation of Basic and Diluted Net Loss Per Share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net loss	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Net loss allocated to unvested restricted shares		—			—			—			—
Undistributed net loss allocated to common shares	$	(214,964	)	$	(20,731	)	$	(274,898	)	$	(46,249	)
Weighted average shares outstanding – basic		30,730			30,324			30,578			30,236
Effects of dilutive securities:
Employee equity compensation plans		—			—			—			—
Weighted average shares outstanding – diluted		30,730			30,324			30,578			30,236
Basic net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)
Diluted net loss per share – common shareholders	$	(7.00	)	$	(0.68	)	$	(8.99	)	$	(1.53	)

XML

Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock Option Activity and Related Information

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2020 is presented below:

	Outstanding at Beginning of Period		Granted	Exercised	Cancelled	Outstanding at End of Period
Options		147,239	–	–	–		147,239

Restricted Common Stock Awards Activity and Related Information

A summary of the Company’s restricted stock awards activity and related information for the nine months ended September 30, 2020 is presented below:

	Outstanding at Beginning of Period		Granted	Vested			Cancelled			Outstanding at End of Period
Shares		1,089,346	–		(301,740	)		(102,359	)		685,247

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Carrying Amounts and Fair Values of Financial Instruments

The carrying amounts and fair values of financial instruments at September 30, 2020 and December 31, 2019, are as follows (in thousands):

	September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	14,293	$	14,293	$	23,975	$	23,975
Restricted cash		3,982		3,982		13,088		13,088
Notes payable, excluding deferred loan costs		923,048		921,567		930,085		899,326

XML

Leases (Tables)

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Summary of Operating and Financing Lease Expense and Cash Flows from Leasing Transactions

A summary of operating and financing lease expense (including the respective presentation on the consolidated statement of operations) and cash flows from leasing transactions is as follows:

	Nine Months Ended September 30,
Operating Leases (in thousands)	2020		2019
Facility lease expense	$	23,234	$	42,706
General and administrative expenses		495		238
Operating expenses, including variable lease expense of    $4,499 and $4,616 in 2020 and 2019, respectively		4,760		5,070
Total operating lease costs	$	28,489	$	48,014
Operating lease expense adjustment		18,460		4,285
Operating cash flows from operating leases	$	46,949	$	52,299

	Nine Months Ended September 30,
Financing Leases (in thousands)	2020		2019
Depreciation and amortization	$	110	$	—
Interest expense: financing lease obligations		25		—
Total financing lease costs		135		—
Operating cash flows from financing leases	$	110	$	—
Financing cash flows from financing leases		25		—
Total cash flows from financing leases	$	135	$	—

Future Minimum Lease Payments of Operating Lease Liabilities

Future minimum lease payments associated with operating lease liabilities recognized on the Company’s Consolidated Balance Sheets as of September 30, 2020, are as follows (in thousands):

Year Ending December 31,	Operating Leases			Financing Leases
2020 (excluding the nine months ended September 30, 2020)	$	8,727		$	39
2021		321			155
2022		132			155
2023		85			145
2024		47			7
Thereafter		3			2
Total	$	9,315		$	503
Less: Amount representing interest (present value discount)		(205	)		(52	)
Present value of lease liabilities	$	9,110		$	451
Less: Current portion of lease liabilities		(8,845	)		(126	)
Lease liabilities, net of current portion	$	265		$	325

XML

Basis of Presentation - Additional Information (Detail)	Sep. 30, 2020 Community State Resident
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Senior housing communities operated by company	119
Number of states in which senior housing communities operated | State	22
Aggregate capacity of residents in company operated senior housing communities | Resident	14,700
Senior housing communities owned by company	61
Senior housing communities on lease by company	34
Senior housing communities managed by company	24

