SONIDA SENIOR LIVING, INC.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

In June 2023, we entered into a forbearance agreement (“Fannie Forbearance” and “Fannie Forbearance Agreement”) with the Federal National Mortgage Association (“Fannie Mae”) for all 37 of its encumbered communities. Under the Fannie Forbearance, Fannie Mae agreed to forbear on its remedies otherwise available under the community mortgages and Master Credit Facility (“MCF”) in connection with reduced debt service payments made by us during the forbearance period. In connection with the Fannie Forbearance, we made a $5.0 million principal payment in July 2023. The Fannie Forbearance was the first of a two-step process to modify all existing mortgage loan agreements with Fannie Mae by October 2023 under proposed loan modification agreements, as defined in the Fannie Forbearance (“Loan Modification Agreements”).

Previous wording

The Company entered into Loan Modification Agreements with Fannie Mae on October 2, 2023. The material terms of the Loan Modification Agreements are as follows:

Current wording

We entered into Loan Modification Agreements with Fannie Mae in October 2023. Some of the material terms of the Loan Modification Agreements are as follows:

Previous wording

•Maturities on 18 community mortgages, ranging from July 2024 to December 2026, have been extended to December 2026. The remaining 19 communities under the MCF have existing maturities in January 2029.

Current wording

• Maturities on 18 community mortgages, ranging from July 2024 to December 2026, were extended to December 2026 (and were subsequently extended to January 2029, as described below). The remaining 19 communities under the MCF have existing maturities in January 2029.

Previous wording

•The Company is not required to make scheduled principal payments due under the 18 community mortgages and 19 communities under the MCF through the revised maturity date of December 2026 or 36 months from the Fannie Forbearance Effective Date, respectively.

Current wording

• We were not required to make scheduled principal payments due under the 18 community mortgages and 19 communities under the MCF through the initially revised maturity date of December 2026 or 36 months from the Fannie Forbearance Effective Date, respectively.

Previous wording

•The monthly interest rate will be reduced by a 1.5% weighted average on all 37 communities for 12 months from the Fannie Forbearance Effective Date and deferred until it is contractually waived in June 2024 so long as there is no event of default (the “Fannie Interest Abatement Period”).

Current wording

• The monthly interest rate was reduced by a 1.5% weighted average on all 37 communities for 12 months from the Fannie Forbearance Effective Date and deferred until it was contractually waived in June 2024, when the “Fannie Interest Abatement Period” expired because of the Company’s compliance with certain required default covenants.

Previous wording

•The Company is required to make a second principal payment of$5.0 million with respect to the Fannie Mae debt whichisdue on June 1, 2024, the one-year anniversary of the Fannie Forbearance Effective Date.

Current wording

• We were required to make a second principal payment of $5.0 million with respect to the Fannie Mae debt, which was paid in June 2024 on the one-year anniversary of the Fannie Forbearance Effective Date.

Previous wording

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

Current wording

In June 2023 and concurrent with the Fannie Forbearance, we executed an amendment (“2023 Ally Amendment”) to the Ally term loan agreement (“Ally Term Loan” or “Ally Term Loan Agreement”) and an amended guaranty (“Second Amended Ally Guaranty”) with Ally Bank. Under the terms of the Second Amended Ally Guaranty, Ally granted the Company, as Guarantor, a waiver (“Limited Payment Guaranty Waiver” or “Waiver”) of the liquid assets minimum requirement of $13.0 million for a 12-month period, which expired on December 31, 2024. Additionally, the Company was required to make monthly payments of approximately $117,000 through an Ally controlled escrow (“Waiver Principal Reserve”), as well as a $2.3 million payment to an interest rate cap reserve account (“IRC Reserve”) held by Ally, which represented the quoted cost of a one-year interest rate cap on the full notional value of the Ally Term Loan. With the expiration of Limited Payment Guaranty Waiver on December 31, 2024, the Company ceased its monthly payments into both the Waiver Principal Reserve Account and the IRC Reserve.

