The intensified regulatory and enforcement environment impacts providers like us because of the increase in the number of inspections or surveys by governmental authorities and consequent citations for failure to comply with regulatory requirements. We also expend considerable resources to respond to federal and state investigations or other enforcement action. From time to time in the ordinary course of business, we receive deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys. Although most inspection deficiencies are resolved through an agreed-to plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed or certified facility, which could result in the imposition of fines, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. Furthermore, certain states may allow citations in one community to impact other communities in the state. Revocation of a license at a given community could therefore impact our ability to obtain new licenses or to renew existing licenses at other communities, which may also cause us to be in default under our leases, trigger cross-defaults, trigger defaults under certain of our credit agreements or adversely affect our ability to operate and/or obtain financing in the future. If a state were to find that one community's citation would impact another of our communities, this would also increase costs and result in increased surveillance by the state survey agency. To date, none of the deficiency reports received by us has resulted in a suspension, fine or other disposition that has had a material adverse effect on our revenues. However, the failure to comply with applicable legal and regulatory requirements in the future could result in a material adverse effect to our business as a whole.

There are various extremely complex federal and state laws governing a wide array of referral relationships and arrangements and prohibiting fraud by health care providers, including those in the senior living industry, and governmental agencies are devoting increasing attention and resources to such anti-fraud initiatives. Some examples are the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Balanced Budget Act of 1997, and the False Claims Act, which gives private individuals the ability to bring an action on behalf of the federal government. The violation of any of these laws or regulations may result in the imposition of fines or other penalties that could increase our costs and otherwise jeopardize our business. Under the Deficit Reduction Act of 2005, or DRA 2005, every entity that receives at least $5.0 million annually in Medicaid payments must have established written policies for all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including the federal False Claims Act, and similar state laws. Failure to comply with this ~~new~~ compliance requirement may potentially give rise to potential liability. DRA 2005 also creates an incentive for states to enact false claims laws that are comparable to the federal False Claims Act.

Additionally, we provide services and operate communities that participate in federal and/or state health care reimbursement programs, which makes us subject to federal and state laws that prohibit anyone from presenting, or causing to be presented, claims for reimbursement which are false, fraudulent or are for items or services that were not provided as claimed. Similar state laws vary from state to state and we cannot be sure that these laws will be interpreted consistently or in keeping with past practice. Violation of any of these laws can result in loss of licensure, civil or criminal penalties and exclusion of health care providers or suppliers from furnishing covered items or services to beneficiaries of the applicable federal and/or state health care reimbursement program. Loss of licensure may also cause us to default under our leases and/or trigger cross-defaults.

We are also subject to certain federal and state laws that regulate financial arrangements by health care providers, such as the Federal Anti-Kickback Law, the Stark laws and certain state referral laws. Authorities have interpreted the Federal Anti-Kickback Law very broadly to apply to many practices and relationships between health care providers and sources of patient referral. This could result in criminal penalties and civil sanctions, including fines and possible exclusion from government programs such as Medicare and Medicaid, which may also cause us to default under our leases and/or trigger cross-defaults. Adverse consequences may also result if we violate federal Stark laws related to certain Medicare and Medicaid physician referrals. While we endeavor to comply with all laws that regulate the licensure and operation of our business, it is difficult to predict how our revenues could be affected if we were subject to an action alleging such violations.

Compliance with the Americans with Disabilities Act, Fair Housing Act and fire, safety and other regulations may require us to make unanticipated expenditures, which could increase our costs and therefore adversely affect our ~~earnings~~results of operations and financial condition.

All of our communities are required to comply with the Americans with Disabilities Act, or ADA. The ADA has separate compliance requirements for "public accommodations" and "commercial properties," but generally requires that buildings be made accessible to people with disabilities. Compliance with ADA requirements could require removal of access barriers and non-compliance could result in imposition of government fines or an award of damages to private litigants.

We must also comply with the Fair Housing Act, which prohibits us from discriminating against individuals on certain bases in any of our practices if it would cause such individuals to face barriers in gaining residency in any of our communities. Additionally, the Fair Housing Act and other state laws require that we advertise our services in such a way that we promote diversity and not limit it. We may be required, among other things, to change our marketing techniques to comply with these requirements.

3432

In addition, we are required to operate our communities in compliance with applicable fire and safety regulations, building codes and other land use regulations and food licensing or certification requirements as they may be adopted by governmental agencies and bodies from time to time. Like other health care facilities, senior living communities are subject to periodic survey or inspection by governmental authorities to assess and assure compliance with regulatory requirements. Surveys occur on a regular (often annual or bi-annual) schedule, and special surveys may result from a specific complaint filed by a resident, a family member or one of our competitors. We may be required to make substantial capital expenditures to comply with those requirements.

Capital expenditures we have made to comply with any of the above to date have been immaterial, however, the increased costs and capital expenditures that we may incur in order to comply with any of the above would result in a negative effect on our ~~earnings~~results of operations and financial condition.

Significant legal actions and liability claims against us in excess of insurance limits could subject us to increased operating costs and substantial uninsured liabilities, which may adversely affect our financial condition and ~~operating results.~~results of operations.

The senior living and healthcare services businesses ~~entails~~entail an inherent risk of liability, particularly given the demographics of our residents, including age and health, and the services we provide. In recent years, we, as well as other participants in our industry, have been subject to an increasing number of claims and lawsuits alleging that our services have resulted in resident injury or other adverse effects. Many of these lawsuits involve large damage claims and significant legal costs. Many states continue to consider tort reform and how it will apply to the senior living industry. We may continue to be faced with the threat of large jury verdicts in jurisdictions that do not find favor with large senior living or healthcare providers. We maintain liability insurance policies in amounts and with the coverage and deductibles we believe are adequate based on the nature and risks of our business, historical experience and industry standards. We have formed a wholly-owned "captive" insurance company for the purpose of insuring certain portions of our risk retention under our general and professional liability insurance programs. There can be no guarantee that we will not have any claims that exceed our policy limits in the future.

If a successful claim is made against us and it is not covered by our insurance or exceeds the policy limits, our financial condition and results of operations could be materially and adversely affected. In some states, state law may prohibit or limit insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation. As a result, we may be liable for punitive damage awards in these states that either are not covered or are in excess of our insurance policy limits. Also, the above deductibles, or self-insured retention, are accrued based on an actuarial projection of future liabilities. If these projections are inaccurate and if there are an unexpectedly large number of successful claims that result in liabilities in excess of our self-insured retention, our operating results could be negatively affected. Claims against us, regardless of their merit or eventual outcome, also could have a material adverse effect on our ability to attract residents or expand our business and could require our management to devote time to matters unrelated to the day-to-day operation of our business. We also have to renew our policies every year and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases. There can be no assurance that we will be able to obtain liability insurance in the future or, if available, that such coverage will be available on acceptable terms.

~~Overbuilding and increased competition may adversely affect our ability to generate and increase our revenues and profits and to pursue our business strategy.~~

The senior living industry is highly competitive, and we expect that it may become more competitive in the future. We compete with numerous other companies that provide long-term care alternatives such as home healthcare agencies, therapy services, life care at home, community-based service programs, retirement communities, convalescent centers and other independent living, assisted living and skilled nursing providers, including not-for-profit entities. In general, regulatory and other barriers to competitive entry in the independent living and assisted living sectors of the senior living industry are not substantial. We have experienced and expect to continue to experience increased competition in our efforts to acquire and operate senior living communities. Consequently, we may encounter increased competition that could limit our ability to attract new residents, raise resident fees or expand our business, which could have a material adverse effect on our revenues and earnings.

In addition, overbuilding in the late 1990's in the senior living industry reduced the occupancy rates of many newly constructed buildings and, in some cases, reduced the monthly rate that some newly built and previously existing communities were able to obtain for their services. This resulted in lower revenues for certain of our communities during that time. While we believe that overbuilt markets have stabilized and should continue to be stabilized for the immediate future, we cannot be certain that the effects of this period of overbuilding will not affect our occupancy and resident fee rate levels in the future, nor can we be certain that another period of overbuilding in the future will not have the same effects. Moreover, while we believe that the new construction dynamics and the competitive environments in the states in which we operate are substantially similar to the national market, taken as a whole, if the dynamics or environment were to be significantly adverse in one or more of those states, it would have a disproportionate effect on our revenues (due to the large portion of our revenues that are generated in those states).

Risks Related to Our Organization and Structure

Anti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisition that you may consider favorable or prevent the removal of our current board of directors and management.

Certain provisions of our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisition that you may consider favorable or prevent the removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including:

	~~a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms;~~

a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms;

	~~removal of directors only for cause, and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote;~~

removal of directors only for cause, and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote;

	~~blank-check preferred stock;~~

blank-check preferred stock;

	~~provisions preventing stockholders from calling special meetings;~~

provisions preventing stockholders from calling special meetings or acting by written consent;

	~~advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; and~~

advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; and

	no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election.

no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election.

Additionally, our amended and restated certificate of incorporation provides that Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders in certain situations, will not apply to us.

We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.

We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries. As a result, we are dependent on loans, ~~dividends~~distributions and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from us and have no obligation to make funds available to us.

Risks Related to Our Common Stock

The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.

The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above your purchase price. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

	~~variations in our quarterly operating results;~~

variations in our quarterly results of operations and cash flow;

	~~changes in our earnings estimates;~~

	~~the contents of published research reports about us or the senior living industry or the failure of securities analysts to cover our common stock;~~

	~~additions or departures of key management personnel;~~

	~~any increased indebtedness we may incur or lease obligations we may enter into in the future;~~

	~~actions by institutional stockholders;~~

	~~changes in market valuations of similar companies;~~

	~~announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;~~

	~~speculation or reports by the press or investment community with respect to us or the senior living industry in general;~~

	~~increases in market interest rates that may lead purchasers of our shares to demand a higher yield;~~

	~~changes or proposed changes in laws or regulations affecting the senior living industry or enforcement of these laws and regulations, or announcements relating to these matters; and~~

	~~general market and economic conditions.~~

37changes in our operating performance and liquidity guidance;

the contents of published research reports about us or the senior living industry or the failure of securities analysts to cover our common stock;

additions or departures of key management personnel;

any increased indebtedness we may incur or lease obligations we may enter into in the future;

actions by institutional stockholders;

changes in market valuations of similar companies;

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

speculation or reports by the press or investment community with respect to us or the senior living industry in general;

proxy contests or other shareholder activism;

increases in market interest rates that may lead purchasers of our shares to demand a higher yield;

downturns in the real estate market or changes in market valuations of senior living communities;

changes or proposed changes in laws or regulations affecting the senior living industry or enforcement of these laws and regulations, or announcements relating to these matters; and

general market and economic conditions.

Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.

In the future, we may attempt to increase our capital resources by offering additional debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes, convertible securities, series of preferred shares or shares of our common stock. Upon liquidation, holders of our debt securities and preferred stock, and lenders with respect to other borrowings, would receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock, or both. Shares of our preferred stock, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their share holdings in us.

We may issue all of the shares of our common stock that are authorized but unissued (and not otherwise reserved for issuance under our stock incentive or purchase plans or pursuant to the conversion or exercise features of our convertible senior notes and warrants) without any action or approval by our stockholders. We ~~intend to continue to pursue selected acquisitions of senior living communities and~~ may issue shares of common stock in connection with ~~these acquisitions.~~acquisitions of existing operating companies, senior living communities and ancillary services companies. Any shares issued in connection with our acquisitions or otherwise would dilute the holdings of our current stockholders.

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.

At December 31, ~~2014,~~2016, approximately ~~183.5~~185.5 million shares of our common stock were outstanding (excluding unvested restricted shares). All of the shares of our common stock are freely transferable, except for any shares held by our "affiliates," as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, or any shares otherwise subject to the limitations of Rule 144.

In addition, as of December 31, ~~2014,~~2016, approximately ~~3.6~~4.6 million shares of restricted common stock were outstanding under our 2014 Omnibus Incentive Plan and our Omnibus Stock Incentive Plan, and we had availability to issue approximately ~~8.5~~4.6 million additional shares under our 2014 Omnibus Incentive Plan, our Associate Stock Purchase Plan, and our Director Stock Purchase Plan. The shares of our common stock issued or issuable pursuant to these plans are or will be registered under the Securities Act, and once any restrictions imposed on the shares and options granted under these plans expire, such shares of common stock will be available for sale into the public markets.

Our ability to use net operating loss carryovers to reduce future tax payments will be limited.

Section 382 of the Internal Revenue code contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of 50% of its stock over a three-year period, to utilize its net operating loss carryforward and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. We have determined that an ownership change occurred within the second quarter of 2010, and, therefore, losses carried into the change period have been subject to an annual limitation. The annual limitation is equal to the product of the applicable long term tax exempt rate and the value of our stock immediately before the ownership change, adjusted for certain items. The annual limitation may be increased by certain built-in gains existing at the time of change. The acquisition of Emeritus Corporation also resulted in an ownership change and created an annual limitation on Emeritus' net operating losses.

Item 1B.

Unresolved Staff Comments.

None.

3835

Item 2.

Properties.

Facilities

At December 31, ~~2014,~~2016, we operated ~~1,143~~1,055 communities across 4647 states, with the capacity to serve approximately ~~111,000~~103,000 residents. Of the communities we operated at December 31, ~~2014,~~2016, we owned ~~399,~~363, we leased ~~583~~539 pursuant to operating, capital and financing leases, and ~~161~~153 were managed by us for third parties or unconsolidated ventures in which we have an ownership interest.