XML

Going Concern Uncertainty - Additional Information (Details) $ in Thousands			1 Months Ended	3 Months Ended	9 Months Ended
	Nov. 01, 2020 Community	Apr. 01, 2020 USD ($) Community	Jul. 31, 2020 Community	Sep. 30, 2020 USD ($) Community	Sep. 30, 2020 USD ($) Community	Nov. 06, 2020 USD ($)	Dec. 31, 2019 USD ($)
Going Concern Uncertainty [Line Items]
Number of communities transitioned to successor operator | Community				5	5
Deferred payroll taxes, CARES Act				$ 5,000	$ 5,000
CARES Act relief received from state agencies					600
Current portion of notes payable				263,674	263,674		$ 15,819
Fannie Mae Loan [Member]
Going Concern Uncertainty [Line Items]
Number of communities | Community			18
Loss on the derecognition of assets				191,000
Current portion of notes payable				217,700	217,700
Fannie Mae Loan [Member] | Accrued Expenses
Going Concern Uncertainty [Line Items]
Accrued interest				6,100	6,100
Subsequent Event [Member]
Going Concern Uncertainty [Line Items]
CARES Act cash for grants from provider relief fund						$ 8,100
CARES Act additional grands applied pursuant to provider relief fund						$ 20,000,000
CARES Act eligible percentage of annual patent care revenue from applicants						2.00%
Welltower, Inc. [Member] | Subsequent Event [Member]
Going Concern Uncertainty [Line Items]
Number of communities transitioned to different operators | Community	14
Healthpeak Properties Inc [Member]
Going Concern Uncertainty [Line Items]
Lease expiration date		Oct. 31, 2020
Number of senior housing communities started rent payment | Community		8
Healthpeak Properties Inc [Member] | Senior Housing Community [Member]
Going Concern Uncertainty [Line Items]
Monthly rental payments		$ 700
Monthly rent due and payable		$ 900
Lease expiration date		Oct. 31, 2020
Remaining rent payment period		3 years
Healthpeak Properties Inc [Member] | Subsequent Event [Member] | Senior Housing Community [Member]
Going Concern Uncertainty [Line Items]
Lease expiration date	Apr. 30, 2021
Operating lease existence of option to extend	true
Operating lease option to extend	subject to two possible three-month extensions
Available renewal extension period	3 months
COVID-19 [Member]
Going Concern Uncertainty [Line Items]
Other nonrecurring expense				$ 1,400	$ 4,600

XML

Summary of Significant Accounting Policies - Schedule of Cash and Cash Equivalents and Restricted Cash (Detail) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Cash and cash equivalents	$ 14,293	$ 23,975	$ 7,703
Restricted cash	3,982	13,088	13,073
Total Cash and cash equivalents and Restricted cash	$ 18,275	$ 37,063	$ 20,776	$ 44,320