Previous wording

On February 1, 2024, we entered into a securities purchase agreement with certain of our largest shareholders, including the Conversant Investors, pursuant to which the Investors agreed to purchase from us, and we agreed to sell to the Investors, in a private placement transaction (the “2024 Private Placement”) an aggregate of 5,026,318 shares (the “Shares”) of our common stock at a price of $9.50 per share.

Current wording

On February 1, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with affiliates of Conversant Capital, LLC and several other shareholders (together, the “Investors”), pursuant to which the Investors agreed to purchase from the Company, and the Company agreed to sell to the Investors, in a private placement transaction (the “2024 Private Placement”), an aggregate of 5,026,318 shares of the Company’s common stock at a price of $9.50 per share. The 2024 Private Placement occurred in two tranches. The first tranche occurred on February 1, 2024, at which time 3,350,878 shares of common stock were issued and sold to the Investors for $31.8 million. The second tranche occurred on March 22, 2024, at which time 1,675,440 shares of common stock were issued and sold to the Investors for $15.9 million. The Company used a portion of the proceeds from the first closing of the 2024 Private Placement to fund a portion of the cash purchase price for the 2024 Loan Purchase.

Previous wording

The Company derives its revenue primarily by providing senior living and healthcare services to seniors. During the year ended December 31, 2023, the Company generated resident revenue of approximately $232.0 million compared to resident revenue of approximately $208.7 million in the prior year, representing an increase of approximately $23.3 million. The increase in revenue was primarily due to increased occupancy, increased average rent rates, and the acquisition of two new communities in Q1 2022.

Current wording

The Company derives its revenue primarily by providing senior living and healthcare services to seniors. During the year ended December 31, 2024, the Company generated resident revenue of approximately $267.8 million compared to resident revenue of approximately $232.0 million in the prior year, representing an increase of approximately $35.8 million. The increase in revenue was primarily due to increased occupancy, increased average rent rates, and additional communities acquired in 2024.

Previous wording

Weighted average occupancy for the years ended December 31, 2023 and 2022 for the communities owned by the Company during both periods was 84.6% and 83.0%, respectively, reflecting continued occupancy recovery following the onset of the COVID-19 pandemic. The average monthly rental rate for these owned communities for the year ended December 31, 2023 was 9.6% higher when compared to the year ended December 31, 2022.

Current wording

Weighted average occupancy for the year ended December 31, 2024 for the communities owned by the Company excluding 2024 acquisitions was 86.4% as compared to a weighted average occupancy for the year ended December 31, 2023 of 84.6%, reflecting continued occupancy growth. The average monthly rental rate for these owned communities for the year ended December 31, 2024 was 5.9% higher when compared to the year ended December 31, 2023.

Previous wording

The Company has property management agreements with affiliates of Ventas, Inc. (collectively, “Ventas”) in which the Company manages certain communities for Ventas, and Ventas pays the Company a management fee based on gross revenues of the applicable communities, and other customary terms and conditions. The Company managed ten communities on behalf of Ventas during the years ended December 31, 2023 and 2022.

Current wording

The Company has property management agreements with third parties and its joint ventures pursuant to which the Company manages certain communities on their behalf for a management fee based on gross revenues of the applicable communities, as well as, in some cases, an incentive management fee and on other customary terms and conditions. The Company managed 13 and ten communities on behalf of a third party during the years ended December 31, 2024 and 2023, respectively. The Company managed four communities on behalf of an unconsolidated joint venture and four communities of consolidated joint ventures during the year ending December 31, 2024 and none during the prior year period.

Previous wording

If an indicator of impairment is identified, recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, we estimate fair value of the asset group and record animpairment loss when the carrying amount exceeds fair value. The Company recognized a non-cash impairment charge of $6.0 million to its “Property and equipment, net” during the year ended December 31, 2023, which related to one owned community. In addition, the Company recognized a non-cash impairment charge of $1.6 million to its “Property and equipment, net” during the year ended December 31, 2022, which related to one owned community.