The following table sets forth certain information regarding our communities at December 31, ~~2014:~~2016:

	Occupancy				Ownership Status								Occupancy				Ownership Status
State	Units		Rate⁽¹⁾⁽²⁾		Owned		Leased		Managed		Total		Units		Rate⁽¹⁾⁽²⁾		Owned		Leased		Managed		Total
Florida		17,716		86%		56		50		32		138		16,344		83%		49		45		30		124
Texas		14,348		87%		57		44		30		131		13,823		85%		62		33		33		128
California		11,037		89%		27		56		11		94		10,827		86%		26		54		11		91
Ohio		5,014		87%		26		28		6		60
Washington		4,986		90%		14		38		3		55		4,679		91%		14		35		2		51
Colorado		4,642		86%		10		20		9		39		4,637		85%		11		19		9		39
Arizona		4,112		86%		16		16		5		37
Ohio														4,314		84%		23		23		5		51
Illinois		3,930		90%		5		10		6		21		3,699		88%		2		10		6		18
North Carolina		3,851		90%		10		52		1		63		3,680		86%		7		52		1		60
Arizona														3,495		87%		15		15		4		34
Oregon		3,301		94%		8		32		5		45		3,190		93%		8		30		5		43
New York														2,552		85%		17		15		3		35
Virginia														2,497		88%		7		7		3		17
Michigan		2,912		86%		10		24		3		37		2,123		89%		9		23		1		33
Virginia		2,598		85%		9		7		3		19
New York		2,551		87%		17		15		3		35
Tennessee		2,331		89%		15		16		4		35		2,093		92%		13		14		4		31
Indiana		1,994		88%		10		11		3		24
South Carolina		1,937		89%		5		20		0		25		1,676		84%		4		20		0		24
Georgia		1,879		88%		9		14		4		27		1,568		87%		5		12		4		21
Kansas														1,548		90%		8		12		2		22
Oklahoma		1,747		87%		10		21		2		33		1,477		83%		4		21		2		27
Kansas		1,607		92%		10		12		2		24
New Jersey														1,459		88%		7		10		1		18
Massachusetts		1,585		79%		3		5		5		13		1,459		80%		3		5		4		12
New Jersey		1,544		87%		7		10		2		19
Alabama														1,364		86%		7		2		1		10
Pennsylvania		1,378		85%		10		3		1		14		1,279		89%		8		3		1		12
Alabama		1,365		94%		6		3		1		10
Rhode Island		1,184		87%		1		4		4		9		1,186		84%		1		4		4		9
Missouri		1,181		91%		2		1		2		5		1,184		86%		2		1		2		5
Indiana														1,183		75%		4		8		1		13
Connecticut														977		70%		2		7		1		10
Kentucky														895		76%		1		4		1		6
Minnesota		935		88%		3		15		1		19		874		77%		2		15		1		18
Kentucky		913		90%		1		4		1		6
Connecticut		893		82%		2		7		1		10
Wisconsin		805		87%		6		12		2		20		869		82%		6		12		2		20
New Mexico		796		77%		2		4		1		7		793		66%		2		4		1		7
Mississippi		682		92%		5		4		0		9		645		88%		5		3		0		8
Nevada		677		85%		2		5		1		8
Maryland		614		85%		1		3		3		7		614		95%		2		2		3		7
Louisiana		611		86%		6		1		0		7		611		86%		6		1		0		7
Idaho		605		84%		7		1		0		8		605		86%		7		1		0		8
Nevada														604		89%		4		3		0		7
Arkansas		495		88%		4		0		1		5		494		94%		4		0		1		5
Nebraska		456		86%		0		5		0		5		455		85%		0		5		0		5
Utah		368		88%		0		2		2		4		368		81%		0		2		2		4
Montana														238		96%		1		2		0		3
West Virginia		271		89%		1		2		0		3		220		97%		1		1		0		2
Montana		238		93%		1		2		0		3
Delaware		200		95%		2		1		0		3		200		87%		2		1		0		3
Wyoming														113		81%		0		2		0		2
Iowa		182		80%		1		0		1		2		106		72%		0		0		1		1
Wyoming		112		88%		0		2		0		2
Vermont		101		94%		1		0		0		1		101		88%		1		0		0		1
New Hampshire		90		97%		1		0		0		1		90		96%		1		0		0		1
North Dakota		85		86%		0		1		0		1		85		85%		0		1		0		1
Maine														81		56%		0		0		1		1
Total		110,859		88%		399		583		161		1,143		103,374		86%		363		539		153		1,055

3936

(1)

Includes the impact of managed properties.

(2)

Represents occupancy at December 31, ~~2014.~~2016.

Substantially all of our owned properties are subject to mortgages.

Corporate Offices

Our main corporate offices are all leased, including our ~~136,412~~143,065 square foot headquarters facility in Brentwood, Tennessee (a suburb of Nashville) and our ~~158,201~~184,122 square foot shared service facility in Milwaukee, Wisconsin. We also lease smaller regional support offices in Chicago ~~Seattle~~ and Tampa.

Item 3.

Legal Proceedings.

The information contained in Note 1917 to the consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.

~~Stockholder Litigation~~

In connection with our acquisition of Emeritus, three purported class action lawsuits relating to the Agreement and Plan of Merger, dated as of February 20, 2014 (the "Merger Agreement"), by and among Brookdale Senior Living Inc., Emeritus and Broadway Merger Sub Corporation ("Merger Sub"), were filed on behalf of Emeritus shareholders in the Superior Court of King County, Washington against Emeritus, members of the Emeritus board of directors, Brookdale Senior Living Inc. and Merger Sub (the "Defendants"), which lawsuits were subsequently consolidated into a single action captioned In re Emeritus Corp. Shareholder Litigation, No. 14-2-06385-7 SEA (the "Washington Action"). The complaints allege that the Emeritus board of directors breached its fiduciary duties to Emeritus' shareholders by, among other things, failing to maximize shareholder value in connection with the merger or to engage in a fair sale process before approving the merger and by failing to disclose all material information concerning the merger to Emeritus' shareholders. The three complaints also allege that Brookdale Senior Living Inc., Emeritus and Merger Sub aided and abetted Emeritus' board of directors' alleged breaches of fiduciary duties. The complaints seek, among other things, injunctive relief, including rescission of the merger, and damages, including counsel fees and expenses. On June 26, 2014, the Defendants entered into a memorandum of understanding (the "Memorandum of Understanding") with respect to a proposed settlement of the Washington Action, pursuant to which the parties agreed, among other things, that Brookdale Senior Living Inc. and Emeritus would make certain supplemental disclosures related to the proposed merger, which supplemental disclosures were made by Brookdale Senior Living Inc. in a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 27, 2014 and incorporated by reference into Brookdale Senior Living Inc.'s Registration Statement on Form S-4 and the joint proxy statement/prospectus of Brookdale Senior Living Inc. and Emeritus included therein. The parties have agreed to use their collective best efforts to obtain final approval of the settlement and the dismissal of the Washington Action with prejudice. The parties have finalized a stipulation of settlement, which is subject to customary conditions, including final court approval following notice to Emeritus' shareholders. As explained in the Memorandum of Understanding, if the settlement is finally approved by the Washington court, the parties anticipate that it will resolve and release all claims in all actions pursuant to terms that will be disclosed to former Emeritus shareholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiffs' counsel in the Washington Action will file a petition in the Washington court for an award of attorneys' fees and expenses to be paid by Brookdale Senior Living Inc. Brookdale Senior Living Inc. will pay or cause to be paid any attorneys' fees and expenses awarded by the Washington court. There can be no assurance that the Washington court will approve the settlement. In such event, the proposed settlement as contemplated by the Memorandum of Understanding may be terminated.

Item 4.

Mine Safety Disclosures.

Not applicable.

4037

PART II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol "BKD". The following table sets forth the range of high and low sales prices of our common stock for each quarter for the last two fiscal years.

	Fiscal 2014				Fiscal 2016
	High		Low		High		Low
First Quarter	$	34.37	$	26.11	$	19.71	$	11.28
Second Quarter	$	34.80	$	29.50	$	19.42	$	14.43
Third Quarter	$	36.18	$	32.02	$	18.62	$	14.75
Fourth Quarter	$	37.03	$	30.12	$	17.70	$	10.65

	Fiscal 2013				Fiscal 2015
	High		Low		High		Low
First Quarter	$	29.92	$	25.04	$	38.96	$	31.33
Second Quarter	$	30.31	$	25.31	$	39.89	$	34.60
Third Quarter	$	30.65	$	24.42	$	35.35	$	22.00
Fourth Quarter	$	30.00	$	25.46	$	25.48	$	16.58

The closing sale price of our common stock as reported on the NYSE on February ~~19, 2015~~10, 2017 was ~~$36.90~~$15.15 per share. AsAs of that date, there were ~~approximately 378 holders~~approximately 377 holders of record of our common stock.

Dividend Policy

On December 30, 2008, our Board of Directors voted to suspend our quarterly cash dividend indefinitely and no dividends were declared since that time. Although we anticipate that, in the longer-term, we may pay regular quarterly dividends to the holders of our common stock, over the near term we ~~are focused on~~anticipate deploying capital ~~in the growth of~~to reduce our debt and lease leverage, to make strategic and cost effective capital expenditure investments and to grow our business. Accordingly, we do not expect to pay cash dividends on our common stock for the foreseeable future.

Our ability to pay and maintain cash dividends in the future will be based on many factors, including then-existing contractual restrictions or limitations, our ability to execute our ~~growth~~ strategy, our ability to negotiate favorable lease and other contractual terms, anticipated operating expense levels, the level of demand for our units, occupancy rates, entrance fee sales results, the rates we charge, our liquidity position and actual results that may vary substantially from estimates. Some of the factors are beyond our control and a change in any such factor could affect our ability to pay or maintain dividends. We can give no assurance as to our ability to pay or maintain dividends in the future. We also cannot assure you that the level of dividends will be maintained or increase over time or that increases in demand for our units and monthly resident fees will increase our actual cash available for dividends to stockholders. As we have done in the past, we may also pay dividends in the future that exceed our net income for the relevant period as calculated in accordance with U.S. GAAP.

Share Price Performance Graph

The following graph compares the five-year cumulative total return for Brookdale common stock with the comparable cumulative return of the S&P 500 index and the S&P Health Care Index. The graph assumes that a person invested $100 in Brookdale stock and each of the indices on December 31, 2011 and that dividends are reinvested. The comparisons in this graph are not intended to forecast or be indicative of possible future performance of Brookdale shares or such indices.

	12/11	12/12	12/13	12/14	12/15	12/16

Brookdale Senior Living Inc.	100.00	145.60	156.30	210.87	106.15	71.42
S&P 500	100.00	116.00	153.58	174.60	177.01	198.18
S&P Health Care	100.00	117.89	166.76	209.02	223.42	217.41

The performance graph and related information shall not be deemed to be filed as part of this Annual Report on Form 10-K and do not constitute soliciting material and shall not be deemed filed or incorporated by reference into any other filing by the Company under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

~~None.~~The following table contains information regarding purchases of our common stock made during the quarter ended December 31, 2016 by or on behalf of the Company or any ''affiliated purchaser,'' as defined by Rule 10b-18(a)(3) of the Exchange Act:

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share ($)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in thousands) (2)

10/1/2016 - 10/31/2016		—		—		—		82,387
11/1/2016 - 11/30/2016		755,508		12.85		750,000		90,360
12/1/2016 - 12/31/2016		12,203		11.39		—		90,360
Total		767,711		12.83		750,000

(1)

Shares purchased include 750,000 shares purchased in open market transactions pursuant to the publicly announced repurchase program summarized in footnote 2 below and the following number of shares withheld to satisfy tax liabilities due upon the vesting of restricted stock: November 2016—5,508 shares; and December 2016—12,203 shares. The average price paid per share for such share withholding is based on the closing price per share on the vesting date of the restricted stock or, if such date is not a trading day, the trading day immediately prior to such vesting date.

(2)

On November 1, 2016, the Company announced that its Board of Directors had approved a new share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of its common stock, which replaced and terminated the prior repurchase authorization approved by the Board in 2011 that had remaining availability of approximately $82.4 million at the time of termination. No shares were purchased pursuant to the prior authorization during the three months ended December 31, 2016. The new share repurchase program is intended to be implemented through purchases 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, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares. As of December 31, 2016, approximately $90.4 million remained available under the new share repurchase authorization.

4140

Item 6.

Selected Financial Data.

This selected financial data should be read in conjunction with the information contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and related notes included in "Item 8. Financial Statements and Supplementary Data." Our historical statement of operations data and balance sheet data as of and for each of the years in the five-year period ended December 31, ~~2014~~2016 have been derived from our audited financial statements. The results of operations for any particular period are not necessarily indicative of results for any future period.

Our ~~2014~~ results reflect our acquisition of Emeritus subsequent to July 31, 2014, the closing date of the merger. ~~In addition,~~On August 29, 2014, we completed several transactions with ~~respect~~HCP, including our entering into an unconsolidated venture (the "CCRC Venture") with HCP in which we obtained a 51% ownership interest and to which we contributed all but two of our legacy Brookdale entry fee CCRCs, our entering into an unconsolidated venture (the "HCP 49 Venture") with HCP in which we obtained a 20% ownership interest and to which HCP contributed 49 communities leased and historically operated by Emeritus, and our amending and restating the ~~communities contributed to the CCRC Venture~~terms of certain existing triple net leases between us and HCP ~~49 Venture and communities subject to~~(including those acquired in the ~~Master Lease, our~~Emeritus merger). Our results reflect our previously existing ownership, lease and/or management interests through August 29, 2014, and reflect our venture and management interests and amended lease terms ~~for the remainder of the period.~~subsequent to such date. We contributed all but two of our legacy Brookdale entry fee CCRCs to the CCRC Venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated. The results of the entry fee CCRCs contributed the CCRC Venture are reported in the CCRCs –Entry Fee segment for the time periods prior to being contributed to the CCRC Venture. See Note 4 to the consolidated financial statements for more information regarding our acquisition of Emeritus and our transactions with HCP.

	For the Years Ended December 31,
	2016			2015			2014			2013			2012
(in thousands, except per share and other operating data)
Total revenue	$	4,976,980		$	4,960,608		$	3,831,706		$	2,891,966		$	2,768,738
Facility operating expense		2,799,402			2,788,862			2,210,368			1,671,945			1,630,919
General and administrative expense		313,409			370,579			280,267			180,627			178,829
Transaction costs		3,990			8,252			66,949			3,921			―
Facility lease expense		373,635			367,574			323,830			276,729			284,025
Depreciation and amortization		520,402			733,165			537,035			268,757			252,281
Loss (gain) on acquisition		―			―			―			―			636
Asset impairment		248,515			57,941			9,992			12,891			27,677
Loss (gain) on facility lease termination		11,113			76,143			―			―			(11,584	)
Costs incurred on behalf of managed communities		737,597			723,298			488,170			345,808			325,016
Total operating expense		5,008,063			5,125,814			3,916,611			2,760,678			2,687,799
Income (loss) from operations		(31,083	)		(165,206	)		(84,905	)		131,288			80,939
Interest income		2,933			1,603			1,343			1,339			4,012
Interest expense		(385,617	)		(388,764	)		(248,188	)		(137,399	)		(146,783	)
Debt modification and extinguishment costs		(9,170	)		(7,020	)		(6,387	)		(1,265	)		(221	)
Equity in earnings (loss) earnings of unconsolidated ventures		1,660			(804	)		171			1,484			(3,488	)
Gain (loss) on sale of assets, net		7,218			1,270			446			972			(332	)
Other non-operating income		14,801			8,557			6,789			1,753			925
Loss before income taxes		(399,258	)		(550,364	)		(330,731	)		(1,828	)		(64,948	)
(Provision) benefit for income taxes		(5,378	)		92,209			181,305			(1,756	)		(1,519	)
Net income (loss)		(404,636	)		(458,155	)		(149,426	)		(3,584	)		(66,467	)
Net (income) loss attributable to noncontrolling interest		239			678			436			―			―
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(404,397	)	$	(457,477	)	$	(148,990	)	$	(3,584	)	$	(66,467	)
Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders	$	(2.18	)	$	(2.48	)	$	(1.01	)	$	(0.03	)	$	(0.54	)
Weighted average shares of common stock used in computing basic and diluted net income (loss) per share		185,653			184,333			148,185			123,671			121,991
Other Operating Data:
Total number of communities (at end of period)		1,055			1,123			1,143			649			647
Total units operated⁽¹⁾
Period end		102,768			107,786			110,219			66,832			65,936
Weighted average		106,122			109,342			84,299			66,173			66,102
Owned/leased communities occupancy rate (weighted average)		86.0	%		86.8	%		88.3	%		88.7	%		88.0	%
RevPOR⁽²⁾	$	4,468		$	4,310		$	4,357		$	4,383		$	4,271

