This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help provide an understanding of our business and results of operations. This MD&A should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the risks, uncertainties and other factors described under "Cautionary Note Regarding Forward-Looking Statements" above in this Quarterly Report on Form 10-Q and "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on April 15, 2022. Actual results may differ materially from those projected in such statements as a result of such risks, certainties and other factors.

Critical Accounting Policies and Estimates

For a discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no significant changes to our critical accounting policies since December 31, 2021.

Overview

The following discussion and analysis addresses (i) the Company's results of operations for the three months ended March 31, 2022 and 2021, and (ii) liquidity and capital resources of the Company.

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

As of March 31, 2022, the Company operated 76 senior housing communities in 18 states with an aggregate capacity of approximately 9,500 residents, including 62 owned senior housing communities and 14 communities that we manage on behalf of third parties.

COVID-19 Pandemic

The United States broadly continues to experience the pandemic caused by COVID-19, which significantly disrupted the nation's economy, the senior living industry and the Company's business. The COVID-19 pandemic caused a decline in the occupancy levels at the Company's communities, which negatively impacted the Company's revenues and operating results, that depend significantly on such occupancy levels. In an effort to protect its residents and employees and slow the spread of COVID-19 and in response to quarantines, shelter-in-place orders and other limitations imposed by federal, state and local governments, the Company had previously restricted or limited access to its communities, including limitations on in-person prospective resident tours and, in certain cases, new resident admissions. As of March 31, 2022, all of the Company's senior living communities were open for new resident move-ins. Although vaccines are now widely available, we cannot predict the duration of the pandemic or its ongoing impact on our business. If the COVID-19 pandemic worsens, including the transmission of highly contagious variants of the COVID-19 virus, the Company may have to impose or revert to restricted or limited access to its communities.

The COVID-19 pandemic has required the Company to incur significant additional operating costs and expenses in order to implement enhanced infection control protocols and otherwise care for its residents, including increased costs and expenses relating to supplies and personal protective equipment, testing of the Company's residents and employees, labor and specialized disinfecting and cleaning services, which has increased the costs of caring for the residents and resulted in reduced occupancy at such communities. During the three months ended March 31, 2022 and 2021, the Company incurred $0.2 million and $1.0 million, respectively, in direct costs related to the COVID-19 pandemic.

In April 2022 and January 2021, the Company accepted $9.1 million and $8.7 million of cash, respectively, through grants from the Public Health and Social Services Emergency Fund's (the "Provider Relief Fund") Phases 4 and 3 General Distribution, which was expanded by the CARES Act to provide grants or other funding mechanism to eligible healthcare providers for


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healthcare-related or lost revenues attributable to COVID-19. The Phase 3 Provider Relief Funds were recorded as other income in the three months ended March 31, 2021. The Phase 4 Provider Relief Funds will be recorded in the second quarter of 2022. The CARES Act Phase 3 and Phase 4 funds are grants that do not have to be repaid provided we satisfy the terms and conditions of the CARES Act.

The Company elected to utilize the CARES Act payroll tax deferral program to delay payment of a portion of its payroll taxes incurred from April 2020 through December 2020. The Company repaid one-half of the deferral amount in December 2021 and the other half will become due on December 31, 2022. At March 31, 2022, the Company had $3.7 million in deferred payroll taxes, which is included in accrued expenses.

CARES Act Provider Relief Funds are subject to the terms and conditions of the program, including stringent restrictions that funds may only be used to reimburse COVID-19 related expenses or lost revenue that are attributable to COVID-19 and have not been reimbursed from other sources or that other sources are not obligated to reimburse. While we intend to pursue additional funding that may become available, there can be no assurances that we will qualify for, or receive, any additional relief funds in the future.

Significant Financial and Operational Highlights

Operations

Weighted average occupancy for the three months ended March 31, 2022 and 2021 for the 60 communities owned during both periods was 82.3% and 75.5%, respectively, reflecting continued occupancy recovery. The average monthly rental rate for the three months ended March 31, 2022 was higher by 320 basis points when compared to the three months ended March 31, 2021.

During the three months ended March 31, 2022, the Company continued to be impacted by the senior living industry's workforce challenges related to limited staff availability, which required the use of overtime, shift bonuses and contract labor to properly support our senior living communities and residents.