Current wording

The Company continuously 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, recoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, we estimate fair value of the asset group and record an impairment loss when the carrying amount exceeds fair value.

Previous wording

In evaluating our long-lived assets for impairment, we undergo continuous evaluations of property level performance and real estate trends, and management makes several estimates and assumptions, including, but not limited to, the projected date of disposition, estimated sales price, and future cash flows of each property during our estimated holding period. If our analysis or assumptions regarding the projected cash flows expected to result from the use and eventual disposition of our properties change, we incur additional costs and expenses during the holding period, or our expected hold periods change, we may incur future impairment losses. See “Note 4–Impairment of Long-Lived Assets.”

Current wording

To estimate fair value management makes several estimates and assumptions, including, but not limited to, the projected date of disposition, estimated sales price, future cash flows of each property during our estimated holding period, and estimated capitalization rates. We corroborate the estimated capitalization rates we use in these calculations with capitalization rates observable from recent market transactions. If our analysis or assumptions regarding the projected cash flows expected to result from the use and eventual disposition of our properties change, we incur additional costs and expenses during the holding period, or our expected hold periods change, we may incur future impairment losses. The Company recognized a non-cash impairment charge of $6.0 million to its “Property and equipment, net” during the year ended December 31, 2023, which related to one owned community. There were no impairments on long-lived assets during the year ended December 31, 2024.

Previous wording

Represents positive or negative change in excess of 100%

Current wording

Represents a percentage in excess of 100%.

Previous wording

Managed community reimbursement revenue for the year ended December 31, 2023 was $21.1 million as compared to $27.4 million for the year ended December 31, 2022, representing a decrease of $6.3 million, or 22.9%. The decrease was primarily a result of managing fewer communities in 2023.

Current wording

Managed community reimbursement revenue for the year ended December 31, 2024 was $33.1 million as compared to $21.1 million for the year ended December 31, 2023, representing an increase of $12.0 million, or 56.9%. The increase was primarily a result ofmanaging three more third-party and four unconsolidated joint venture communities during the year ended December 31, 2024.

Previous wording

General and administrative expenses for the year ended December 31, 2023 were $32.2 million as compared to $30.3 million for year ended December 31, 2022, an increase of $1.9 million, or 6.3%. The increase is due to$4.0 million year-over-year change in transaction costs related to our 2023 loan modifications and other transaction related expenses, partially offset by a $1.6 million decrease in stock-based compensation expense as a result of prior year forfeiture credits in connection with executive personnel changes and $1.0 million decrease in insurance costs in connection with the Company's transition to a new broker. The remaining variance of $0.5 million represents the inflationary impact from the remaining recurring general and administrative expenses.

Current wording

General and administrative expenses for the year ended December 31, 2024 were $40.0 million as compared to $32.2 million for year ended December 31, 2023, an increase of $7.8 million, or 24.2%. The increase is due to a$6.6 million increase in labor costs to support the Company's 2024 acquisitions and a $1.6 million increase in stock-based compensation expense, partially offset by a $0.4 million decrease in other costs.

Previous wording

During the year ended December 31, 2023, the Company recorded a non-cash impairment charge of $6.0 million related to one owned community with decreased cash flow estimates as a result of recurring net operating losses. During the year ended December 31, 2022, the Company recorded a non-cash impairment charge of $1.6 million due to the management's commitment to sell the community at a selling price below the community's carrying amount.

Current wording

During the year ended December 31, 2024, there were no impairments on long-lived assets. During the year ended December 31, 2023, the Company recorded a non-cash impairment charge of $6.0 million related to one owned community with decreased cash flow estimates as a result of recurring net operating losses.

Previous wording

Managed community reimbursement expense for the year ended December 31, 2023 was $21.1 million as compared to $27.4 million for the year ended December 31, 2022, a decrease of $6.3 million, or 22.9%. The decrease was primarily a result ofmanaging fewer communities in 2023.