For the Years Ended December 31,
2014 2013 2012 2011 2010

(in thousands, except per share and other operating data)
Total revenue $ 3,831,706 $ 2,891,966 $ 2,768,738 $ 2,456,483 $ 2,278,920
Facility operating expense 2,210,368 1,671,945 1,630,919 1,508,571 1,437,930
General and administrative expense 280,267 180,627 178,829 148,327 131,709
Transaction costs 66,949 3,921 ― ― ―
Facility lease expense 323,830 276,729 284,025 274,858 270,905
Depreciation and amortization 537,035 268,757 252,281 268,506 292,341
(Gain) loss on facility lease termination — ― (11,584 ) ― 4,608
Gain on sale of communities, net ― ― ― ― (3,298 )
Loss (gain) on acquisition — ― 636 (1,982 ) ―
Asset impairment 9,992 12,891 27,677 16,892 13,075
Costs incurred on behalf of managed communities 488,170 345,808 325,016 152,566 67,271
Total operating expense 3,916,611 2,760,678 2,687,799 2,367,738 2,214,541
(Loss) income from operations (84,905 ) 131,288 80,939 88,745 64,379
Interest income 1,343 1,339 4,012 3,538 2,238
Interest expense:
Debt (128,002 ) (96,131 ) (98,183 ) (93,229 ) (102,245 )
Capital and financing lease obligations (109,998 ) (25,194 ) (30,155 ) (31,644 ) (30,396 )
Amortization of deferred financing costs and debt premium (discount) (7,477 ) (17,054 ) (18,081 ) (13,427 ) (8,963 )
Change in fair value of derivatives (2,711 ) 980 (364 ) (3,878 ) (4,118 )
Debt modification and extinguishment costs (6,387 ) (1,265 ) (221 ) (18,863 ) (1,557 )
Equity in earnings (loss) of unconsolidated ventures 171 1,484 (3,488 ) 1,432 168
Other non-operating income (expense) 7,235 2,725 593 56 (1,454 )
Loss before income taxes (330,731 ) (1,828 ) (64,948 ) (67,270 ) (81,948 )
Benefit (provision) for income taxes 181,305 (1,756 ) (1,519 ) (1,780 ) 32,062
Net loss (149,426 ) (3,584 ) (66,467 ) (69,050 ) (49,886 )
Net loss attributable to noncontrolling interest 436 ― �� ― ― ―
Net loss attributable to Brookdale Senior Living Inc. common stockholders $ (148,990 ) $ (3,584 ) $ (66,467 ) $ (69,050 ) $ (49,886 )

Basic and diluted net loss per share attributable to Brookdale Senior Living Inc. common stockholders $ (1.01 ) $ (0.03 ) $ (0.54 ) $ (0.57 ) $ (0.42 )
Weighted average shares of common stock used in computing basic and diluted net loss per share 148,185 123,671 121,991 121,161 120,010

Other Operating Data:
Total number of communities (at end of period) 1,143 649 647 647 559
Total units operated⁽¹⁾

Period end 110,219 66,832 65,936 66,183 50,521
Weighted average 84,299 66,173 66,102 55,548 50,870
Owned/leased communities occupancy rate (weighted average) 88.3 % 88.7 % 88.0 % 87.3 % 87.1 %
Senior Housing average monthly revenue per unit⁽²⁾
4,357 $ 4,383 $ 4,271 $ 4,193 $ 4,053

	As of December 31,										As of December 31,
	2014		2013		2012		2011		2010		2016		2015		2014		2013		2012
(in millions)
Cash and cash equivalents	$	104.1	$	58.5	$	69.2	$	30.8	$	81.8	$	216.4	$	88.0	$	104.1	$	58.5	$	69.2
Total assets	$	10,521.4	$	4,737.8	$	4,706.8	$	4,503.4	$	4,565.8	$	9,217.7	$	10,048.6	$	10,417.5	$	4,695.6	$	4,672.8
Total long-term debt and line of credit	$	3,616.7	$	2,366.8	$	2,359.6	$	2,115.4	$	2,199.1	$	3,559.6	$	3,942.8	$	3,597.0	$	2,342.3	$	2,339.0
Total capital and financing lease obligations	$	2,649.2	$	299.8	$	319.8	$	348.2	$	371.2	$	2,485.5	$	2,489.6	$	2,649.2	$	299.8	$	319.8
Total equity	$	2,882.2	$	1,020.9	$	997.0	$	1,035.3	$	1,056.0	$	2,077.7	$	2,458.7	$	2,882.2	$	1,020.9	$	997.0

(1)	Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.

(2)

~~Senior Housing~~RevPOR, or average monthly ~~revenue per unit represents the average of the total monthly~~senior housing resident fee revenues per occupied unit, is defined by the Company as resident fee revenues, excluding ~~amortization of entrance fees and~~ Brookdale Ancillary Services segment revenue and entrance fee amortization, for the corresponding portfolio for the period divided by the weighted average number of occupied ~~units.~~units in the corresponding portfolio for the period, divided by the number of months in the period.

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis should be read in conjunction with the information contained in "Item 6. Selected Financial Data" and our historical consolidated financial statements and related notes included in "Item 8. Financial Statements and Supplementary Data." In addition to historical information, this discussion and analysis may contain forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management's expectations. Please see additional risks and uncertainties described in "Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995" for more information. Factors that could cause such differences include those described in "Item 1A. Risk Factors" of this Annual Report on Form 10-K.

Executive Overview and Recent Developments

As of December 31, ~~2014,~~2016, we are the largest operator of senior living communities in the United States based on total capacity, with ~~1,143~~1,055 communities in 4647 states and the ability to serve approximately ~~111,000~~103,000 residents. We offer our residents access to a full continuum of services across the most attractive sectors of the senior living industry. AsWe operate independent living, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through our ancillary services programs, we also offer a range of ~~December 31, 2014, we operated in five business segments: Retirement Centers, Assisted Living, Continuing Care Retirement Communities ("CCRCs") - Rental, Brookdale Ancillary Services~~outpatient therapy, home health and ~~Management Services.~~hospice services to residents of many of our communities and to seniors living outside of our communities.

As of December 31, ~~2014,~~2016, we owned or leased ~~982~~902 communities ~~with 83,176 units~~(77,284 units) and provided management services with respect to ~~161~~153 communities ~~with 27,683 units~~(26,090 units) for third parties or unconsolidated ventures in which we have an ownership interest. As of December 31, ~~2014,~~2016, we operated ~~148~~129 retirement center communities ~~with 26,514 units, 915~~(24,339 units), 851 assisted living communities ~~with 62,697 units~~(58,477 units) and 8075 CCRCs ~~with 21,648 units. We offer therapy services to approximately 54,000 of our units and home health services to approximately 56,000 of our units.~~(20,558 units). The majority of our units are located in campus settings or communities containing multiple services, including CCRCs. As of December 31, 2016, our ancillary services platform included networks in 28 states with the ability to provide home health services to approximately 61.7% of our units, outpatient therapy to approximately 18.0% of our units and hospice services to approximately 18.3% of our units. During the year ended December 31, ~~2014,~~2016, we generated approximately ~~80.7%~~82.1% of our resident fee revenues from private pay customers. For the year ended December 31, ~~2014, 39.2%~~2016, 37.9% of our resident and management fee revenues were generated from owned communities, ~~49.4%~~49.1% from leased communities, ~~10.1%~~11.3% from our ~~Brookdale Ancillary Services~~ancillary services business and ~~1.3%~~1.7% from management fees from communities we operate on behalf of third parties or unconsolidated ventures.

We intend to be the leading provider of senior living solutions, and we believe that we are positioned to take advantage of favorable demographic trends ~~and future supply-demand dynamics in the senior living industry.~~over time. We also believe that we operate in the most attractive sectors of the senior living industry with ~~significant~~ opportunities to increase our revenues through providing a combination of housing, hospitality services, ancillary services and health care services. Our senior living communities offer residents a supportive ~~"home-like"~~home-like setting, assistance with activities of daily living (such as eating, bathing, dressing, toileting and transferring/walking) and, in ~~several~~certain communities, licensed skilled nursing services. We also provide ancillary services, including outpatient therapy, ~~and~~ home health services and hospice services, to our residents. ~~Our strategy is to be the leading provider of senior living solutions, built on a large and growing senior housing platform.~~ By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to "age-in-place" and thereby maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives.

Strategy

During 2014, we announced and completed several transactions as part of our long-term objectives to grow our revenues, Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income. These transactions, described further below, include our acquisition ofacquired Emeritus Corporation ("Emeritus") ~~and our entry into two ventures and~~, a master lease with HCP, Inc. ("HCP"). See "Non-GAAP Financial Measures" below for an explanation of how we define each of these measures, a detailed description of why we believe such measures are useful andsenior living service provider focused on operating residential style communities throughout the limitations of each measure, a reconciliation of net loss to each of Adjusted EBITDA and Facility Operating Income and a reconciliation of net cash provided by operating activities to Cash From Facility Operations.



~~Emeritus Merger~~. On July 31, 2014, we acquired Emeritus, a senior living service provider focused on operating residential style communities throughout the United States, for approximately $3.0 billion consisting of the issuance of our stock with a fair value of approximately $1.6 billion and our assumption of approximately $1.4 billion aggregate principal amount of existing mortgage indebtedness.United States. At the closing of the merger, the size of our consolidated portfolio increased by 493 communities, 182 of which were owned and 311 of which were subject to leases that we directly or indirectly assumed in the merger. The Emeritus communities provide independent living, assisted living, memory care and, to a lesser extent, skilled nursing care. The merger significantly increased our scale and provides us the opportunity to leverage this scale to build our national brand and provide greater organic growth, achieve greater operating efficiencies, and drive new innovations to serve our residents. In addition, the merger provided us entry into 10 new states and significantly increased our presence in many high-population states, especially in the west and northeast. Enhanced geographic coverage and density is a contributing factor to our ability to increase our operating efficiencies and may provide additional opportunities for growth from markets with clusters of assets. The merger also enables us to expand our therapy, home health and hospice ancillary programs into the Emeritus communities and accelerate the introduction of Emeritus' Nurse on Call home health services into our major markets. The results of Emeritus' operations have been included in the consolidated financial statements subsequent to the acquisition date.

~~Since~~ the closing of the merger, the size of our consolidated portfolio increased by 493 communities, significantly increasing our scale and providing us entry into 10 new states. Following the acquisition, ~~of Emeritus,~~ we have executed on our plans to integrate legacy Emeritus locations into our systems and infrastructure ~~platform as rapidly as prudently possible.~~platform. In ~~January~~ 2015, we completed the ~~third of our four~~final cutover waves of integration ~~activities.~~activities, and we now have a common system and infrastructure platform in place.

With integration activities largely completed, during 2016 we undertook a comprehensive review of our organizational effectiveness as part of updating our strategy. During 2016, we completed this review and adopted a refined strategy: to achieve consistent operational excellence in our core businesses. Execution on our strategy is intended to maximize the value of our existing platform and to build the foundation for further growth.

We have identified five key priorities for which we have developed initiatives and are developing initiatives to support our strategy and have created a transformation process to develop cross-functional initiatives directly tied to key priorities. These five priorities include:

Enhance our customer and associate experience. With this priority, we are simplifying the role of the executive directors of our communities to allow them to focus on our customers and associates, improving our model for recruiting and retaining community associates, implementing new talent development and training programs, and will continue to implement an expanded system to gauge and improve the quality of our relationships with our customers and associates.

Improve our marketing and sales processes. We have designed and begun implementation of a network sales model, have begun to design and implement a new lead management system, and have begun segmenting our communities to align operating standards with optimal market positions. We will continue to leverage our brand recognition while pursuing a multi-layered marketing approach, which includes customized marketing campaigns in markets and communities with the highest potential. Our network sales model is designed to better coordinate our sales efforts among our communities within a given market. Our community segmentation efforts are intended to identify optimal levels of price, service offerings, amenities and programs to be offered in our communities based on local demand so that we can adjust our operating standards to create differentiated value to meet the needs of our customers.

Simplify our organization. We are actively identifying and executing on initiatives to simplify our organization in order to align our structure around our customers' priorities while improving our operational effectiveness and efficiency. Through our realignment efforts, we have reduced spans and layers in our organization to increase accountability and bring decision making closer to our customers. We also plan to continue to establish corporate shared service centers of excellence to reduce costs and improve our effectiveness. We expect that our organizational simplification and streamlining efforts will lead to opportunities for general and administrative expense efficiencies.

Optimize our portfolio and leverage scale. Our initiatives will focus on maximizing the ~~fourth wave~~value and performance of our ancillary services business, optimizing our community portfolio, capturing synergies from our scale, and making strategic and cost effective capital expenditure investments. Through our ongoing portfolio optimization initiative, we intend to dispose of owned and leased communities and restructure leases in order to simplify and streamline our business, to increase the quality and durability of our cash flow, to improve our liquidity and to reduce our debt and lease leverage. Disposals of owned assets may take the form of outright sales or contributions into ventures in which we would have an ownership interest, and we may desire to retain management rights on disposed assets. We also intend to restructure existing leases, including those with approaching maturities, which may take the form of non-renewal of leases, negotiation of revised lease terms, termination of leases in favor of venture structures in which we would have an interest and, to a lesser degree, the purchase of leased communities, particularly where we have favorable purchase options. Our criteria for identifying communities and transactions as part of this initiative include the market value of communities and their underlying performance, lease terms, capital requirements, location, market dynamics, physical plant condition and proximity to other communities in our portfolio. We expect to continue our capital expenditure programs, including our Program Max initiative through which we intend to expand, renovate, redevelop and reposition our communities where economically advantageous.

Innovate for growth. We intend to evaluate, test and implement innovations that enhance customer and associate experience and to explore models to drive new economics.

While our focus will be on executing our refined strategy, we plan to continue to evaluate and, where opportunities arise, selectively purchase existing operating companies, senior living communities, including those that we currently lease or manage, and ancillary services companies. Such acquisitions may be pursued on our own, or through our investments in ventures.

We believe that successful execution upon our strategy and the initiatives supporting our strategy will enable us to grow stockholder value and better fulfill our mission by satisfying more customers, building improved relationships between us, our associates and our customers, and by improving our occupancy, revenue, expenses, and liquidity, by increasing the quality and durability of our cash flow, and by reducing our debt and lease leverage.

Portfolio Optimization Activities

During fiscal 2016, we entered into or completed several transactions as part of our efforts to optimize our portfolio through disposing of owned and leased communities and restructuring leases in order to simplify and streamline our business, to increase the quality and durability of our cash flow, to improve our liquidity and to reduce our debt and lease leverage. The transactions included our entering into agreements to sell 51 owned communities, and completing the dispositions of 51 owned communities and the extinguishment of $94.5 million of related mortgage debt. We also entered into agreements to terminate triple net leases with respect to 97 communities, seven of which were terminated during 2016. Four of such communities were contributed to an existing unconsolidated venture in which we have an equity interest, and we expect 64 of such communities to be ~~completed~~contributed to a venture in ~~the late summer of 2015, though the overall integration effort will continue throughout 2015. Once wave four is complete,~~which we will have ~~a common systems~~an equity interest. Each of these transactions are summarized below. We will continue to actively explore additional opportunities to optimize our portfolio through disposing of owned and ~~infrastructure platform~~leased communities, restructuring leases and ~~will be able to manage~~investing in our ~~business more uniformly across our entire system.~~Program Max initiative.

