OPERATION EXPANSIONS

9 Months Ended

Sep. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

2024 Expansions

On September 1, 2024, for nominal consideration, the Company finalized the acquisition of operations for 32 skilled nursing and 21 assisted living and independent living facilities inclusive of 2,511 and 1,334 skilled nursing and assisted living beds, respectively. This acquisition from the former operator, Prestige (Prestige acquisition), expanded the Company’s operations in eight states, five of which were new operating states. In connection with the Prestige acquisition, the Company invested $10,000 for a 25.8% interest in a newly formed entity, Saddle. This investment is recorded as an investment in partnership within other assets on the Company’s condensed combined/consolidated balance sheets. Saddle acquired the operations for all 53 facilities included in the Prestige acquisition, and subsequently assigned them to the Company. Saddle acquired 37 properties from the sellers of the skilled nursing and assisted living and independent living facilities. The Company then leased these 37 properties from Saddle. The Company also assumed eight leases from the prior operator and negotiated new leases for the remaining eight facilities with unaffiliated third-party landlords. The

Company has recorded the associated right of use assets and right of use liabilities for all 53 leases. This transaction was classified as a business combination in accordance with ASC 805.

The table below represents the purchase price allocation to total identifiable assets acquired and net liabilities assumed using the acquisition method, based on their respective fair values as of September 1, 2024.


	Amount
Prepaid expenses and other current assets	$	832
Operating lease right-of-use assets	76,351
Other assets	9,600
Current operating lease liabilities	(4,970)
Long-term operating lease liabilities	(58,301)
Deferred tax liability	(6,327)
Bargain purchase gain	(17,185)
Total purchase price	$	—

Prepaid expenses and other current assets acquired consist of on-hand supplies at the facilities. Other assets acquired consist of contracts assumed with local hospitals, wherein the Company agrees to hold a specified number of beds available for potential hospital discharge, for a set date range. The fair value of these hospital contracts was determined using the income approach. This approach utilized significant assumptions including management’s best estimates of the expected future cash flows and renewal rates of the contracts.

Right-of-use assets specified in the table above are related specifically to the eight leases assumed as part of the transaction excluding the new lease agreements for 37 properties leased from Saddle and eight properties leased from unaffiliated third-party landlords. The value of the right-of-use assets was determined under a market approach. The market approach utilized significant assumptions based on estimated market rent assessments for the acquired lease contracts.

The deferred tax liability recognized is due to the Company having no tax basis in the assets acquired and liabilities assumed. The Company did not assume any liabilities other than those associated with the post-assumption obligations under the assumed leases.

Total fair value of the net assets acquired exceeds consideration transferred, resulting in a bargain purchase gain. The Company reassessed whether it correctly identified all of the assets acquired and all of the liabilities assumed prior to recognition of the gain, in accordance with ASC 805. This bargain purchase gain is recorded within other income (expense), net on the Company’s condensed combined/consolidated statements of income.

The unaudited pro-forma results presented below include the effects of the Prestige acquisition as if it had been consummated as of January 1, 2023, with adjustments to give effect to pro forma events that are directly attributable to the Prestige acquisition which includes adjustments related to the rent - cost of services expense. The unaudited pro forma results do not reflect any operating efficiency or potential cost savings which may result from the consolidation of the acquired operations of the facilities. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operation of the combined company would have been if the Prestige acquisition had occurred at the beginning of the period presented nor are they indicative of future results of operations and are not necessarily indicative of results that might have been achieved had the Prestige acquisition been consummated as of January 1, 2023.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue	$	1,082,734	$	896,291	$	3,159,813	$	2,568,790
Income before provision for income taxes	34,723		29,115		45,611		107,224

For the three and nine months ended September 30, 2024, the acquired facilities contributed revenue of $54,272. For the three and nine months ended September 30, 2024, income before provision for income taxes related to the facilities was $483.

In addition to the Prestige acquisition, during the nine months ended September 30, 2024, the Company’s operations expanded with the addition of 15 stand-alone facilities which included the acquisition of 1,879 skilled nursing beds and 174 assisted living beds operated by the Company’s affiliated operating subsidiaries. In connection with the new operations obtained through long-term leases, the Company did not acquire any material assets or assume any liabilities other than the tenant's post-assumption rights and obligations under the long-term lease. The Company entered into a separate operations transfer agreement with each prior operator as part of each transaction. During this same period, the Company’s real estate portfolio grew with 11 real estate purchases. Of the 11 real estate purchases, four of the properties were acquired in conjunction with the operations of the associated facility. For the other seven acquired properties, the Company’s subsidiaries previously operated the respective facilities and have now acquired the real estate associated with those operations. The aggregate purchase price for these real estate purchases was $225,261.

The Company’s expansion strategy has been focused on identifying both opportunistic and strategic acquisitions within its target markets that offer strong opportunities to improve both clinical and financial performance of the acquired facility. The operations added by the Company are frequently underperforming financially and have regulatory and clinical challenges to overcome. Financial information, especially with underperforming operations, is often inadequate, inaccurate or unavailable. The Company believes that prior operating results are not typically a meaningful representation of the Company’s current operating results or indicative of the integration potential of its newly acquired operating subsidiaries. The assets added during the nine months ended September 30, 2024 and through the issuance of the condensed combined/consolidated financial statements were not material operations to the Company individually or in the aggregate. Accordingly, other than as disclosed above, pro forma financial information is not presented. The additions have been included in the September 30, 2024 condensed combined/consolidated balance sheets of the Company, and the operating results have been included in the condensed combined/consolidated statements of income of the Company since the date the Company gained effective control.

Expansions and Divestitures After Period End

Subsequent to September 30, 2024, the Company’s operations grew in two new states and expanded in five existing states with the addition of 45 stand-alone facilities, 39 of which were acquired through long-term leases, four through real estate purchases, and for two of which the Company previously owned the real estate for. The new operations added 5,030 skilled nursing beds and 271 assisted living beds operated by the Company’s affiliated operating subsidiaries. Additionally, during the same period the Company expanded its portfolio of owned properties by acquiring five properties associated with the Lessor Options. The aggregate purchase price for each of these acquisitions was $138,059.

Subsequent to September 30, 2024, the Company also divested of one leased facility which included 120 skilled nursing beds.