Current wording

Managed community reimbursement expense for the year ended December 31, 2024 was $33.1 million as compared to $21.1 million for the year ended December 31, 2023, an increase of $12.0 million, or 56.9%. The increase was primarily a result ofmanaging more communities during the year ended December 31, 2024 as compared to the prior year period.

Previous wording

Interest income generally reflects interest earned on the investment of cash balances and escrow funds or interest associated with certain income tax refunds or property tax settlements. Interest income increased by $0.4 million compared to the prior year primarily due to more active cash management and increased investment in money market accounts.

Current wording

Interest income generally reflects interest earned on the investment of cash balances and escrow funds or interest associated with certain income tax refunds or property tax settlements. Interest income increased by $1.1 million compared to the prior year primarily due to an average increased investment balance in money market accounts.

Previous wording

Gain on extinguishment of debt for the year ended December 31, 2023 was $36.3 million related to the derecognition of notes payable and liabilities as a result of the transition of legal ownership of two communities to Fannie Mae, the holder of the related non-recourse debt. Loss on extinguishment of debt for the year ended December 31, 2022 was $0.6 million related to the 2022 debt refinancing.

Current wording

Gain on extinguishment of debt for the year ended December 31, 2024 was $48.5 million related to the derecognition of notes payable and liabilities as a result of the 2024 Loan Purchase and the Texas DPO from two of our lenders. Gain on extinguishment of debt for the year ended December 31, 2023 was $36.3 million related to the derecognition of notes payable and liabilities as a result of the transition of legal ownership of two communities to Fannie Mae, the holder of the related non-recourse debt.

Previous wording

As a result of the foregoing factors, the Company reported net loss of $21.1 million for the year ended December 31, 2023, compared to $54.4 million for the year ended December 31, 2022.

Current wording

As a result of the foregoing factors, the Company reported net loss of $3.3 million for the year ended December 31, 2024, compared to net loss of $21.1 million for the year ended December 31, 2023.

Previous wording

In addition to approximately$4.1 million of unrestricted cash balances on hand as of December 31, 2023, our future liquidity will depend in part upon our operating performance, which will be affected by prevailing economic conditions, and financial, business and other factors, some of which are beyond our control. Principal sources of liquidity are expected to be cash flows from operations, proceeds from equity financings, proceeds from debt refinancings or loan modifications, and proceeds from the sale of owned assets. During 2023, we entered into loan modifications with Fannie Mae, an amendment with Ally Bank, including a revised Limited Payment Guaranty, and an Equity Commitment with Conversant. During the first quarter of 2024, we completed the Private Placement Transaction pursuant to which we issued and sold an aggregate of 5,026,318 Shares of our common stock with several shareholders for gross cash proceeds of approximately $47.8 million, which enabled us topurchase all debt outstanding with Protective Life at a substantial discount, as well as fund future working capital and growth initiatives. Additional financing of $24.8 million for the debt purchase was provided by Ally Bank through an expansion of the Company’s existing Ally Bank term loan. These transactions are expected to provide additional financial flexibility to us and increase our liquidity position. See “Note 7–Notes Payable” and “Note 16–Subsequent Events” in the Notes to Consolidated Financial Statements.