XML

Summary of Significant Accounting Policies - Additional Information (Detail) $ in Thousands	3 Months Ended				9 Months Ended		12 Months Ended
	Sep. 30, 2020 USD ($) Community Employee shares	Sep. 30, 2019 USD ($) Community shares	Mar. 31, 2019 USD ($) Community	Mar. 31, 2016 shares	Sep. 30, 2020 USD ($) Community Employee shares	Sep. 30, 2019 USD ($) shares	Dec. 31, 2019 USD ($) Community shares	Dec. 31, 2009 shares	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Accounting Policies [Line Items]
Number of assets held for sale | Community		2	1		0		0
Current portion of notes payable	$ 263,674				$ 263,674		$ 15,819
Remeasurement write-down of assets held for sale						$ 2,340
Number of senior living communities sold | Community							2
Resident revenue	96,053	$ 111,110			303,659	338,412
Contract liabilities for deferred fees included as deferred income	4,300				4,300		$ 4,300		$ 5,000	$ 4,100	$ 4,500
Contract liabilities for deferred fees recognized into revenue	5,000	$ 4,100			4,300	$ 4,500
Contract liabilities for deferred community fees included in current liabilities	991				$ 991		1,247
Resident receivables due period					30 days
Allowance for doubtful accounts	$ 7,900				$ 7,900		$ 8,600
Minimum number of full time equivalent employees requires for employee shared responsibility payment | Employee	50				50
Percentage of full time employees and dependents not offered minimum essential cover to be eligible for employee shared responsibility payment	70.00%				70.00%
Percentage of full time employees and dependents Offered Minimum essential cover but not meet the affordable or minimum value criteria to be eligible for employee shared responsibility payment	70.00%				70.00%
Number of employees certified for premium tax credit | Employee	1				1
Uncertain tax position maximum percentage					50.00%
Repurchase of common stock | shares	0			144,315	0		0	349,800
Unvested Restricted Stock and Restricted Stock Units [Member]
Accounting Policies [Line Items]
Antidilutive shares and options not included in calculation of diluted weighted average shares outstanding | shares	685,000	1,128,000			685,000	1,128,000
Stock Options [Member]
Accounting Policies [Line Items]
Antidilutive shares and options not included in calculation of diluted weighted average shares outstanding | shares	147,000	147,000			147,000	147,000
Fannie Mae Loan [Member]
Accounting Policies [Line Items]
Current portion of notes payable	$ 217,700				$ 217,700
Fannie Mae Loan [Member] | Management Agreement [Member]
Accounting Policies [Line Items]
Number of communities managed | Community	18
Rental and Other Services [Member]
Accounting Policies [Line Items]
Resident revenue	$ 84,700	$ 109,400			286,100	$ 333,400
Ancillary Services [Member]
Accounting Policies [Line Items]
Resident revenue	100	1,000			1,600	3,100
Community Fees [Member]
Accounting Policies [Line Items]
Resident revenue	1,000	700			3,200	1,900
Contract liabilities for deferred community fees included in current liabilities	1,600				1,600		$ 2,200
Management Fees [Member]
Accounting Policies [Line Items]
Resident revenue	604				819
Community Reimbursement Revenue [Member]
Accounting Policies [Line Items]
Resident revenue	$ 9,555				$ 11,888
Maximum [Member]
Accounting Policies [Line Items]
Residency agreements duration period					1 year
Senior Housing Community [Member]
Accounting Policies [Line Items]
Assets held for sale		24,400	$ 4,900			24,400
Aggregate assets fair value net of costs of disposal		62,800	4,900			62,800
Change in aggregate assets fair value net of costs of disposal			7,200
Remeasurement write-down of assets held for sale			2,300			2,300
Senior Housing Community [Member] | Mortgage Debt [Member]
Accounting Policies [Line Items]
Current portion of notes payable		$ 44,400	$ 3,500			$ 44,400

XML

Summary of Significant Accounting Policies - Computation of Basic and Diluted Net Loss Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019
Accounting Policies [Abstract]
Net loss	$ (214,964)	$ (12,753)	$ (47,181)	$ (20,731)	$ (12,534)	$ (12,984)	$ (274,898)	$ (46,249)
Net loss allocated to unvested restricted shares	0			0			0	0
Undistributed net loss allocated to common shares	$ (214,964)			$ (20,731)			$ (274,898)	$ (46,249)
Weighted average shares outstanding – basic	30,730			30,324			30,578	30,236
Effects of dilutive securities:
Employee equity compensation plans	0			0			0	0
Weighted average shares outstanding – diluted	30,730			30,324			30,578	30,236
Basic net loss per share – common shareholders	$ (7.00)			$ (0.68)			$ (8.99)	$ (1.53)
Diluted net loss per share – common shareholders	$ (7.00)			$ (0.68)			$ (8.99)	$ (1.53)

XML

Impairment of Long-Lived Assets - Additional Information (Details) - USD ($)	3 Months Ended			9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Impaired Long Lived Assets Held And Used [Line Items]
Impairment charge on operating lease right-of-use assets	$ 1,300,000	$ 6,200,000		$ 7,500,000
Non-cash impairment charge on property and equipment	3,240,000			39,194,000
Non-cash impairment charges	3,200,000		$ 0	39,200,000	$ 0
Change in Useful Life of 15 Communities [Member]
Impaired Long Lived Assets Held And Used [Line Items]
Impairment charge on operating lease right-of-use assets	1,300,000
Non-cash impairment charge on property and equipment	1,100,000
One Community [Member]
Impaired Long Lived Assets Held And Used [Line Items]
Non-cash impairment charge on property and equipment	800,000
Change in Useful Life [Member]
Impaired Long Lived Assets Held And Used [Line Items]
Non-cash impairment charge on property and equipment	$ 1,900,000	$ 29,800,000		$ 31,700,000