Acquisition of Indiana Communities

On February 1, 2022, the Company completed the acquisition of two senior living communities located in Indiana for a combined purchase price of $12.3 million. The communities consist of a total of 157 independent living units. The acquisition price was funded with cash on hand.

2022 Mortgage Refinance

In March 2022, the Company completed the refinancing of certain existing mortgage debt ("Refinance Facility") for ten of its communities. The Refinance Facility includes an initial term loan of $80.0 million. In addition, $10.0 million is available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements and up to an additional uncommitted $40 million may be available to fund future growth initiatives. In addition, the Company provided a limited payment guaranty ("Limited Payment Guaranty") of 33%, that reduces to 25% and then to 10%, of the then outstanding balance of the Refinance Facility if the Company achieves certain financial covenants maintained over a certain time period. As defined and required in the Limited Payment Guaranty, The Company is required to maintain certain covenants including maintaining Tangible Net Worth of $150 million and Liquid Assets of at least $13 million (inclusive of a $1.5 million debt service reserve fund provided by The Company at the closing of the Refinance Facility).

The Refinance Facility carries an initial interest rate of one-month SOFR plus 3.50%, subject to a SOFR floor of 0.25% and a lower margin spread of 3.25% or 3.00% if the Company achieves and maintains certain financial covenants. The Refinance Facility also requires the financial performance of the ten communities to achieve certain financial covenants, including a minimum debt service coverage ratio and a minimum debt yield (as defined in the Loan Agreement) with a first measurement date as of June 30, 2022 and quarterly measurement dates thereafter. We can provide no assurance that future financial covenants will be met. The Loan Agreement requires the establishment of a debt service reserve fund with a defined balance of $1.5 million (included in Liquid Assets) that may be released based upon terms described in the Loan Agreement. This reserve fund is included in our "other assets."

The Refinancing Facility requires that the Company purchase and maintain an interest rate cap facility during the term of the Refinancing Facility. The Company is in process of obtaining the interest rate cap facility in compliance with the lender' requirement.


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Results of Operations

Three months ended March 31, 2022 as compared to three months ended March 31, 2021

Revenues

Resident revenue for the three months ended March 31, 2022, was $50.8 million as compared to $45.2 million for the three months ended March 31, 2021, an increase of $5.6 million, or 12%. The increase in revenue was primarily due to increased occupancy, increased average rent rates and the acquisition of two new communities in early 2022.

Management fee revenue for the three months ended March 31, 2022, decreased by $0.6 million as compared to the three months ended March 31, 2021, primarily as a result of managing fewer communities in 2022.

Community reimbursement revenue for the three months ended March 31, 2022, was $7.0 million as compared to $15.3 million for the three months ended March 31, 2021, a decrease of $8.3 million. The decrease was primarily a result of transitioning 15 Fannie Mae communities to other operators in 2021.

Expenses

Operating expenses for the three months ended March 31, 2022, were $41.9 million as compared to $36.8 million for the three months ended March 31, 2021, an increase of $5.1 million. The increase is primarily due to a $3.2 million increase in labor and employee-related expenses, including premium labor, and a $1.9 million increase in all other operating expenses.

General and administrative expenses for the three months ended March 31, 2022, were $6.4 million as compared to $7.2 million for the three months ended March 31, 2021, a decrease of $0.8 million. This decrease is primarily due to decreased labor and employee-related expenses.

Community reimbursement expense for the three months ended March 31, 2022 was $7.0 million as compared to $15.3 million for the three months ended March 31, 2021, a decrease of $8.3 million. The decrease was primarily a result of transitioning 15 Fannie Mae communities to other operators in 2021.

Interest expense for the three months ended March 31, 2022 was $7.6 million as compared to $9.4 million for the three months ended March 31, 2021, a decrease of $1.8 million primarily due to lower overall borrowings in 2022. Notes payable decreased $192.7 million from March 31, 2021 to March 31, 2022.

Loss on extinguishment of debt for the three months ended March 31, 2022 was $0.6 million as compared to a gain on extinguishment of debt of $47.0 million for the three months ended March 31, 2021, a decrease of $47.6 million. The 2022 loss relates to the refinancing of debt. The 2021 gain related to the derecognition of notes payable and liabilities as a result of the completion of the transition of the legal ownership of four communities to Fannie Mae, the holder of the related non-recourse debt.