~~During the fourth quarter~~Dispositions of 2014, we experienced lower than expected occupancy rates, mostly concentrated in legacy Emeritus communities and attributable to lower than expected levels of move-ins. As part of the integration, we created a number of new reporting relationships for our sales and operational teams, and former Emeritus sales teams acclimated to new systems and processes. In addition, our lead generation was temporarily reduced as we worked through relationships with referral sources and as we combined the Brookdale and Emeritus websites and lead banks. The combination of these factors adversely impacted our incremental move-ins during the fourth quarter of 2014, while our move-out activity was within our normal seasonal pattern. We believe we are making progress towards normalization of our move-ins. In addition, we have accelerated our capital expenditures on legacy Emeritus communities to provide our sales force and our residents a more attractive product, and we plan to fully or partially renovate more than 150 legacy Emeritus communities during 2015.Owned Communities



~~HCP Ventures and Lease Amendments~~. On August 29, 2014, we completed transactions with HCP pursuant to which we and HCP entered into two ventures and amended the terms of certain existing triple net leases between us and HCP (including those acquired in the Emeritus merger). Each of the ventures uses a "RIDEA" structure, whereby we and HCP invested in an "opco" entity and a "propco" entity. The propco owns most of the applicable communities and leases such communities to the opco pursuant to long-term leases entered into at the closing. The opco owns the remainder of the applicable communities not owned by the propco, and at the closing the opco engaged an affiliate of ours to manage all of the owned and leased communities pursuant to management agreements with 15-year terms subject to certain extension options. The transactions with HCP provide us a strategic capital platform to continue to grow in the senior housing industry and to deliver the best, high-quality solutions for our current residents and address the growing population of seniors.

We began 2016 with 17 of our owned communities (1,623 units) classified as held for sale as of December 31, 2015. During the year ended December 31, 2016, we entered into agreements to sell an additional 51 communities (3,219 units) and completed the dispositions of 51 owned communities (3,356 units). These transactions are summarized below.

~~CCRC Venture~~. At the closing, we and HCP entered into a venture with respect to certain entry-fee CCRCs previously owned, leased and/or operated by us. We own a 51% ownership interest, and HCP owns a 49% ownership interest, in each of the propco and opco (together, the "CCRC Venture"). At the closing, we contributed to the CCRC Venture eight wholly-owned entities (owning eight CCRCs subject, in certain cases, to existing debt) and certain purchase options with respect to the HCP Communities (as defined below), and HCP contributed to the CCRC Venture three wholly-owned entities (owning three properties in two CCRC communities (the "HCP Communities")). In addition, HCP contributed $323.5 million in cash and the CCRC Venture completed the purchases of four communities managed by us for an aggregate purchase price of $323.5 million immediately following the closing. Each of the communities in the venture is managed by us pursuant to market rate management agreements entered into at the closing, and we have agreed to guarantee certain obligations of the manager under the applicable management agreements. Each of the propco and opco is governed by a board of managers consisting of six members, with three representatives appointed by each of us and HCP.

~~HCP 49 Venture.~~ In addition, at the closing, we and HCP entered into a venture with respect to 49 independent living, assisted living, memory care and/or skilled nursing care communities previously owned by HCP and leased and historically operated by Emeritus. We acquired the leases though our acquisition of Emeritus, and our entry into the venture effectively terminated the leases. HCP had granted Emeritus purchase option rights with respect to each of the 49 communities, and these purchase options were terminated at the closing. We own a 20% ownership interest, and HCP owns an 80% ownership interest, in each of the propco and opco (together, the "HCP 49 Venture"). At the closing, an HCP affiliate made a loan to us at prevailing interest rates in the original principal amount of approximately $68 million to fund our initial capital contribution to the HCP 49 Venture. HCP contributed 49 communities to propco, and at closing propco leased the communities to opco. Each of the communities in the HCP 49 Venture is managed by an affiliate of ours, and we have agreed to guarantee certain obligations of the manager under the applicable market rate management agreements. During the three months ended March 31, 2016, we sold seven of the 17 communities held for sale as of December 31, ~~2014, we repaid~~2015 for an aggregate sales price of $46.7 million. The results of operations of these communities are reported in the ~~$68 million loan from HCP primarily with~~Assisted Living (six communities; 389 units) and CCRCs – Rental (one community; 359 units) segments within the ~~proceeds from~~consolidated financial statements through the ~~public equity offering completed during the third quarter~~respective disposition dates. The remaining 10 communities were classified as held for sale as of ~~2014.~~December 31, 2016.

~~Master Lease. Finally, at~~

During the ~~closing,~~three months ended June 30, 2016, we ~~and HCP amended and restated several triple net leases between affiliates~~entered into an agreement with a third party to sell a 12-state portfolio of HCP and Emeritus, covering an aggregate of 153 communities, together into a single master lease with the communities subject thereto separated into three pools (the "Master Lease"). The term of the Master Lease is 14 years for the pool 1 communities, 15 years for the pool 2 communities and 16 years for the pool 3 communities, with an average of approximately fifteen years, in each case subject to 2 extension options of approximately 10 years each, and the Master Lease is guaranteed by us. The Master Lease provided for total base rent in 2014 of approximately $158.0 million, with lower future rent payments and escalations compared to the previously existing leases. Under the Master Lease, HCP has agreed to make available up to $100.0 million for capital expenditures related to the communities during calendar years 2014 through 2017 at an initial lease rate of 7.0%. In addition, the Master Lease includes a purchase option in our favor for up to ten communities at an aggregate purchase price not to exceed $60.0 million. On December 29, 2014, we exercised this purchase option and agreed to purchase nine44 owned communities for an aggregate ~~purchase~~sales price of ~~$60.0~~$252.5 million.

During ~~2014, after completion~~the three months ended September 30, 2016, we sold 32 of ~~the transactions with Emeritus and HCP, we continued our efforts to strengthen our financial position. In the fourth quarter~~these communities (1,771 units) for an aggregate sales price of 2014, we expanded and extended the maturity date of our secured credit facility, and in the third quarter of 2014 we completed a registered public equity offering, which resulted in net proceeds of approximately $330.4$177.5 million. During the three months ended December 31, ~~2014,~~2016, we ~~repaid $275.9~~sold nine of these communities (444 units) for an aggregate sales price of $47.7 million. The results of operations of these 41 communities are reported within the Assisted Living segment within the consolidated financial statements through the respective disposition dates. During the three months ended December 31, 2016, the agreement was amended to remove one community (63 units) from the portfolio, and the aggregate sales price of the portfolio was decreased by $4.7 million. The remaining two communities (175 units) within the portfolio were classified as held for sale as of December 31, 2016.

During 2016, we identified seven additional owned communities (766 units) as held for sale. During the three months ended December 31, 2016, we sold three of these communities (393 units) for an aggregate sales price of $33.0 million. The results of operations of these three communities are reported in the Assisted Living (one community; 20 units), CCRCs – Rental (one community; 276 units) and Retirement Center (one community; 97 units) segments through the respective disposition dates. The remaining four communities (373 units) were classified as held for sale as of December 31, 2016.

As of December 31, 2016, $97.8 million was recorded as assets held for sale and $60.5 million of ~~existing~~mortgage debt was included in the current portion of long-term debt with a weighted average interest rate of 5.5%, financed primarily with the proceeds of the public equity offering, and we have used and are using the remaining net proceeds to finance the exercise of purchase options on certain communities currently leased by us and for other general corporate purposes, which may include additional debt repayments and the acceleration of capital investments in our communities and corporate infrastructure platform. We ended the year with $104.1 million of unrestricted cash and cash equivalents onwithin our consolidated balance sheet with respect to the 16 communities held for sale as of such date. This debt will either be repaid with the proceeds from the sales or be assumed by the prospective purchasers. The results of operations of the 16 communities are reported in the following segments within the consolidated financial statements: Assisted Living (13 communities; 1,126 units) and ~~$388.4~~CCRCs – Rental (three communities; 297 units). The 16 communities had resident fee revenue of $47.2 million and facility operating expenses of $42.0 million for the year ended December 31, 2016.

The closings of the sales of the unsold communities classified as held for sale are subject to receipt of regulatory approvals and satisfaction of other customary closing conditions, and are expected to occur in the next 12 months; however, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

Dispositions and Restructurings of Leased Communities

On November 1, 2016, we announced that we had entered into agreements to, among other things, terminate triple-net leases with respect to 97 communities, four of which would be contributed to an existing unconsolidated venture in which we hold an equity interest and 64 of which would be owned by a venture in which we expect to acquire a non-controlling interest. The transactions include the following components:

HCP, Inc. ("HCP") and affiliates of Blackstone Real Estate Advisors VIII L.P. (collectively, "Blackstone") entered into an agreement pursuant to which HCP has agreed to sell 64 communities (5,967 units)—which are currently leased to us at above market rates and have a remaining average lease term of approximately 12 years—to Blackstone for a purchase price of $1.125 billion. Separately, we entered into an agreement with Blackstone pursuant to which we have agreed to form a venture (the "Blackstone Venture") into which Blackstone will contribute the 64 communities and into which we expect to contribute a total of approximately $170.0 million to purchase a 15% equity interest, terminate the above market leases, and fund our share of anticipated closing costs and working capital. Following closing, we will manage the communities on behalf of the venture. We expect the Blackstone Venture transactions to close during the three months ended March 31, 2017. The results of operations of the 64 communities are reported in the following segments within the consolidated financial statements: Assisted Living (48 communities; 3,364 units), Retirement Centers (nine communities; 1,180 units) and CCRCs-Rental (seven communities; 1,423 units). The 64 communities had resident fee revenue of $264.7 million, facility operating expenses of $182.0 million and cash lease payments of $88.4 million for the year ended December 31, 2016.

We and HCP agreed to terminate triple-net leases with respect to eight communities (867 units). HCP agreed to contribute immediately thereafter four of such communities, consisting of 527 units, to an existing unconsolidated venture with HCP in which we have a 10% equity interest. During the three months ended December 31, 2016, the triple-net leases with respect to seven communities (773 units) were terminated and HCP contributed four of the communities to the existing unconsolidated venture. The triple-net lease with respect to the remaining community was terminated during January 2017. The results of operations of the eight communities are reported in the following segments within the consolidated financial statements: Assisted Living (six communities; 514 units), Retirement Centers (one community; 109 units) and CCRCs-Rental (one community; 244 units). The eight communities had resident fee revenue of $41.1 million, facility operating expenses of $30.6 million and cash lease payments of $11.3 million for the year ended December 31, 2016.

We and HCP agreed to terminate triple-net leases with respect to 25 communities (2,031 units), which we expect to occur in stages through the end of fiscal 2017. The results of operations of the 25 communities are reported in the following segments within the consolidated financial statements: Assisted Living (23 communities; 1,759 units) and CCRCs-Rental (two communities; 272 units). The 25 communities had resident fee revenue of $72.2 million, facility operating expenses of $58.6 million and cash lease payments of $18.9 million for the year ended December 31, 2016.

The closings of the various pending transactions with HCP and Blackstone are subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals; however, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur. The transactions related to the Blackstone Venture may require us to record a significant charge in fiscal 2017 for the amount by which the approximately $63.0 million expected initial carrying value of the investment in the Blackstone Venture exceeds its fair value. Additionally, it is expected that these transactions related to the Blackstone Venture may require us to record a significant increase to our existing tax valuation allowance. We have recorded valuation allowances of $264.3 million at December 31, 2016 against our $369.5 million of ~~availability on~~federal and state net operating carryforwards and tax credits. The actual amount of charges related to the transactions related to the Blackstone Venture and the increase to the valuation allowance will be determined following the closing of the transactions related to the Blackstone Venture. See Note 4 to the consolidated financial statements for more information regarding potential charges and an increase to our ~~secured credit facility.~~tax valuation allowance.

Program Max Initiative

During ~~the year,~~fiscal 2016, we also made ~~additional~~ progress on our Program Max initiative under which we expand, renovate, redevelop and reposition certain of our existing communities where economically advantageous. For the year ended December 31, ~~2014,~~2016, we invested ~~$59.8~~$23.9 million on Program Max projects, net of ~~$34.6~~$19.9 million of third party lessor ~~reimbursement. We completed 16 Program Max~~reimbursements, which included the completion of 8 expansion or conversion projects ~~in 2014,~~ which resulted in ~~396 net new~~237 additional units. We currently have ~~18 additional~~10 Program Max projects that have been approved, most of which have begun construction and are expected to generate ~~418 net~~129 new units.

Liquidity

~~We believe that there are substantial organic growth opportunities inherent in~~During the year ended December 31, 2016, we increased our ~~existing portfolio. We intend~~liquidity position by $389.4 million to ~~take advantage~~$584.0 million as of ~~those opportunities by growing revenues, while maintaining expense control, at~~December 31, 2016 compared to $194.6 million as of December 31, 2015. Total liquidity as of December 31, 2016 included $216.4 million of unrestricted cash and cash equivalents and $367.6 million of availability on our ~~existing~~secured credit facility. During the three months ended December 31, 2016, the CCRC Venture obtained non-recourse mortgage financing on certain communities, ~~continuing~~and we received distributions of $221.6 million of the ~~expansion and maturation~~net proceeds from such financing. In January 2017, we completed the sale of a 10% ownership interest (one-half of our ~~ancillary services programs, expanding, redeveloping~~interest) in the HCP 49 Venture for $26.8 million of net cash proceeds.

During the year ended December 31, 2016, we used net proceeds from dispositions of owned communities to extinguish $94.5 million of related mortgage debt, and ~~repositioning our existing~~we used net proceeds from dispositions of owned communities and ~~acquiring~~community financings, distributions from the CCRC Venture and cash flows from operations to repay the outstanding balance on our secured credit facility, including the $100.0 million term loan, which reduced the total commitment amount to $400.0 million. We plan to use proceeds from our distribution from the CCRC Venture and our sale of one-half our interest in the HCP 49 Venture to fund our anticipated contribution of approximately $170.0 million to purchase a 15% equity interest in the Blackstone Venture, which we expect to close during the three months ending March 31, 2017.

Share Repurchase Program

On November 1, 2016, we announced that our Board of Directors had approved a new share repurchase program that authorizes us to purchase up to $100.0 million in the aggregate of our common stock, which replaced and terminated the prior repurchase authorization approved by the Board in 2011. Pursuant to this authorization, in 2016 we repurchased 750,000 shares at a weighted average price paid per share of $12.83, for an aggregate purchase price of approximately $9.6 million. As of December 31, 2016, approximately $90.4 million remains available under this share repurchase authorization.