XML

Dispositions and Other Significant Transactions - Additional Information (Details) $ in Thousands							3 Months Ended		6 Months Ended	9 Months Ended
	Apr. 01, 2020 USD ($) Community	Mar. 15, 2020 USD ($)	Mar. 10, 2020 USD ($)	Mar. 01, 2020 USD ($) Community	Jan. 15, 2020 USD ($)	May 01, 2019 USD ($) Property	Sep. 30, 2020 USD ($) Community Property	Mar. 31, 2019 USD ($)	Sep. 30, 2020 USD ($) Community Property	Sep. 30, 2020 USD ($) Community Property	Sep. 30, 2019 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($) Community
Dispositions And Other Significant Transactions [Line Items]
Number of senior living communities sold | Community													2
Loss on disposition of assets, net							$ 191,032			$ 198,388	$ (38)
Senior housing communities operated by company | Community							119		119	119
Senior housing communities owned by company | Community							61		61	61
Senior housing communities on lease by company | Community							34		34	34
Number of leased senior housing communities | Community							34		34	34
Rent expense										$ 4,760	5,070
Lease liability							$ 9,110		$ 9,110	9,110
Operating lease right-of-use assets, net							$ 3,691		$ 3,691	$ 3,691			$ 224,523
Remeasurement write-down of assets held for sale											2,340
Early Termination Agreement [Member]
Dispositions And Other Significant Transactions [Line Items]
Number of senior living communities sold | Community							5		5	5
Senior housing communities operated by company | Community													46
Number of community transitioned | Community													1
Healthpeak Properties Inc [Member]
Dispositions And Other Significant Transactions [Line Items]
Lease expiration date	Oct. 31, 2020
Number of senior housing communities started rent payment | Community	8
Healthpeak Properties Inc [Member] | Current Portion of Notes Payable, Net of Deferred Loan Costs [Member]
Dispositions And Other Significant Transactions [Line Items]
Deferred rent payments							$ 1,400		$ 1,400	$ 1,400
Healthpeak Properties Inc [Member] | Early Termination Agreement [Member]
Dispositions And Other Significant Transactions [Line Items]
Loss on disposition of assets, net										$ 7,000
Senior housing communities owned by company | Community							34		34	34
Senior housing communities on lease by company | Community							6		6	6
Security deposits released				$ 2,600
Management fee percentage				5.00%
Previously scheduled, lease maturity month year				2026-04
Number of communities to be managed | Community				6
Ventas [Member] | Early Termination Agreement [Member]
Dispositions And Other Significant Transactions [Line Items]
Number of leased senior housing communities | Community													7
Lease expiration date			Sep. 30, 2025
Rent expense due to early termination of lease			$ 1,000
Rent expense			1,300
Security deposits released			4,100
Escrow deposits held			$ 2,500
Lease termination obligation													$ 11,400
Lease termination period			30 days
Management fee percentage			5.00%
Ventas [Member] | ASC 842 [Member]
Dispositions And Other Significant Transactions [Line Items]
Gain (loss) on facility lease modification and termination										$ 8,400
Lease termination obligation												$ 11,400