Other income for the three months ended March 31, 2022 was $0.1 million as compared to other income for the three months ended March 31, 2021 of $8.7 million. The 2021 amount reflects cash received for the Phase 3 General Distribution of the CARES Act for healthcare-related expenses or lost revenues attributable to COVID-19.




Cash Flow Analysis

Three months ended March 31, 2022 as compared to three months ended March 31, 2021

Operating activities

Net cash provided by operating activities for the three months ended March 31, 2022 was $0.4 million as compared to $3.3 million for the three months ended March 31, 2021, a decrease of $2.9 million primarily a result of the $8.7 million CARES Act funding received in the first quarter of 2021 that was not received in the first quarter of 2022, and decreased cash inflows from operations in 2022 as compared to 2021. We received $9.1 million in CARES Act funding in April 2022.

Investing activities

Net cash used in investing activities for the three months ended March 31, 2022 was $17.9 million as compared to $2.1 million for the three months ended March 31, 2021 and primarily results from ongoing capital improvements and refurbishments at existing communities and, for 2022, the acquisition of two new communities.

Financing activities

Net cash used in financing activities for the three months ended March 31, 2022 was $13.4 million and primarily results from repayments of notes payable and deferred financing costs paid, net of proceeds from notes payable, of $12.7 million, related to our 2022 debt refinancing and $0.7 million of dividends paid to Series A Preferred Stockholders. The net cash used in financing


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activities for the three months ended March 31, 2021 was $2.3 million and primarily results from repayments of notes payable, net of proceeds from notes payable.

Liquidity and Capital Resources

Short-term liquidity

Our primary source of short-term liquidity is our cash and cash equivalents and results from operations. As of March 31, 2022, we had $48.6 million of cash and cash equivalents. Due to the continued effects the COVID-19 pandemic, our operations have not yet returned to 2019, pre-pandemic levels. We currently anticipate cash flow from operations will continue to be impacted for at least the near-term. Our known liquidity requirements primarily consist of funds necessary to pay for operating expenses related to our communities and other expenditures, including general and administrative expenses, interest and scheduled principal payments on our debt and dividends on our redeemable preferred stock.

The Refinancing Facility we entered into in March 2022 contains financial covenants that are effective beginning June 30, 2022 and quarterly thereafter. Based on current operations, the Company expects to be in compliance with the June 30, 2022 covenants. There is no assurance that the Company will be able to meet any future financial covenant requirements. In addition, we are required to maintain cash and cash equivalents of no less than $13 million, inclusive of a $1.5 million lender service reserve, which is included in "other assets."

Additional short-term sources of liquidity include grants under the CARES Act. As described above, these grants are available to reimburse the Company for COVID-19 related expenses. In April 2022, we received a grant of $9.1million, where we believe we will be able to meet the CARES Act requirements which will allow the Company to retain the funds and not repay the grant. We do not consider this to be a significant source of liquidity in the future. There is no assurance that we will meet such requirements or qualify for, or receive, any additional CARES Act funds in the future. In addition, the Company is eligible for funding in connection with various state programs.

Long-term liquidity

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

In connection with the refinancing transaction in March 2022, the Company was able to refinance certain debt due during 2022 and 2023 with longer-term financing that matures in 2026. In addition, $10.0 million is available as delayed loans that can be borrowed upon achieving and maintaining certain financial covenant requirements and up to an additional uncommitted $40 million may be available to fund future growth initiatives. There is no assurance that we will be able to meet future financial covenant requirements.

As discussed in "Note 4. Notes Payable" of the condensed consolidated financial statements, the Company has scheduled maturities of debt coming due in the next five years and thereafter. The Company currently expects to be able to meet those maturities from cash on hand, future operations and future refinancings. The Refinance Facility matures in four years with an optional one-year extension if certain financial performance metrics and other customary conditions are maintained. There is no assurance that we will be able to meet such conditions or source refinancings at the time any of our debt matures or whether the terms of such refinancings will be comparable or satisfactory compared to our current loans.

The Company has unencumbered properties with a net book value of $24.0 million as of March 31, 2022, which could provide a source of liquidity from new debt.

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