Competitive Developments

During fiscal 2016, we focused on growing our occupancy while increasing rate over the prior year. Beginning in the third quarter of fiscal 2016, we experienced an adverse change in the competitive environment for our consolidated senior housing portfolio, with significant new competition opening in several of our markets. We have addressed such competition through our increased use of discounts and incentives (which has impacted rate growth in certain markets), additional ~~operating companies~~local marketing efforts, additional associate retention efforts and, ~~communities.~~where appropriate, capital projects. Despite these efforts, our occupancy has not met our expectations, particularly in mid-sized markets facing new competition. We expect the elevated rate of new openings to continue through most of fiscal 2017.

45Summary of Operating Results

The table below presents a summary of our operating results and certain other financial metrics for the years ended December 31, ~~2014~~2016 and ~~2013~~2015 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).

Years Ended
December 31,

Increase
(Decrease)

2014 2013 Amount Percent
Total revenue $ 3,831.7 $ 2,892.0 $ 939.7 32.5 %
Facility Operating Expense $ 2,210.4 $ 1,671.9 $ 538.4 32.2 %
Net loss attributable to Brookdale Senior Living, Inc. common stockholders $ (149.0 ) $ (3.6 ) $ 145.4 NM
Adjusted EBITDA $ 490.7 $ 463.2 $ 27.5 5.9 %
Cash From Facility Operations $ 218.3 $ 294.0 $ (75.7 ) (25.7 )%
Facility Operating Income $ 1,070.4 $ 812.2 $ 258.2 31.8 %

	Years Ended December 31,						Increase (Decrease)
	2016			2015			Amount			Percent
Total revenue	$	4,977.0		$	4,960.6		$	16.4			0.3	%
Facility operating expense	$	2,799.4		$	2,788.9		$	10.5			0.4	%
Net income (loss)	$	(404.6	)	$	(458.2	)	$	(53.5	)		(11.7	)%
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(404.4	)	$	(457.5	)	$	(53.1	)		(11.6	)%
Adjusted EBITDA⁽¹⁾	$	770.8		$	728.2		$	42.6			5.8	%
Net cash provided by operating activities	$	365.7		$	292.4		$	73.4			25.1	%
Cash From Facility Operations⁽¹⁾	$	312.6		$	257.3		$	55.3			21.5	%

Adjusted EBITDA and Facility Operating Income are non-GAAP financial measures we use in evaluating our operating performance. Cash From Facility Operations is a non-GAAP financial measure we use in evaluating our liquidity. See "— Non-GAAP Financial Measures" below for an explanation of how we define each of these measures, a detailed description of why we believe such measures are useful and the limitations of each measure, a reconciliation of net loss to each of Adjusted EBITDA and Facility Operating Income and a reconciliation of net cash provided by operating activities to Cash From Facility Operations.

(1)

We changed our definition and calculation of Adjusted EBITDA and Cash From Facility Operations when we reported results for the second quarter of 2016 and the third quarter of 2016. Prior period amounts of Adjusted EBITDA and Cash From Facility Operations included in this Annual Report on Form 10-K have been recast to conform to the new definitions. See "Non-GAAP Financial Measures" below for important information regarding these measures, including a description of the changes to such definitions.

During ~~2014,~~2016, total revenues ~~were $3.8~~increased to $5.0 billion, an increase of ~~$939.7~~$16.4 million, or ~~32.5%~~0.3%, over ~~the prior year. The inclusion of Emeritus' operations since July 31, 2014 contributed $785.5 million to the increase in revenue. Excluding the effects of the Emeritus merger,~~ our total revenues ~~increased $154.2 million in 2014, or 5.3%, over~~for the prior year. Resident ~~fee revenue~~fees for ~~2014 increased~~ ~~$786.3~~2016 decreased $8.5 million, or ~~31.3%~~0.2%, from the prior year. Management fees ~~increased $11.1~~increased $10.6 million, or ~~35.7%~~17.6%, from the prior year, and reimbursed costs incurred on behalf of managed communities increased ~~$142.4~~$14.3 million, or ~~41.2%~~2.0%. The ~~increase~~decrease in resident ~~fee revenue~~fees during ~~2014~~2016 was primarily due to disposition activity, through sales and lease terminations, since the ~~inclusion~~beginning of ~~Emeritus' operating results since July 31, 2014.~~the prior year and a 130 basis point decrease in occupancy at the 876 communities we owned or leased during both full periods. The decrease in resident fees was partially offset by a 3.1% increase in senior housing average monthly revenue per occupied unit (RevPOR) compared to the prior year. The increase in management fees ~~and reimbursed costs on behalf~~during the year was primarily a result of ~~managed communities is primarily due to our assumption of management agreements as part~~an increase in incentive fees earned under the terms of our ~~acquisition of Emeritus and our entry into~~ management ~~agreements with the CCRC Venture and HCP 49 Venture.~~agreements.

During ~~2014,~~2016, facility operating expenses were ~~$2.2~~ $2.8 billion,, an increase of ~~$538.4~~$10.5 million, or ~~32.2%~~0.4%, as compared to the prior year. ~~Facility operating expenses increased~~ ~~$511.7 million during 2014 due to the inclusion of Emeritus' operating results since July 31, 2014.~~ ~~Excluding the effects of our acquisition of Emeritus,~~The increase in facility operating expenses ~~increased~~ ~~$26.3~~was primarily due to an increase in salaries and wages arising from wage rate increases. The increase was partially offset by the impact of disposition activity, through sales and lease terminations, since the beginning of the prior year and a $35.4 million ~~or 1.6%, as~~ ~~we continued~~decrease in insurance expense from changes in estimates due to ~~control our cost growth.~~general liability and professional liability and workers compensation claims experience.

Net ~~loss~~income (loss) attributable to Brookdale Senior Living Inc. common stockholders for ~~2014~~the year ended December 31, 2016 was ~~$149.0~~($404.4) million, ~~or $1.01 per basic and diluted common share,~~ compared to a net ~~loss~~income (loss) attributable to Brookdale Senior Living Inc. common stockholders of ~~$3.6~~($457.5) million ~~or $0.03 per basic and diluted common share,~~ for ~~2013.~~

the prior year. Net income (loss) for the year was ($404.6) million, a decrease of 11.6% compared to net income (loss) of ($458.2) million for the prior year. During ~~2014,~~the year ended December 31, 2016, our ~~Cash From Facility Operations decreased 25.7%, while~~ Adjusted EBITDA ~~and Facility Operating Income~~ increased by 5.9% ~~and 31.8%, respectively,~~ when compared to the ~~prior year.~~year ended December 31, 2015. Adjusted EBITDA ~~and Cash From Facility Operations include~~includes integration, transaction, transaction-related and ~~electronic medical records ("EMR") roll-out~~strategic project costs of ~~$146.4~~$54.2 million for the year ended December 31, ~~2014~~2016 and ~~$14.5~~$116.8 million for the year ended December 31, ~~2013.~~2015.

During the year ended December 31, 2016, net cash provided by operating activities increased to $365.7 million, an increase of $73.4 million, or 25.1%, over our net cash provided by operating activities for the year ended December 31, 2015. The increase in net cash provided by operating activities was primarily attributable to the payment of $81.4 million of cash during the prior year to terminate 15 community leases upon the acquisition of the underlying real estate associated with the communities and due to a $61.5 million decrease in integration, transaction, transaction-related and strategic project costs compared to the prior year. During the year ended December 31, 2016, our Cash From Facility Operations increased by 21.5% when compared to the year ended December 31, 2015. Cash From Facility Operations includes integration, transaction, transaction-related and strategic project costs of $62.1 million (including $7.9 million of debt modification costs excluded from Adjusted EBITDA) for the year ended December 31, 2016 and $123.7 million (including $6.9 million of debt modification costs excluded from Adjusted EBITDA) for the year ended December 31, 2015.

Consolidated Results of Operations

Comparison of Year Ended December 31, ~~2014~~2016 and ~~2013~~2015

The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the related notes, which are included in "Item 8. Financial Statements and Supplementary Data."

As of December 31, 2016 our total operations included 1,055 communities with a capacity to serve 103,374 residents.

(dollars in thousands, except Total RevPAR and RevPOR)	Years Ended December 31,						Increase (Decrease)
	2016			2015			Amount			Percent
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers	$	679,503		$	657,940		$	21,563			3.3	%
Assisted Living		2,419,459			2,445,457			(25,998	)		(1.1	)%
CCRCs - Rental		592,826			604,572			(11,746	)		(1.9	)%
Brookdale Ancillary Services		476,833			469,158			7,675			1.6	%
Total resident fees		4,168,621			4,177,127			(8,506	)		(0.2	)%
Management services⁽¹⁾		808,359			783,481			24,878			3.2	%
Total revenue		4,976,980			4,960,608			16,372			0.3	%
Expense
Facility operating expense
Retirement Centers		384,973			372,683			12,290			3.3	%
Assisted Living		1,542,642			1,568,154			(25,512	)		(1.6	)%
CCRCs - Rental		459,417			454,077			5,340			1.2	%
Brookdale Ancillary Services		412,370			393,948			18,422			4.7	%
Total facility operating expense		2,799,402			2,788,862			10,540			0.4	%
General and administrative expense		313,409			370,579			(57,170	)		(15.4	)%
Transaction costs		3,990			8,252			(4,262	)		(51.6	)%
Facility lease expense		373,635			367,574			6,061			1.6	%
Depreciation and amortization		520,402			733,165			(212,763	)		(29.0	)%
Asset impairment		248,515			57,941			190,574			328.9	%
Loss on facility lease termination		11,113			76,143			(65,030	)		(85.4	)%
Costs incurred on behalf of managed communities		737,597			723,298			14,299			2.0	%
Total operating expense		5,008,063			5,125,814			(117,751	)		(2.3	)%
Income (loss) from operations		(31,083	)		(165,206	)		(134,123	)		(81.2	)%
Interest income		2,933			1,603			1,330			83.0	%
Interest expense		(385,617	)		(388,764	)		(3,147	)		(0.8	)%
Debt modification and extinguishment costs		(9,170	)		(7,020	)		2,150			30.6	%
Equity in earnings (loss) of unconsolidated ventures		1,660			(804	)		2,464			306.5	%
Gain on sale of assets, net		7,218			1,270			5,948			468.3	%
Other non-operating income		14,801			8,557			6,244			73.0	%
Income (loss) before income taxes		(399,258	)		(550,364	)		(151,106	)		(27.5	)%
(Provision) benefit for income taxes		(5,378	)		92,209			(97,587	)		(105.8	)%
Net income (loss)		(404,636	)		(458,155	)		(53,519	)		(11.7	)%
Net (income) loss attributable to noncontrolling interest		239			678			(439	)		(64.7	)%
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(404,397	)	$	(457,477	)	$	(53,080	)		(11.6	)%
Selected Operating and Other Data:
Total number of communities operated (period end)		1,055			1,123			(68	)		(6.1	)%
Total units operated⁽²⁾
Period end		102,768			107,786			(5,018	)		(4.7	)%
Weighted average		106,122			109,342			(3,220	)		(2.9	)%
Owned/leased communities units⁽²⁾
Period end		77,135			80,917			(3,782	)		(4.7	)%
Weighted average		79,932			82,508			(2,576	)		(3.1	)%
Total RevPAR⁽³⁾	$	4,342		$	4,216		$	126			3.0	%
Owned/leased communities occupancy rate (weighted average)		86.0	%		86.8	%		(0.8	)%		(0.9	)%
RevPOR⁽⁴⁾	$	4,468		$	4,310		$	158			3.7	%

(dollars in thousands, except RevPAR and RevPOR)	Years Ended December 31,						Increase (Decrease)
	2016			2015			Amount			Percent
Selected Segment Operating and Other Data:
Retirement Centers
Number of communities (period end)		93			95			(2	)		(2.1	)%
Total units⁽²⁾
Period end		17,017			17,093			(76	)		(0.4	)%
Weighted average		17,103			17,308			(205	)		(1.2	)%
RevPAR⁽⁵⁾		3,311			3,168			143			4.5	%
Occupancy rate (weighted average)		89.0	%		88.8	%		0.2	%		0.2	%
RevPOR⁽⁴⁾	$	3,720		$	3,570		$	150			4.2	%
Assisted Living
Number of communities (period end)		768			820			(52	)		(6.3	)%
Total units⁽²⁾
Period end		50,682			53,500			(2,818	)		(5.3	)%
Weighted average		52,777			54,714			(1,937	)		(3.5	)%
RevPAR⁽⁵⁾		3,820			3,725			95			2.6	%
Occupancy rate (weighted average)		85.5	%		86.7	%		(1.2	)%		(1.4	)%
RevPOR⁽⁴⁾	$	4,468		$	4,297		$	171			4.0	%
CCRCs – Rental
Number of communities (period end)		41			44			(3	)		(6.8	)%
Total units⁽²⁾
Period end		9,436			10,324			(888	)		(8.6	)%
Weighted average		10,052			10,486			(434	)		(4.1	)%
RevPAR⁽⁵⁾		4,880			4,779			101			2.1	%
Occupancy rate (weighted average)		83.8	%		84.4	%		(0.6	)%		(0.7	)%
RevPOR⁽⁴⁾	$	5,824		$	5,668		$	156			2.8	%
Management Services
Number of communities (period end)		153			164			(11	)		(6.7	)%
Total units⁽²⁾
Period end		25,633			26,869			(1,236	)		(4.6	)%
Weighted average		26,190			26,834			(644	)		(2.4	)%
Occupancy rate (weighted average)		87.0	%		86.0	%		1.0	%		1.2	%
Brookdale Ancillary Services
Outpatient Therapy treatment codes		1,713,733			2,506,203			(792,470	)		(31.6	)%
Home Health average daily census		15,067			13,814			1,253		��	9.1	%
Hospice average daily census		767			474			293			61.8	%

(1)	Management services segment revenue includes management fees and reimbursements for which we are the primary obligor of costs incurred on behalf of managed communities.

(2)	Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.

(3)

Total RevPAR, or average monthly resident fee revenues per available unit, is defined by the Company as resident fee revenues, excluding entrance fee amortization, for the corresponding portfolio for the period, divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

(4)

RevPOR, or average monthly senior housing resident fee revenues per occupied unit, is defined by the Company as resident fee revenues, excluding Brookdale Ancillary Services segment revenue and entrance fee amortization, for the corresponding portfolio for the period, divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period.

(5)

RevPAR, or average monthly senior housing resident fee revenues per available unit, is defined by the Company as resident fee revenues, excluding Brookdale Ancillary Services segment revenue and entrance fee amortization, for the corresponding portfolio for the period, divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

Resident Fees

Resident fee revenue decreased $8.5 million, or (0.2)%, compared to the prior year primarily due to disposition activity, through sales and lease terminations, since the beginning of the prior year and a 130 basis point decrease in occupancy at the 876 communities we owned or leased during both full periods. The decrease in resident fees was partially offset by a 3.1% increase in RevPOR at these communities compared to the prior year. Total RevPAR for the consolidated portfolio also increased by 3.0% compared to the prior year. The 81 communities disposed of subsequent to the beginning of the prior year generated $126.2 million of revenue during 2016 compared to $202.0 million of revenue in the prior year.