Lease liability												51,600
Operating lease right-of-use assets, net												47,800
Welltower, Inc. [Member] | Early Termination Agreement [Member]
Dispositions And Other Significant Transactions [Line Items]
Number of leased senior housing communities | Community													24
Rent expense due to early termination of lease		$ 2,200
Rent expense		$ 2,800
Lease termination period		30 days
Management fee percentage		5.00%
Lease expiration description										April 2025 through April 2026
Welltower, Inc. [Member] | Early Termination Agreement [Member] | Letter of Credit [Member]
Dispositions And Other Significant Transactions [Line Items]
Letter of credit released							$ 6,500		$ 6,500	$ 6,500
Welltower, Inc. [Member] | ASC 842 [Member]
Dispositions And Other Significant Transactions [Line Items]
Gain (loss) on facility lease modification and termination										8,000
Lease liability												129,900
Operating lease right-of-use assets, net												$ 121,900
Welltower, Inc. [Member] | Termination Agreement [Member]
Dispositions And Other Significant Transactions [Line Items]
Gain (loss) on facility lease modification and termination							$ (700)			(700)
Number of leased senior housing communities transferred to different operator | Community							5
Senior Living Boca Raton, Florida Community [Member] | Healthpeak Properties Inc [Member]
Dispositions And Other Significant Transactions [Line Items]
Transitioned property amount as a prepayment against the remaining lease payments					$ 300
Gain (loss) on facility lease modification and termination										$ 1,800
Senior Housing Community Merrillville, Indiana Community [Member]
Dispositions And Other Significant Transactions [Line Items]
Number of senior living communities sold | Community							1		1	1
Purchase price for the sale of asset									$ 7,000
Cash proceeds from sale of assets									$ 6,900
Loss on disposition of assets, net										$ 7,400
Senior Housing Community Merrillville, Indiana Community [Member] | Assisted Living Unit [Member]
Dispositions And Other Significant Transactions [Line Items]
Number of living units in a housing community sold | Property							171		171	171
Senior Housing Community Merrillville, Indiana Community [Member] | Memory Care Units [Member]
Dispositions And Other Significant Transactions [Line Items]
Number of living units in a housing community sold | Property							42		42	42
Senior Housing Community [Member]
Dispositions And Other Significant Transactions [Line Items]
Purchase price for the sale of asset						$ 5,000
Cash proceeds from sale of assets						$ 1,400
Number of living units in a housing community sold | Property						138
Remeasurement write-down of assets held for sale								$ 2,300			$ 2,300
Senior Housing Community [Member] | Mortgage Debt [Member]
Dispositions And Other Significant Transactions [Line Items]
Outstanding mortgage debt retired						$ 3,500
Senior Housing Community [Member] | Healthpeak Properties Inc [Member]
Dispositions And Other Significant Transactions [Line Items]
Lease expiration date	Oct. 31, 2020
Monthly rental payments	$ 700
Monthly rent due and payable	$ 900
Percentage of scheduled rates of rent	75.00%
Remaining rent payment period	3 years