Current wording

In addition to approximately $17.0 million of unrestricted cash balance as of December 31, 2024, our future liquidity will depend in part upon our operating performance, which will be affected by prevailing economic conditions, and financial, business and other factors, some of which are beyond our control. Principal sources of liquidity are expected to be cash flows from operations, proceeds from our secured Credit Facility, proceeds from equity offerings, including sales of common stock under our ATM Sales Agreement, and proceeds from debt refinancings or loan modifications. During 2023, we entered into loan modifications with Fannie Mae, an amendment with Ally Bank, including a revised Limited Payment Guaranty, and an equity commitment with Conversant. During 2024, we completed the 2024 Private Placement pursuant to which we issued and sold an aggregate of approximately 5.0 million shares of our common stock to several of our shareholders for gross cash proceeds of $47.8 million, which enabled us to purchase all the Company's debt then outstanding with a certain lender at a substantial discount, as well as fund future working capital and growth initiatives. Additional financing of $24.8 million for the debt purchase was provided by an expansion of the Company’s existing Ally Bank term loan. In addition, during April 2024, the Company entered into the At-the-Market Issuance Sales Agreement (the “ATM Sales Agreement”), whereby the Company may sell, at its option, shares of its common stock up to an aggregate offering price of $75,000,000. As of December 31, 2024, the Company has received $18.7 million in net proceeds from the ATM sales. During August 2024, the Company completed a public offering and issued 4.8 million shares of common stock for net proceeds of $124.1 million, after deducting underwriting discounts and commissions and the Company’s offering expenses. During August 2024, the Company entered into a Credit Facility in which borrowing availability is determined based upon the value of the senior living communities. As of December 31, 2024, the Company had outstanding borrowings under its Credit Facility of $60.0 million. These transactions are expected to provide additional financial flexibility to us and increase our liquidity position. See “Note 8–Debt” and “Note 9–Securities Financing” in the Notes to Consolidated Financial Statements.

Previous wording

The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio, including debt refinancings, purchases and sales of assets, equity financings and other transactions. There can be no assurance that the Company will continue to generate cash flows at or above current levels, or that the Company will be able to obtain the capital necessary to meet the Company’s short- and long-term capital requirements.

Current wording

The Company, from time to time, considers and evaluates financial and capital raising transactions related to its portfolio, including debt refinancings, purchases and sales of assets, equity offerings and other transactions. There can be no assurance that the Company will continue to generate cash flows at or above current levels, or that the Company will be able to obtain the capital necessary to meet the Company’s short- and long-term capital requirements.

Previous wording

The net cash used in investing activities for the year ended December 31, 2023 primarily results from ongoing capital improvements and refurbishments at the Company’s senior housing communities of$17.9 million, offset by$1.4 million from the proceeds from sale of assets. The net cash used in investing activities for the year ended December 31, 2022 primarily results from ongoing capital improvements and refurbishments at the Company’s senior housing communities of $24.6 million and the acquisition of two communities in Indiana for $12.3 million.

Current wording

The net cash used in investing activities for the year ended December 31, 2024 was$208.9 million primarily due to $172.5 million for acquisitions of new communities,$25.2 million due to ongoing capital improvements and refurbishments, and $22.4 million in investments in unconsolidated entities, partially offset by a return on investment of$10.6 millionin our unconsolidated entities in connection with its subsequent financing. The net cash used in investing activities for the year ended December 31, 2023 was primarily due toongoing capital improvements and refurbishments at the Company’s senior housing communities of $17.9 million, partially offset by theproceeds from sale of assets of $1.4 million.

Previous wording

The net cash used in financing activities for the year ended December 31, 2023 primarily results from repayments of notes payable of$13.8 million, deferred financing costs paid of $0.8 million, and purchase of derivative assets of $2.4 million, partially offset byproceeds of$10.0 million from equity draws under the Equity Commitment. The net cash used in financing activities for the year ended December 31, 2022 primarily results from the refinancing of certain of our mortgage debt, preferred stock dividends of $3.0 million, and purchase of derivative assets of $2.7 million. See “Note 7–Notes Payable” and “Note 8–Securities Financing”in the Notes to Consolidated Financial Statements.

Current wording

The net cash provided by financing activities for the year ended December 31, 2024 of $232.0 million was primarily due to net proceeds from the issuance of common stock of $190.5 million, proceeds from our Credit Facility of $68.7 million, proceeds of $56.0 million from notes payable, and proceeds from noncontrolling investors of $7.8 million, partially offset by repayments of notes payable of $72.0 million, repayments of our Credit Facility of $8.7 million, deferred loan costs paid of $3.7 million, purchase of derivative assets of $3.3 million, and dividends paid of $2.8 million. The net cash used in financing activities for the year ended December 31, 2023 of $7.1 million was primarily due to repayments of notes payable of $13.8 million, purchase of derivative assets of $2.4 million, and deferred financing costs paid of $0.8 million, partially offset by proceeds of $10.0 million from equity draws under the equity commitment. See “Note 8–Debt” and “Note 9–Securities Financing” in the Notes to Consolidated Financial Statements.