Retirement Centers segment revenue increased $21.6 million, or 3.3%, primarily due to a 3.1% increase in RevPOR at the communities we owned or leased during both full years. Subsequent to the beginning of the prior year, the Company disposed of six communities, which generated $7.2 million of revenue during 2016 compared to $12.5 million of revenue in the prior year.

Assisted Living segment revenue decreased $26.0 million, or 1.1%, primarily due to the impact of disposition activity since the beginning of the prior period as well as a 170 basis point decrease in occupancy at the communities we operated during both full periods. The decrease was partially offset by a 3.4% increase in RevPOR at the communities we operated during both full years. Subsequent to the beginning of the prior year, the Company disposed of 71 communities, which generated $90.8 million of revenue during 2016 compared to $148.6 million of revenue in the prior year.

CCRCs - Rental segment revenue decreased $11.7 million, or 1.9%, primarily due to the impact of disposition activity since the beginning of the prior year as well as a 110 basis point decrease in occupancy at the communities we operated during both full years. The decrease was partially offset by a 2.2% increase in RevPOR at the communities we operated during both full years. Subsequent to the beginning of the prior year, the Company disposed of four communities, which generated $28.2 million of revenue in 2016 compared to $40.9 million of revenue in the prior year.

Brookdale Ancillary Services segment revenue increased $7.7 million, or 1.6%, primarily due to an increase in home health average daily census and the roll-out of our home health and hospice services to additional units subsequent to the beginning of the prior year period, partially offset by a decrease in therapy service volume. During the three months ended December 31, 2016, we significantly reduced the number of outpatient therapy clinics located in our communities as lower reimbursement rates and lower utilization made the business less attractive. Despite an increase over the prior year period, our home health average daily census was negatively impacted by the loss of a number of associates to a new competitor in several of our Florida markets. For home health in 2017, CMS has implemented a net 0.7% reimbursement reduction, consisting of a 2.8% market basket inflation increase, less a 0.3% productivity reduction, a 2.3% rebasing adjustment, and a 0.9% reduction to account for industry wide case-mix growth. We expect the total effect of the changes for 2017 to reduce our reimbursement by approximately 3.2%.

Management Services Revenue

Management Services segment revenue, including management fees and reimbursed costs incurred on behalf of managed communities, increased $24.9 million, or 3.2%, primarily due to additional costs incurred on behalf of managed communities resulting from increases in salaries and wages and other facility operating expenses at the communities operated in both full periods and an increase in incentive fees earned under the terms of our management agreements.

Facility Operating Expense

Facility operating expense increased $10.5 million, or 0.4%, over the prior year primarily due to a $46.5 million increase in salaries and wages due to wage rate increases at the 876 communities we owned or leased during both full periods and $18.4 million of expense increases for our ancillary services in connection with higher home health and hospice average daily census. This increase was partially offset by disposition activity, through sales and lease terminations, since the beginning of the prior year and a $35.4 million decrease in insurance expense from changes in estimates due to general liability and professional liability and workers compensation claims experience. The 81 communities disposed of subsequent to the beginning of the prior year, either through sales or lease terminations, incurred $99.6 million of facility operating expenses during 2016 compared to $164.5 million of facility operating expenses in the prior year.

Retirement Centers segment facility operating expenses increased $12.3 million, or 3.3%, primarily driven by an increase in salaries and wages arising from wage rate increases. The communities disposed of subsequent to the beginning of the prior year incurred $4.2 million of facility operating expenses during 2016 compared to $8.8 million of facility operating expenses in the prior year.

Assisted Living segment facility operating expenses decreased $25.5 million, or 1.6%, primarily driven by the impact of disposition activity since the beginning of the prior year period and a decrease in insurance expense from changes in estimates due to general liability and professional liability and workers compensation claims experience. The 71 communities disposed of subsequent to the beginning of the prior year incurred $71.6 million of facility operating expenses during 2016 compared to $121.1 million of facility operating expenses in the prior year. The decrease was partially offset by increases in salaries and wages due to wage rate increases.

CCRCs - Rental segment facility operating expenses increased $5.3 million, or 1.2%, primarily driven by increases in salaries and wages due to wage rate increases. Disposition activity since the beginning of the prior year partially offset this increase. The four communities disposed of subsequent to the beginning of the prior year incurred $23.8 million of facility operating expenses during 2016 compared to $34.7 million of facility operating expenses in the prior year.

Brookdale Ancillary Services segment operating expenses increased $18.4 million, or 4.7%, primarily due to expense increases in connection with higher home health and hospice average daily census and increased salaries and wage expense due to wage rate increases.

General and Administrative Expense

General and administrative expense decreased $57.2 million, or 15.4%, over the prior year primarily due to a $61.5 million decrease in integration, transaction-related and strategic project costs. Integration costs include transition costs associated with the Emeritus merger and organizational restructuring (such as severance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration of Emeritus (in areas such as cost savings and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects. Transaction-related costs include third party costs directly related to the acquisition of Emeritus, other acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Strategic project costs include costs associated with strategic projects related to refining our strategy, building out enterprise-wide capabilities for the post-merger platform (including EMR roll-out project) and reducing costs and achieving synergies by capitalizing on scale. This decrease was partially offset by an increase in salaries and wages due to wage rate increases.

Transaction Costs

Transaction costs decreased $4.3 million, or 51.6%. Transaction costs in the prior year period were primarily related to direct costs related to acquisition and community leasing activity. Transaction costs in 2016 were primarily related to direct costs related to community disposition activity, through sales and lease terminations.

Facility Lease Expense

Facility lease expense increased $6.1 million, or 1.6%, primarily due to annual rent increases, including the impact of variable rent increases.

Depreciation and Amortization

Depreciation and amortization expense decreased $212.8 million, or 29.0%, primarily due to disposition activity subsequent to the beginning of the prior year and amortization of in-place lease intangibles acquired as part of our acquisition of Emeritus reaching full amortization subsequent to the beginning of the prior year.

Asset Impairment

During the year ended December 31, 2016, we recorded impairment charges of $248.5 million. We recorded property, plant and equipment and leasehold intangibles impairment charges of $166.2 million for the year ended December 31, 2016, primarily due to lower than expected operating performance at certain properties and to reflect the amount by which the carrying values of assets exceeded their estimated fair value. We recorded $15.8 million of impairment charges related to communities identified as assets held for sale, primarily due to excess of carrying value, including allocated goodwill, over the estimated selling price less costs to dispose. We recorded $36.8 million of impairment charges related to investments in unconsolidated ventures, primarily due to lower than expected operating performance at the communities owned by the unconsolidated ventures and these charges reflect the amount by which the carrying values of the investments exceeded their estimated fair value. Additionally, we recorded $28.2 million and $1.5 million of impairment charges related to community purchase options and health care licenses, respectively. These impairment charges are primarily due to lower than expected operating performance at the communities subject to the community purchase options and reflect the amount by which the carrying values of the community purchase options exceeded their estimated fair value. During 2015, we sold 17 communities for an aggregate selling price of $82.9 million and recorded $18.4 million of impairment charges related to the communities sold, inclusive of the allocation of $8.1 million of goodwill to the disposed communities. During 2015, we recorded $15.2 million of impairment charges related to 17 communities identified as held for sale as of December 31, 2015, inclusive of the allocation of $12.2 million of goodwill to the disposal groups. Additionally, during 2015, we recorded $23.4 million of impairment charges for property, plant and equipment and leasehold intangibles for communities to be held and used. These impairment charges are primarily due to lower than expected operating performance of the underlying communities.

Loss on Facility Lease Termination

Loss on facility lease termination decreased $65.0 million, or 85.4%. A loss on facility lease termination of $76.1 million was recognized during 2015 for the difference between the amount paid to acquire the underlying real estate associated with 15 communities that were previously leased and the estimated fair value of the communities, net of the deferred lease liabilities previously recognized.

Gain on Sale of Assets, Net

Gain on sale of assets, net increased $5.9 million, or 468.3%, primarily due to increased community disposition activity during the current year.

Costs Incurred on Behalf of Managed Communities

Costs incurred on behalf of managed communities increased $14.3 million, or 2.0%, primarily due to additional costs incurred on behalf of managed communities resulting from increases in salaries and wages and other facility operating expenses at the communities operated in both full years.

Interest Expense

Interest expense decreased by $3.1 million, or 0.8%, primarily due to lower interest expense on capital and financing leases.

Other Non-operating Income

Other non-operating income increased by $6.2 million, or 73.0%, primarily due to increased insurance recoveries for property losses.

Income Taxes

The difference in our effective tax rates for the years ended December 31, 2016 and 2015 was primarily due to recording a valuation allowance against our deferred tax assets during the year ended December 31, 2016, the negative tax benefit on the vesting of restricted stock, a direct result of the Company's lower stock price in 2016, and the non-deductible write-off of goodwill in 2016. We recorded an aggregate deferred federal, state and local tax benefit of $139.6 million as a result of the operating loss for the year ended December 31, 2016, which was offset by an increase in the valuation allowance of $142.9 million. We evaluate our deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. Our valuation allowance as of December 31, 2016 and December 31, 2015 was $264.3 million and $121.6 million, respectively. As described in Note 4 to the consolidated financial statements, we expect to record a significant increase to the valuation allowance in connection with the transactions related to the Blackstone Venture.

We recorded interest charges related to our tax contingency reserve for cash tax positions for the years ended December 31, 2016 and 2015 which are included in provision for income tax for the period. Tax returns for years 2012 through 2015 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

Comparison of Year Ended December 31, 2015 and 2014

The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in "Item 8. Financial Statements and Supplementary Data."

Our ~~2014~~ results reflect our acquisition of Emeritus subsequent to July 31, 2014, the closing date of the merger. ~~In addition,~~On August 29, 2014, we completed several transactions with ~~respect~~HCP, including our entering into an unconsolidated venture (the "CCRC Venture") with HCP in which we obtained a 51% ownership interest and to which we contributed all but two of our legacy Brookdale entry fee CCRCs, our entering into an unconsolidated venture (the "HCP 49 Venture") with HCP in which we obtained a 20% ownership interest and to which HCP contributed 49 communities leased and historically operated by Emeritus, and our amending and restating the ~~communities contributed to the CCRC Venture~~terms of certain existing triple net leases between us and HCP ~~49 Venture and communities subject to~~(including those acquired in the ~~Master Lease, our~~Emeritus merger). Our results reflect our previously existing ownership, lease and/or management interests through August 29, 2014, and reflect our venture and management interests and amended lease terms ~~for the remainder of the period. We contributed all but two of our entry fee CCRCs~~subsequent to ~~the CCRC Venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated.~~such date. The results of the entry fee CCRCs contributed to the CCRC Venture are reported in the CCRCs -– Entry Fee segment for the time periods prior to being contributed to the CCRC Venture. The results of the two legacy Brookdale entry fee CCRCs that were not contributed to the CCRC Venture are included in the CCRCs -– Entry Fee segment for the six month period ended June 30, 2014 and the ~~CCRCs -~~CCRC – Rental segment for the ~~six month period ended December 31, 2014 based on how operating results are being reviewed by~~periods subsequent to June 30, 2014. See Note 4 to the ~~chief operating decision maker following the creation~~consolidated financial statements for more information regarding our acquisition of ~~the CCRC Venture.~~Emeritus and our transactions with HCP.

During 2014, ~~two communities were moved from the Retirement Centers segment to the Assisted Living segment and~~ one community was moved from the Retirement Centers segment to the CCRCs -– Rental segment to more accurately reflect the underlying product offering of the ~~communities.~~community. The movement did not change our ~~reportable~~reported segments, but it did impact the revenues and expenses reported within the Retirement Centers ~~Assisted Living~~ and CCRCs -– Rental segments. ~~Revenue and expenses for the year ended December 31, 2013 have not been recast.~~

At December 31, ~~2014~~2015 our total operations included ~~1,143~~1,123 communities with a capacity to serve ~~110,859~~108,420 residents.

(dollars in thousands, except average monthly revenue per unit)
Years Ended
December 31,

Increase
(Decrease)

2014 2013 Amount Percent
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers $ 582,312 $ 526,284 $ 56,028 10.6 %
Assisted Living 1,685,563 1,051,868 633,695 60.2 %
CCRCs - Rental 493,173 396,975 96,198 24.2 %
CCRCs - Entry Fee 202,414 297,756 (95,342 ) (32.0 )%
Brookdale Ancillary Services 337,835 242,150 95,685 39.5 %
Total resident fees 3,301,297 2,515,033 786,264 31.3 %
Management services⁽¹⁾
530,409 376,933 153,476 40.7 %
Total revenue 3,831,706 2,891,966 939,740 32.5 %
Expense
Facility operating expense
Retirement Centers 333,429 304,002 29,427 9.7 %
Assisted Living 1,077,074 662,190 414,884 62.7 %
CCRCs - Rental 371,512 287,949 83,563 29.0 %
CCRCs - Entry Fee 153,981 221,363 (67,382 ) (30.4 )%
Brookdale Ancillary Services 274,372 196,441 77,931 39.7 %
Total facility operating expense 2,210,368 1,671,945 538,423 32.2 %
General and administrative expense 280,267 180,627 99,640 55.2 %
Transaction costs 66,949 3,921 63,028 NM
Facility lease expense 323,830 276,729 47,101 17.0 %
Depreciation and amortization 537,035 268,757 268,278 99.8 %
Asset impairment 9,992 12,891 (2,899 ) (22.5 )%
Costs incurred on behalf of managed communities 488,170 345,808 142,362 41.2 %
Total operating expense 3,916,611 2,760,678 1,155,933 41.9 %
(Loss) income from operations (84,905 ) 131,288 (216,193 ) (164.7 )%
Interest income 1,343 1,339 4 0.3 %
Interest expense:
Debt (128,002 ) (96,131 ) 31,871 33.2 %
Capital and financing lease obligations (109,998 ) (25,194 ) 84,804 336.6 %
Amortization of deferred financing costs and debt premium (discount) (7,477 ) (17,054 ) (9,577 ) (56.2 )%
Change in fair value of derivatives (2,711 ) 980 3,691 376.6 %
Debt modification and extinguishment costs (6,387 ) (1,265 ) 5,122 404.9 %
Equity in earnings of unconsolidated ventures 171 1,484 (1,313 ) (88.5 )%
Other non-operating income 7,235 2,725 4,510 165.5 %
Loss before income taxes (330,731 ) (1,828 ) 328,903 NM
Benefit (provision) for income taxes 181,305 (1,756 ) 183,061 NM
Net loss (149,426 ) (3,584 ) 145,842 NM
Net loss attributable to noncontrolling interest 436 — 436 100.0 %
Net loss attributable to Brookdale Senior Living, Inc. common stockholders $ (148,990 ) $ (3,584 ) $ 146,278 NM
Selected Operating and Other Data:
Total number of communities (period end) 1,143 649 494 76.1 %
Total units operated⁽²⁾

Period end 110,219 65,832 44,387 67.4 %
Weighted average 84,299 66,173 18,126 27.4 %
Owned/leased communities units⁽²⁾

Period end 82,984 48,422 34,562 71.4 %
Weighted average 63,710 48,090 15,620 32.5 %
Owned/leased communities occupancy rate (weighted average) 88.3 % 88.7 % (0.4 )% (0.5 )%
Senior Housing average monthly revenue per unit⁽³⁾
$ 4,357 $ 4,383 $ (26 ) (0.6 )%