XML

Debt Transactions - Additional Information (Detail) $ in Thousands									1 Months Ended	3 Months Ended		9 Months Ended
	Jul. 31, 2020 USD ($) Property	Jul. 08, 2020 Property	Jun. 15, 2020 USD ($)	May 21, 2020 Property	May 20, 2020 Property Loan	May 09, 2020 Property Loan	May 07, 2020 Property Loan	Apr. 01, 2020	Jul. 31, 2020 Community Property	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Sep. 30, 2020 USD ($) Property	Aug. 27, 2020 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Current portion of notes payable										$ 263,674		$ 263,674			$ 15,819
Net book value of housing communities										883,700		883,700			898,000
Mortgage debt										921,600		921,600			926,500
Deferred financing cost										14,300		14,300			14,300
Accumulated amortization										7,100		7,100			$ 5,700
4.60%,10-Month Term Financing Agreement [Member]
Debt Instrument [Line Items]
Insurance finance agreement, outstanding amount			$ 2,200
Debt instrument, fixed interest rate			4.60%
Debt instrument, repayment term			10 months
Hartford Financial Services [Member]
Debt Instrument [Line Items]
Letters of credit remain outstanding										3,400		3,400
Available letters of credit													$ 4,000
Welltower, Inc. [Member]
Debt Instrument [Line Items]
Letters of credit amount surrendered and paid											$ 6,500
Healthpeak Properties Inc [Member]
Debt Instrument [Line Items]
Letters of credit remain outstanding														$ 2,900
Lease expiration date								Oct. 31, 2020
Current Portion of Notes Payable, Net of Deferred Loan Costs [Member]
Debt Instrument [Line Items]
Outstanding debt										31,500		31,500
Current Portion of Notes Payable, Net of Deferred Loan Costs [Member] | Healthpeak Properties Inc [Member]
Debt Instrument [Line Items]
Deferred rent payments										1,400		1,400
Fannie Mae Loan [Member]
Debt Instrument [Line Items]
Loss on the derecognition of assets										191,000
Current portion of notes payable										217,700		217,700
Fannie Mae Loan [Member] | Accrued Expenses
Debt Instrument [Line Items]
Accrued interest										6,100		$ 6,100
Forbearance Agreements [Member] | Fannie Mae Loan [Member]
Debt Instrument [Line Items]
Number of properties covered under loan | Property	5
Loan payment terms												During this three-month loan payment forbearance, the Company agreed to pay to Fannie Mae monthly all net operating income, if any, as defined in the forbearance agreement, for the properties receiving forbearance.
Number of properties covered under loan | Property		23
Deferred payments	$ 600
Unpaid loans	$ 3,900
Number of properties under loan default | Property	18								18
Number of communities managed | Community									18
Loss on the derecognition of assets										191,000		$ 191,000
Current portion of notes payable										217,700		217,700
Forbearance Agreements [Member] | Fannie Mae Loan [Member] | Accrued Expenses
Debt Instrument [Line Items]
Accrued interest										$ 6,100		$ 6,100
Berkadia [Member] | Forbearance Agreements [Member] | Fannie Mae Loan [Member]
Debt Instrument [Line Items]
Number of mortgage loans | Loan							23
Number of properties covered under loan | Property							20
Wells Fargo [Member] | Forbearance Agreements [Member] | Fannie Mae Loan [Member]
Debt Instrument [Line Items]
Number of mortgage loans | Loan						1
Number of properties covered under loan | Property						1
KeyBank [Member] | Forbearance Agreements [Member] | Fannie Mae Loan [Member]
Debt Instrument [Line Items]
Number of mortgage loans | Loan					3
Number of properties covered under loan | Property					2
BBVA USA [Member] | Forbearance Agreements [Member]
Debt Instrument [Line Items]
Number of properties covered under loan | Property												3
Loan payment terms												the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to principal and due in June 2021.
BBVA USA [Member] | Forbearance Agreements [Member] | Current Portion of Notes Payable, Net of Deferred Loan Costs [Member]
Debt Instrument [Line Items]
Deferred payments												$ 900
ORIX Real Estate Capital, LLC [Member] | Forbearance Agreements [Member]
Debt Instrument [Line Items]
Number of properties covered under loan | Property												1
Loan payment terms												the Company deferred monthly debt service payments for April, May and June 2020, which deferred payments are added to the regularly scheduled payments in equal installments for one year following the forbearance period.
ORIX Real Estate Capital, LLC [Member] | Forbearance Agreements [Member] | Current Portion of Notes Payable, Net of Deferred Loan Costs [Member]
Debt Instrument [Line Items]
Deferred payments												$ 100
Protective Life Insurance Company [Member] | Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreement [Member]
Debt Instrument [Line Items]
Number of properties covered under loan | Property				10
Loan payment terms												These amendments allow the Company to defer principal and interest payments for April, May and June 2020 and to defer principal payments for July 2020 through March 2021, with such deferral amounts being added to principal due at maturity in either 2025 or 2026, depending upon the loan.
Deferred payments												$ 3,200
Protective Life Insurance Company [Member] | Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreement [Member] | Accrued Expenses
Debt Instrument [Line Items]
Deferred payments												1,700
Protective Life Insurance Company [Member] | Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreement [Member] | Current Portion of Notes Payable, Net of Deferred Loan Costs [Member]
Debt Instrument [Line Items]
Deferred payments												$ 1,500
Protective Life Insurance Company [Member] | Protective Life Amendments Two Loan Agreements and Loan Modification and Temporary Deferral Agreement [Member]
Debt Instrument [Line Items]
Loan payment terms												Subsequent to quarter-end, the Company entered into amendments to its loan agreements with Protective Life, which allow the Company to defer principal and interest payments for October, November, and December 2020 and to continue to defer principal payments through September 30, 2021.