Previous wording

Except for the non-compliance with certain mortgage loan agreements with Protective Life, the Company was in compliance with all other aspects of its outstanding indebtedness as of December 31, 2023. See“Note 16–Subsequent Events” in the Notes to Consolidated Financial Statements.

Current wording

The Company was in compliance with all financial covenants of its outstanding indebtedness as of December 31, 2024.

Previous wording

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

Current wording

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

Previous wording

Our non-labor operating expenses have historically comprised of approximately one-third of our total operating expenses and are subject to inflationary pressures. The United States consumer price index increased 3.4% during 2023, as compared to an increase of 6.5% in 2022, with food and energy prices increasing approximately 70 basis points. We mitigated a portion of the increase in food costs with the scale benefit of a higher number of residents, along with appropriate product substitution. As a result of our mitigation efforts, for 2023 our non-labor operating expense in our community portfolio decreased approximately $0.8 million, compared to the prior year. For 2024, we expect to continue to experience inflationary pressures.

Current wording

Our non-labor operating expenses have historically comprised of approximately one-third of our total operating expenses and are subject to inflationary pressures. The United States consumer price index increased 2.9% during 2024, as compared to an increase of 3.4% in 2023, with food and energy prices increasing approximately 200 basis points. We mitigated a portion of the increase in food costs with the scale benefit of a higher number of residents, along with appropriate product substitution. For 2024 our non-labor operating expense on the same-store communities increased 2.4% as compared to the prior year. For 2025, we expect to continue to experience increases tied in to overall inflationary pacing.

Previous wording

Historically, labor costs have comprised of approximately two-thirds of our total operating expenses. We began to experience pressures associated with the intensely competitive labor environment during 2022, which continued throughout 2023. The United States’ unemployment rate remained at or below 4.0% each month during 2023 and 2022, and many of states experienced record low unemployment rates. Labor pressures have resulted in higher-than-typical associate turnover and wage growth, and we have experienced difficulty in filling open positions timely. To cover existing open positions, during 2022 and continuing into 2023, we needed to rely on more expensive premium labor, primarily contract labor and overtime. In our community portfolio, the labor component of our operating expense increased approximately $7.2 million, or 6.9% during 2023 compared to 2022. The increase primarily resulted from merit and market wage rate adjustments, more hours worked with higher occupancy during 2023, and an increase in the use of premium labor, primarily contract labor and overtime. For 2024, we expect to continue to experience labor cost pressures as a result of the continuing labor conditions previously described and an anticipated increase in hours worked as our occupancy levels grow. Continued increased competition for, or a shortage of, nurses and other employees and general inflationary pressures have required and may require that we enhance our pay and benefits package to compete effectively for such employees.

Current wording

Historically, labor costs have comprised of approximately two-thirds of our total operating expenses. We began to experience pressures associated with the intensely competitive labor environment during 2022, which continued throughout 2023 and 2024. Labor pressures have resulted in higher-than-typical associate turnover and wage growth, and we have experienced difficulty in filling open positions timely. To cover existing open positions, during 2023 and continuing into 2024, we needed to rely on more expensive premium labor, primarily shift bonuses and overtime. The increase primarily resulted from merit and market wage rate adjustments, more hours worked with higher occupancy during 2024, and an increase in the use of premium labor, primarily shift bonuses and overtime. For 2025, we expect to continue to experience labor cost pressures as a result of the continuing labor conditions previously described and an anticipated increase in hours worked as our occupancy levels grow. Continued increased competition for, or a shortage of, nurses and other employees and general inflationary pressures have required and may require that we enhance our pay and benefits package to compete effectively for such employees.