(dollars in thousands, except Total RevPAR and RevPOR)	Years Ended December 31,						Increase (Decrease)
	2015			2014			Amount			Percent
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers	$	657,940		$	582,312		$	75,628			13.0	%
Assisted Living		2,445,457			1,685,563			759,894			45.1	%
CCRCs - Rental		604,572			493,173			111,399			22.6	%
CCRCs - Entry Fee		-			202,414			(202,414	)		(100.0	)%
Brookdale Ancillary Services		469,158			337,835			131,323			38.9	%
Total resident fees		4,177,127			3,301,297			875,830			26.5	%
Management services⁽¹⁾		783,481			530,409			253,072			47.7	%
Total revenue		4,960,608			3,831,706			1,128,902			29.5	%
Expense
Facility operating expense
Retirement Centers		372,683			333,429			39,254			11.8	%
Assisted Living		1,568,154			1,077,074			491,080			45.6	%
CCRCs - Rental		454,077			371,512			82,565			22.2	%
CCRCs - Entry Fee		-			153,981			(153,981	)		(100.0	)%
Brookdale Ancillary Services		393,948			274,372			119,576			43.6	%
Total facility operating expense		2,788,862			2,210,368			578,494			26.2	%
General and administrative expense		370,579			280,267			90,312			32.2	%
Transaction costs		8,252			66,949			(58,697	)		(87.7	)%
Facility lease expense		367,574			323,830			43,744			13.5	%
Depreciation and amortization		733,165			537,035			196,130			36.5	%
Loss on facility lease termination		76,143			-			76,143			100.0	%
Asset impairment		57,941			9,992			47,949			479.9	%
Costs incurred on behalf of managed communities		723,298			488,170			235,128			48.2	%
Total operating expense		5,125,814			3,916,611			1,209,203			30.9	%
Income (loss) from operations		(165,206	)		(84,905	)		80,301			94.6	%
Interest income		1,603			1,343			260			19.4	%
Interest expense		(388,764	)		(248,188	)		140,576			56.6	%
Debt modification and extinguishment costs		(7,020	)		(6,387	)		633			9.9	%
Equity in (loss) earnings of unconsolidated ventures		(804	)		171			(975	)		(570.2	)%
Gain on sale of assets, net		1,270			446			824			184.8	%
Other non-operating income		8,557			6,789			1,768			26.0	%
Income (loss) before income taxes		(550,364	)		(330,731	)		219,633			66.4	%
Benefit (provision) for income taxes		92,209			181,305			(89,096	)		(49.1	)%
Net income (loss)		(458,155	)		(149,426	)		308,729			206.6	%
Net (income) loss attributable to noncontrolling interest		678			436			242			55.5	%
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(457,477	)	$	(148,990	)	$	308,487			207.1	%
Selected Operating and Other Data:
Total number of communities operated (period end)		1,123			1,143			(20	)		(1.7	)%
Total units operated⁽²⁾
Period end		107,786			110,219			(2,433	)		(2.2	)%
Weighted average		109,342			84,299			25,043			29.7	%
Owned/leased communities units⁽²⁾
Period end		80,917			82,984			(2,067	)		(2.5	)%
Weighted average		82,508			63,710			18,798			29.5	%
Total RevPAR⁽³⁾		4,216			4,290			(74	)		(1.7	)%
Owned/leased communities occupancy rate (weighted average)		86.8	%		88.3	%		(1.5	)%		(1.7	)%
RevPOR⁽⁴⁾	$	4,310		$	4,357		$	(47	)		(1.1	)%

4854

(dollars in thousands, except average monthly revenue per unit)
Years Ended
December 31,

Increase
(Decrease)

2014 2013 Amount Percent
Selected Segment Operating and Other Data:
Retirement Centers
Number of communities (period end) 99 76 23 30.3 %
Total units⁽²⁾

Period end 17,315 14,454 2,861 19.8 %
Weighted average 15,558 14,439 1,119 7.7 %
Occupancy rate (weighted average) 89.5 % 89.8 % (0.3 )% (0.3 )%
Senior Housing average monthly revenue per unit⁽³⁾
$ 3,485 $ 3,381 $ 104 3.1 %
Assisted Living
Number of communities (period end) 838 438 400 91.3 %
Total units⁽²⁾

Period end 55,189 22,158 33,031 149.1 %
Weighted average 36,350 21,679 14,671 67.7 %
Occupancy rate (weighted average) 88.7 % 89.7 % (1.0 )% (1.1 )%
Senior Housing average monthly revenue per unit⁽³⁾
$ 4,356 $ 4,510 $ (154 ) (3.4 )%
CCRCs - Rental
Number of communities (period end) 45 26 19 73.1 %
Total units⁽²⁾

Period end 10,480 6,478 4,002 61.8 %
Weighted average 8,298 6,669 1,629 24.4 %
Occupancy rate (weighted average) 85.8 % 86.8 % (1.0 )% (1.2 )%
Senior Housing average monthly revenue per unit⁽³⁾
$ 5,757 $ 5,715 $ 42 0.7 %
CCRCs - Entry Fee
Number of communities (period end) — 14 (14 ) (100.0 )%
Total units⁽²⁾

Period end — 5,332 (5,332 ) (100.0 )%
Weighted average 3,504 5,303 (1,799 ) (33.9 )%
Occupancy rate (weighted average) 85.2 % 84.2 % 1.0 % 1.2 %
Senior Housing average monthly revenue per unit⁽³⁾
$ 5,103 $ 5,013 $ 90 1.8 %
Other Entry Fee Data
Non-refundable entrance fees sales $ 32,704 $ 44,191 $ (11,487 ) (26.0 )%
Refundable entrance fees sales⁽⁴⁾
20,342 48,140 (27,798 ) (57.7 )%
Total entrance fee receipts 53,046 92,331 (39,285 ) (42.5 )%
Refunds (25,865 ) (35,325 ) (9,460 ) (26.8 )%
Net entrance fees $ 27,181 $ 57,006 $ (29,825 ) (52.3 )%
Management Services
Number of communities (period end) 161 95 66 69.5 %
Total units⁽²⁾

Period end 27,235 17,410 9,825 56.4 %
Weighted average 20,589 18,083 2,506 13.9 %
Occupancy rate (weighted average) 86.5 % 85.4 % 1.1 % 1.3 %

Brookdale Ancillary Services
Outpatient Therapy treatment codes 3,053,436 3,325,129 (271,693 ) (8.2 )%
Home Health average census 8,345 4,498 3,847 85.5 %

(dollars in thousands, except RevPAR and RevPOR)	Years Ended December 31,						Increase (Decrease)
	2015			2014			Amount			Percent
Selected Segment Operating and Other Data:
Retirement Centers
Number of communities (period end)		95			99			(4	)		(4.0	)%
Total units⁽²⁾
Period end		17,093			17,315			(222	)		(1.3	)%
Weighted average		17,308			15,558			1,750			11.2	%
RevPAR⁽⁵⁾		3,168			3,119			49			1.6	%
Occupancy rate (weighted average)		88.8	%		89.5	%		(0.7	)%		(0.8	)%
RevPOR⁽⁴⁾	$	3,570		$	3,485		$	85			2.4	%
Assisted Living
Number of communities (period end)		820			838			(18	)		(2.1	)%
Total units⁽²⁾
Period end		53,500			55,189			(1,689	)		(3.1	)%
Weighted average		54,714			36,350			18,364			50.5	%
RevPAR⁽⁵⁾		3,725			3,864			(139	)		(3.6	)%
Occupancy rate (weighted average)		86.7	%		88.7	%		(2.0	)%		(2.3	)%
RevPOR⁽⁴⁾	$	4,297		$	4,356		$	(59	)		(1.4	)%
CCRCs – Rental
Number of communities (period end)		44			45			(1	)		(2.2	)%
Total units⁽²⁾
Period end		10,324			10,480			(156	)		(1.5	)%
Weighted average		10,486			8,298			2,188			26.4	%
RevPAR⁽⁵⁾		4,779			4,937			(158	)		(3.2	)%
Occupancy rate (weighted average)		84.4	%		85.8	%		(1.4	)%		(1.6	)%
RevPOR⁽⁴⁾	$	5,668		$	5,757		$	(89	)		(1.5	)%
CCRCs – Entry Fee
Number of communities (period end)		—			—			—			—
Total units⁽²⁾
Period end		—			—			—			—
Weighted average		—			3,504			(3,504	)		(100.0	)%
Occupancy rate (weighted average)		—			85.2	%		(85.2	)%		(100.0	)%
RevPOR⁽⁴⁾	$	—		$	5,103		$	(5,103	)		(100.0	)%
Management Services
Number of communities (period end)		164			161			3			1.9	%
Total units⁽²⁾
Period end		26,869			27,235			(366	)		(1.3	)%
Weighted average		26,834			20,589			6,245			30.3	%
Occupancy rate (weighted average)		86.0	%		86.5	%		(0.5	)%		(0.6	)%
Brookdale Ancillary Services
Outpatient Therapy treatment codes		2,506,203			3,053,436			(547,233	)		(17.9	)%
Home Health average daily census		13,814			8,345			5,469			65.5	%
Hospice average daily census		474			364			110			30.2	%

(1)	Management services segment revenue includes management fees and reimbursements for which we are the primary obligor of costs incurred on behalf of managed communities.

(2)	~~Period-end~~Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.

(3)

~~Senior Housing~~Total RevPAR, or average ~~monthly revenue per unit represents the average of the total~~ monthly resident fee revenues per available unit, is defined by the Company as resident fee revenues, excluding entrance fee amortization, ~~of entrance fees and Brookdale Ancillary Services segment revenue,~~for the corresponding portfolio for the period, divided by the weighted average ~~occupied units.~~number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

(4)

~~Refundable~~RevPOR, or average monthly senior housing resident fee revenues per occupied unit, is defined by the Company as resident fee revenues, excluding Brookdale Ancillary Services segment revenue and entrance fee ~~sales~~amortization, for the ~~years ended December 31, 2014 and 2013 include amounts received from residents participating~~corresponding portfolio for the period, divided by the weighted average number of occupied units in the MyChoice program, which allows new and existing residents the option to pay additional refundable entrance fee amounts in return for a reduced monthly service fee. MyChoice amounts received from residents totaled $2.9 million and $19.0 millioncorresponding portfolio for the ~~years ended December 31, 2014 and 2013, respectively.~~period, divided by the number of months in the period.

(5)

Resident Fee Revenue

Resident fee revenue increased ~~$786.3~~$875.8 million in ~~2014,~~2015, or ~~31.3%~~26.5%, over the prior year primarily due to the inclusion of revenue from communities acquired (including communities acquired as part of the Emeritus transaction) and new units added to existing communities since the ~~end~~beginning of ~~2013,~~2014, partially offset by the effect of the contribution of entry fee CCRCs to the CCRC Venture. During ~~2014,~~2015, revenues grew ~~2.9%~~1.4% at the ~~500~~505 communities we owned or leased during both ~~years,~~full periods, with a 3.4% increase in ~~the average monthly revenue per unit (excluding amortization of entrance fees~~RevPOR. Occupancy in ~~both instances). Occupancy in~~these ~~500~~505 communities decreased ~~0.5%~~170 basis points over the prior year. A 1.7% decrease in Total RevPAR for the consolidated portfolio compared to the prior year also offset the increase.

Retirement Centers segment revenue increased ~~$56.0~~$75.6 million in ~~2014,~~2015, or ~~10.6%~~13.0%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. The inclusion of Emeritus' operating results since July 31, 2014 contributed ~~$49.5~~$66.3 million to the increase in revenue. ~~Excluding the effects of our acquisition of Emeritus, Retirement Centers segment~~Additionally, revenue increased ~~$6.5 million in 2014, or 1.2%, over the prior year primarily due to an increase in average monthly revenue per unit~~ at the communities we operated during both ~~years,~~full periods, primarily due to an increase in RevPOR. The increase was partially offset ~~in part~~ by the reclassification of ~~two communities from this segment into the Assisted Living segment and~~ one community from this segment to the CCRCs -– Rental segment subsequent to the beginning of the prior year period and by a decrease in occupancy at the communities we operated during ~~2014.~~both full periods.

Assisted Living segment revenue increased $6~~33.7~~$759.9 million in ~~2014,~~2015, or ~~60.2%~~45.1%, over the prior year p~~rimarily~~primarily due to the inclusion of revenue from communities acquired during 2014. The inclusion of Emeritus' operating results since July 31, 2014 ~~contributed $573.3~~contributed $744.8 million toto the increase in revenue. ~~Excluding the effects of our acquisition of Emeritus, Assisted Living segment revenue~~Additionally, revenues increased ~~$60.4 million in 2014, or 5.7%, over the prior year primarily~~ ~~due to an increase in average monthly revenue per unit~~ at the communities we operated during both ~~years. Additionally, Assisted Living segment revenue increased~~full periods, primarily due to ~~the impact of the reclassification of two communities from the Retirement Centers segment into this segment during 2014.~~an increase in RevPOR. The increase was partially offset by a decrease in occupancy at the communities we operated during both full periods.

CCRCs - Rental segment revenue increased $~~96.2~~$111.4 million in ~~2014,~~2015, or ~~24.2%~~22.6%, over the prior year ~~primarily~~primarily due to the inclusion of revenue from communities acquired during 2014. The inclusion of Emeritus' operating results since July 31, 2014 ~~contributed $70.3~~contributed $70.5 million to the increase in revenue. ~~Excluding the effects of our acquisition of Emeritus, revenue~~Additionally, revenues increased ~~$25.9 million in 2014, or 6.5%, over the prior year primarily~~ due to the reclassification of ~~two~~three communities into this segment ~~from~~subsequent to the ~~CCRCs - Entry Fee segment~~ beginning ~~with~~of the ~~third quarter of 2014~~prior year period and ~~an increase in average monthly revenue per unit~~revenues increased at the communities we operated during both ~~years.~~full periods, primarily due to an increase in RevPOR. The increase was partially offset by a decrease in occupancy at the communities we operated during both full periods.

~~CCRCs - Entry Fee segment revenue decreased $95.3 million in 2014, or 32.0%, over the prior year pri~~marily due to the contribution of all but two of our entry fee CCRCs to the CCRC Venture and the reclassification of the two remaining CCRCs from this segment into the CCRCs - Rental segment beginning with the third quarter of 2014.

Brookdale Ancillary Services segment revenue increased ~~$95.7~~$131.3 million in ~~2014,~~2015, or ~~39.5%~~38.9%, over the prior year primarily due to the inclusion of ~~$76.8 million of revenues~~revenue related to Nurse on Call, which we acquired as part of our acquisition of Emeritus. ~~Excluding~~The inclusion of Nurse on Call revenue since July 31, 2014 contributed $107.6 million to the ~~effects of our acquisition of Emeritus, Brookdale Ancillary Services segment~~increase in revenue. Additionally, revenue increased ~~$18.9 million in 2014, or 7.8%, over the prior year driven by~~due to an increase in home health average census and the roll-out of our home health and hospice services to additional units ~~in 2014.~~subsequent to the prior year period. The increase was partially offset by a decrease in therapy service ~~volume during 2014.~~

volume.