XML

Equity - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended	12 Months Ended
	Sep. 30, 2020	Mar. 31, 2016	Sep. 30, 2020	Dec. 31, 2019	Dec. 31, 2009	Jan. 22, 2009
Equity [Abstract]
Preferred stock, shares outstanding	0		0	0
Authorization for purchase of company's common stock						$ 10,000,000.0
Purchase common stock shares	0	144,315	0	0	349,800
Average cost of per share		$ 17.29			$ 2.67
Purchase common stock value		$ 2,500,000			$ 900,000

XML

Stock-Based Compensation - Additional Information (Detail) - USD ($)		3 Months Ended		9 Months Ended
	Mar. 26, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	May 14, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options vesting period, Minimum				1 year
Stock options vesting period, Maximum				5 years
Stock options outstanding, intrinsic value		$ 0		$ 0
Stock options outstanding, weighted-average remaining contractual life				8 years 3 months
Stock options outstanding, weighted average exercise price		$ 7.46		$ 7.46
Total unrecognized compensation expense		$ 200,000		$ 200,000
Stock options exercisable		48,588,000		48,588,000
Number of stock options granted during period		0		0
Period of recognition for compensation expense, Minimum				1 year
Period of recognition for compensation expense, Maximum				4 years
Compensation expense recognized		$ 400,000	$ 900,000	$ 1,500,000	$ 1,600,000
Unrecognized stock based compensation expense, net of estimated forfeitures		1,700,000		$ 1,700,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected period of expenses				1 year 3 months
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense recognized				$ 0
Restricted stock outstanding, intrinsic value		$ 500,000		$ 500,000
Number of restricted stock awards or restricted stock units granted during period		0		0
Performance and Market Based Stock Awards [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected period of expenses				1 year
Performance and Market Based Stock Awards [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected period of expenses				3 years
Nonperformance Based Stock Awards [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected period of expenses				1 year
Nonperformance Based Stock Awards [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected period of expenses				4 years
2019 Omnibus Stock and Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Authorized shares of common stock						2,250,000
2007 Omnibus Stock and Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of additional shares granted under the plan	0

XML

Stock-Based Compensation - Summary of Stock Option Activity and Related Information (Detail) - shares	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Outstanding at Beginning of Period		147,239
Options, Granted	0	0
Options, Exercised		0
Options, Cancelled		0
Options, Outstanding at End of Period	147,239	147,239

XML

Stock-Based Compensation - Restricted Stock Awards Activity and Related Information (Detail) - Restricted Stock [Member] - shares	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Outstanding at Beginning of Period		1,089,346
Shares, Granted	0	0
Shares, Vested		(301,740)
Shares, Cancelled		(102,359)
Shares, Outstanding End of Period	685,247	685,247

XML

Fair Value Measurements - Carrying Amounts and Fair Values of Financial Instruments (Detail) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Restricted cash	$ 3,982	$ 13,088	$ 13,073
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	14,293	23,975
Restricted cash	3,982	13,088
Notes payable, excluding deferred loan costs	923,048	930,085
Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	14,293	23,975
Restricted cash	3,982	13,088
Notes payable, excluding deferred loan costs	$ 921,567	$ 899,326

XML

Fair Value Measurements - Additional Information (Detail)	3 Months Ended				9 Months Ended		12 Months Ended
	Sep. 30, 2020 USD ($) Community	Mar. 31, 2020 USD ($)	Sep. 30, 2019 USD ($) Community	Mar. 31, 2019 USD ($) Community	Sep. 30, 2020 USD ($) Community	Sep. 30, 2019 USD ($)	Dec. 31, 2019 Community
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Number of assets held for sale | Community			2	1	0		0
Remeasurement write-down of assets held for sale						$ 2,340,000
Impairment charge on operating lease right-of-use assets	$ 1,300,000	$ 6,200,000			$ 7,500,000
Fair value of impaired operating lease right-of-use assets	500,000	$ 15,000,000.0			500,000
Management fees and a market supported lease coverage ratio		110.00%
Non-cash impairment charge on property and equipment	3,240,000				39,194,000
Fair value of impaired property and equipment	12,500,000	$ 10,500,000			12,500,000
Change in Useful Life [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Non-cash impairment charge on property and equipment	$ 1,900,000	$ 29,800,000			$ 31,700,000
Discount Rate [Member] | Minimum [Member] | Level 3 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Range of discount rates utilized	7.7				7.7
Discount Rate [Member] | Maximum [Member] | Level 3 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Range of discount rates utilized	10.3				10.3
Senior Living Community [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Number of assets held for sale | Community	0		2	1	0
Remeasurement write-down of assets held for sale			$ 0	$ 2,300,000

XML

Leases - Additional Information (Detail)	Sep. 30, 2020 Community
Leases [Abstract]
Weighted-average discount rate, operating leases	4.10%
Average remaining lease terms, operating leases	4 months 24 days
Weighted-average discount rate, financing leases	7.00%
Average remaining lease terms, financing leases	3 years 3 months 18 days
Number of leased senior housing communities	34

XML

Leases - Summary of Operating and Financing Lease Expense and Cash Flows from Leasing Transactions (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Lease Cost [Abstract]
Facility lease expense	$ 23,234	$ 42,706
General and administrative expenses	495	238
Operating expenses, including variable lease expense of $4,499 and $4,616 in 2020 and 2019, respectively	4,760	5,070
Total operating lease costs	28,489	48,014
Operating lease expense adjustment	18,460	4,285
Operating cash flows from operating leases	46,949	$ 52,299
Depreciation and amortization	110
Interest expense: financing lease obligations	25
Total financing lease costs	135
Operating cash flows from financing leases	110
Financing cash flows from financing leases	25
Total cash flows from financing leases	$ 135

XML

Leases - Summary of Operating and Financing Lease Expense and Cash Flows from Leasing Transactions (Parenthetical) (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Lease Cost [Abstract]
Variable lease expense	$ 4,499	$ 4,616

XML

Leases - Future Minimum Lease Payments of Operating Lease Liabilities (Detail) $ in Thousands	Sep. 30, 2020 USD ($)
Operating Lease Liabilities Payments Due [Abstract]
2020 (excluding the nine months ended September 30, 2020)	$ 8,727
2021	321
2022	132
2023	85
2024	47
Thereafter	3
Total	9,315
Less: Amount representing interest (present value discount)	(205)
Present value of lease liabilities	9,110
Less: Current portion of lease liabilities	(8,845)
Lease liabilities, net of current portion	265
Finance Lease Liabilities Payments Due [Abstract]
2020 (excluding the nine months ended September 30, 2020)	39
2021	155
2022	155
2023	145
2024	7
Thereafter	2
Total	503
Less: Amount representing interest (present value discount)	(52)
Present value of lease liabilities	451
Less: Current portion of lease liabilities	(126)
Lease liabilities, net of current portion	$ 325

XML

Subsequent Events - Additional Information (Details) $ in Millions	Nov. 01, 2020 Property	Oct. 01, 2020 Property	May 21, 2020 Property	Apr. 01, 2020	Nov. 06, 2020 USD ($)
Healthpeak Properties Inc [Member]
Subsequent Event [Line Items]
Lease expiration date				Oct. 31, 2020
Senior Housing Community [Member] | Healthpeak Properties Inc [Member]
Subsequent Event [Line Items]
Lease expiration date				Oct. 31, 2020
Subsequent Event [Member]
Subsequent Event [Line Items]
CARES Act cash for grants from provider relief fund | $					$ 8.1
Subsequent Event [Member] | Senior Housing Community [Member] | Healthpeak Properties Inc [Member]
Subsequent Event [Line Items]
Lease expiration date	Apr. 30, 2021
Number of Lease Extension Available	2
Available renewal extension period	3 months
Operating lease existence of option to extend	true
Operating lease option to extend	subject to two possible three-month extensions
Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreement [Member] | Protective Life Insurance Company [Member]
Subsequent Event [Line Items]
Number of properties covered under loan			10
Protective Life Amendments to Loan Agreements and Loan Modification and Temporary Deferral Agreement [Member] | Protective Life Insurance Company [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Number of properties covered under loan		10