Management Services Revenue

Management Services segment revenue, including management fees and reimbursed costs incurred on behalf of managed communities, increased ~~$153.5~~$253.1 million in ~~2014,~~2015, or ~~40.7%~~47.7%, ~~over the prior year. The increase in management fees and reimbursed costs on behalf of managed communities is~~ primarily due to our assumption of management agreements as part of our acquisition of Emeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture.

Facility Operating Expense

Facility operating expense increased ~~$538.4~~$578.5 million in ~~2014,~~2015, or ~~32.2%~~26.2%, over the prior year primarily due to the impact of our acquisition of ~~Emeritus.~~Emeritus, partially offset by the effect of the contribution of entry fee CCRCs to the CCRC Venture.

Retirement Centers segment facility operating expenses ~~increased $29.4~~increased $39.3 million in ~~2014,~~2015, or ~~9.7%~~11.8%, ~~over the prior year primarily~~primarily due to the inclusion of facility operating expenses from communities acquired during 2014. ~~Of t~~heThe inclusion of Emeritus' operating results since July 31, 2014 contributed $35.3 million to the increase ~~$25.9~~in facility operating expense. Additionally, facility operating expenses increased at the communities we operated during both full periods, driven by an increase in salaries and wages due to wage rate increases. The increase was partially offset by the reclassification of one community from this segment to the CCRCs – Rental segment subsequent to the beginning of the prior year period.

Assisted Living segment facility operating expenses increased $491.1 million ~~was attributable~~in 2015, or 45.6%, primarily due to the inclusion of ~~the~~facility operating ~~results~~expenses from communities acquired during 2014. The inclusion of ~~Emeritus~~Emeritus' operating results since July 31, ~~2014. Excluding~~2014 contributed $491.7 million to the ~~effects~~increase in facility operating expenses. Additionally, facility operating expenses decreased at the communities we operated during both full periods, driven by a decrease in food costs, primarily due to the impact of ~~our acquisition of Emeritus, operatin~~gincreased rebates received. The decrease in facility operating expenses ~~increased $3.5 million driven~~at the communities we operated during both full periods was partially offset by an increase in salaries and wages due to wage rate increases and an increase in advertising ~~expense. The increase was offset in part by the reclassification of two communities from this segment into the Assisted Living segment and one community from this segment to the~~ costs.

CCRCs - Rental segment ~~during 2014.~~

~~Assisted Living segment~~facility operating expenses increased ~~$414.9~~$82.6 million in ~~2014,~~2015, or ~~62.7%~~22.2%, ~~over the prior year~~ primarily due to the inclusion of facility operating expenses from communities acquired during 2014. ~~Of the increase, $370.7 million was attributable to the~~The inclusion of ~~the~~Emeritus' operating results ~~of Emeritus~~ since July 31, ~~2014. Excluding~~2014 contributed $53.5 million to the ~~effects of our acquisition of Emeritus,~~increase in facility operating expense. Additionally, facility operating expenses ~~increased by $44.2 million driven by~~increased due to the reclassification of three communities into this segment subsequent to the beginning of the prior year period and facility operating expenses increased at the communities we operated during both full periods, primarily due to an increase in salaries and wages due to wage rate ~~increases, an increase in insurance expense and an increase in advertising expense. Additionally, Assisted Living~~increases.

Brookdale Ancillary Services segment facility operating expenses increased ~~due to the impact of the reclassification of two communities from the Retirement Centers segment into this segment during 2014.~~

~~CCRCs - Rental segment operating expenses increased $83.6~~$119.6 million in ~~2014,~~2015, or ~~29.0%~~43.6%, ~~over the prior year~~ primarily due to the inclusion of facility operating ~~expenses from communities acquired during 2014. Of the increase, $52.9 million was attributable to the inclusion of the operating results of Emeritus since July 31, 2014. The remaining $30.7 million increase was~~ ~~primarily due to the reclassification of two communities into this segment from the CCRCs - Entry Fee segment beginning with the third quarter of 2014.~~

~~CCRCs - Entry Fee segment operating expenses decreased $67.4 million in 2014, or 30.4%, over the prior year prim~~arily due to the contribution of all but two of our entry fee CCRCs to the CCRC Venture and the reclassification of the two remaining CCRCs from this segment into the CCRCs - Rental segment beginning with the third quarter of 2014.

~~Brookdale Ancillary Services segment operating expenses increased $77.9 million in 2014, or 39.7%, over the prior year primarily due to the inclusion of~~ expenses related to Nurse on Call, ~~(which~~which we acquired ~~in connection with~~as part of our acquisition of ~~Emeritus) and an~~Emeritus. The inclusion of Nurse on Call expenses since July 31, 2014 contributed $88.8 million to the increase in facility operating expenses. Additionally, facility operating expenses ~~incurred~~increased in connection with higher census and increased salaries and wage expense as additional employees were hired to roll out services to communities acquired as part of the ~~continued expansion of our ancillary services programs, partially offset by a decrease in bad debt expense.~~Emeritus transaction.

General and Administrative Expense

General and administrative expense increased ~~$99.6~~$90.3 million in ~~2014,~~2015, or ~~55.2%~~32.2%, ~~over the prior year~~ primarily as a result of an increase in integration and transaction-related costs and the addition of employees associated with our acquisition of Emeritus. Integration costs include ~~third-party~~transition costs associated with the Emeritus merger and organizational restructuring (such as severance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration of Emeritus (in areas such as ~~well as~~cost savings and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by ~~our~~Company personnel on integration activities and ~~transaction activity. Transaction~~projects. Transaction-related costs ~~relating~~include third party costs directly related to ~~our~~the acquisition of Emeritus, ~~(and the completion~~other acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of ~~the transactions during 2014 with HCP) are reported separately from general~~legal, finance, consulting, professional fees and ~~administrative expense, as further discussed below.~~other third party costs.

Transaction Costs

Transaction costs for ~~2014~~2015 were ~~$66.9~~$8.3 million, ~~an increase~~a decrease from ~~$4.0~~$66.9 million in the prior ~~year. The increase is a result~~year period. Transaction costs for 2014 are primarily comprised of transaction fees and direct acquisition costs related to ~~our~~the acquisition of Emeritus and the completion of the transactions with HCP during 2014 ~~including~~and include expenses such as lender costs and legal, banking, accounting and consulting fees. Transaction costs for 2015 primarily relate to direct costs related to community acquisition and leasing activity.

Facility Lease Expense

Facility lease expense ~~increased $47.1~~increased $43.7 million in ~~2014,~~2015, or ~~17.0%,~~13.5% over the prior year ~~primarily~~primarily due to the inclusion of lease expense from leases assumed as part of our acquisition of Emeritus.

Depreciation and Amortization

Depreciation and amortization ~~expens~~eexpense increased ~~$268.3~~$196.1 million in ~~2014,~~2015, or ~~99.8%~~36.5%, ~~over~~primarily due to the acquisition of communities since the beginning of the prior year ~~primarily due to the acquisition of communities in 2014,~~period, driven by amortization of in-place lease intangibles acquired as part of our acquisition of Emeritus, partially offset by the contribution of previously owned communities to the CCRC Venture in August 2014. Additionally, depreciation expense increased in ~~2014~~2015 as a result of increased capital expenditures compared to the prior year.

Asset Impairment

During ~~2014~~2015 and ~~2013,~~2014, we recorded impairment charges of ~~$10.0~~$57.9 million and ~~$12.9~~$10.0 million, respectively, related to asset impairment for property, plant and equipment and leasehold intangibles for certain communities. During 2015, we sold 17 communities for an aggregate selling price of $82.9 million and recorded $18.4 million of impairment charges related to the communities sold, inclusive of the allocation of $8.1 million of goodwill to the disposed communities. During 2015, we recorded $15.2 million of impairment charges related to 17 communities identified as held for sale as of December 31, 2015, inclusive of the allocation of $12.2 million of goodwill to the disposal groups. Additionally, during 2015, we recorded $23.4 million of impairment charges for property, plant and equipment and leasehold intangibles for communities to be held and used. These impairment charges are primarily due to lower than expected operating performance of the underlying communities. WeFor the communities identified as held for sale during the year, we compared the estimated selling price of the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimated selling price less costs to dispose. For communities that we plan to operate for the long-term, we compared the estimated fair value of the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimated fair value. The $10.0 million impairment charge recorded during 2014 related to asset impairment for property, plant and equipment and leasehold intangibles for certain communities. These impairment charges were primarily due to lower than expected performance of the underlying communities.

Loss on Facility Lease Termination

A loss on facility lease termination of $76.1 million was recognized during 2015 for the difference between the amount paid to acquire the underlying real estate associated with 15 communities that were previously leased and the estimated fair value of the communities, net of the deferred lease liabilities previously recognized.

Costs Incurred on Behalf of Managed Communities

Costs incurred on behalf of managed communities increased $~~142.4~~$235.1 million, or ~~41.2%~~48.2%, p~~rimarily~~primarily due to ~~the~~ our assumption of new management agreements as part of our acquisition of Emeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture.

Interest Expense

Interest expense ~~increased $110.8~~increased $140.6 million in ~~2014,~~2015, or ~~80.6%~~56.6%, ~~over the prior year primarily~~primarily due to our assumption of ~~Emeritus'~~Emeritus debt and capital and financing lease obligations, which increased interest expense by ~~$25.0~~$28.6 million and ~~$85.1 millio~~n,$102.7 million, respectively (including the impact of non-cash interest expense related to ~~the amortization of~~ debt discounts and premiums recorded).

Income Taxes

Income tax benefit decreased $89.1 million in 2015, or 49.1%, over the prior year period. The difference in our effective tax rates for the years ended December 31, ~~2014~~2015 and ~~2013~~2014 was primarily due to an increase in the valuation allowance against our deferred tax assets in 2015 as compared to the reversal of the valuation allowance that ~~had been~~occurred in 2014. We determined that the valuation allowance was required due to the loss before income taxes in 2015, and in consideration of our estimated future reversal of existing timing differences as of December 31, 2015. This determination was made based primarily on the future reversal of our existing timing differences as we are not permitted under generally accepted accounting principles to consider future estimates of taxable income at this time. As a result, we recorded a valuation allowance of $112.4 million for the year ended December 31, 2015 of which $0.6 million was recorded as an adjustment to the purchase price allocation for Emeritus and $111.8 million was recorded within the provision for income taxes in the statement of operations in the fourth quarter of 2015. We recorded this valuation allowance against a deferred income tax benefit of $207.0 million as a result of the loss before income taxes for the year ended December 31, 2015 and additional tax credits. If we continue our ~~deferred tax assets.~~ trend of increasing losses before income taxes, the valuation allowance may be increased in future periods.

As a result of the acquisition of Emeritus, we recorded deferred tax liabilities in excess of deferred tax assets that reflect the difference between the fair market value of the acquired assets over the historical basis of the acquired assets. WeDuring the year ended December 31, 2014, we determined that it iswas more likely than not that our federal net operating loss carryforwards and a majority of our state net operating loss carryforwards and tax credits ~~will~~would be utilized in the future, based on the future reversal of these deferred tax liabilities. As a result, during the year ended December 31, 2014 we recorded an aggregate deferred federal, state and local income tax benefit of $64.2 million from the release of the valuation allowance against certain deferred tax assets. Additionally, we recorded an aggregate deferred federal, state and local tax benefit of $94.1 million as a result of the operating loss for the year ended December 31, 2014. Our 2014 effective rate was also impacted by certain transaction expenses that were incurred as part of acquisition of Emeritus that are required to be capitalized for income tax purposes. ~~We do not expect that we will become a federal cash income tax payer until 2017, at the earliest.~~

~~Year Ended December 31, 2013 and 2012~~

The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notes thereto, which are included in "Item 8. Financial Statements and Supplementary Data." Our results reflect the inclusion of acquisitions that occurred during the respective reporting periods.

~~As of December 31, 2013, our total operations included 649 communities with a capacity to serve 66,524 residents.~~

(dollars in thousands, except average monthly revenue per unit)
Years Ended
December 31,

Increase
(Decrease)

2013 2012 Amount Percent
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers $ 526,284 $ 503,902 $ 22,382 4.4 %
Assisted Living 1,051,868 1,013,337 38,531 3.8 %
CCRCs - Rental 396,975 385,479 11,496 3.0 %
CCRCs - Entry Fee 297,756 285,701 12,055 4.2 %
Brookdale Ancillary Services 242,150 224,517 17,633 7.9 %
Total resident fees 2,515,033 2,412,936 102,097 4.2 %
Management services⁽¹⁾
376,933 355,802 21,131 5.9 %
Total revenue 2,891,966 2,768,738 123,228 4.5 %
Expense
Facility operating expense
Retirement Centers 304,002 298,317 5,685 1.9 %
Assisted Living 662,190 652,153 10,037 1.5 %
CCRCs - Rental 287,949 279,416 8,533 3.1 %
CCRCs - Entry Fee 221,363 224,296 (2,933 ) (1.3 )%
Brookdale Ancillary Services 196,441 176,737 19,704 11.1 %
Total facility operating expense 1,671,945 1,630,919 41,026 2.5 %
General and administrative expense 180,627 178,829 1,798 1.0 %
Transaction costs 3,921 — 3,921 NM
Facility lease expense 276,729 284,025 (7,296 ) (2.6 )%
Depreciation and amortization 268,757 252,281 16,476 6.5 %
Asset impairment 12,891 27,677 (14,786 ) (53.4 )%
Loss on acquisition — 636 (636 ) (100.0 )%
Gain on facility lease termination — (11,584 ) (11,584 ) (100.0 )%
Costs incurred on behalf of managed communities 345,808 325,016 20,792 6.4 %
Total operating expense 2,760,678 2,687,799 72,879 2.7 %
Income from operations 131,288 80,939 50,349 62.2 %
Interest income 1,339 4,012 (2,673 ) (66.6 )%
Interest expense:
Debt (96,131 ) (98,183 ) (2,052 ) (2.1 )%
Capital and financing lease obligation (25,194 ) (30,155 ) (4,961 ) (16.5 )%
Amortization of deferred financing costs and debt discount (17,054 ) (18,081 ) (1,027 ) (5.7 )%
Change in fair value of derivatives 980 (364 ) 1,344 369.2 %
Debt modification and extinguishment costs (1,265 ) (221 ) 1,044 472.4 %
Equity in earnings (loss) of unconsolidated ventures 1,484 (3,488 ) 4,972 142.5 %
Other non-operating income 2,725 593 2,132 359.5 %
Loss before income taxes (1,828 ) (64,948 ) (63,120 ) (97.2 )%
Provision for income taxes (1,756 ) (1,519 ) 237 15.6 %
Net loss $ (3,584 ) $ (66,467 ) $ (62,883 ) (94.6 )%
Selected Operating and Other Data:
Total number of communities (period end) 649 647 ― ―
Total units operated⁽²⁾

Period end 65,832 65,936 (104 ) (0.2 )%
Weighted average 66,173 66,102 71 0.1 %
Owned/leased communities units⁽²⁾

Period end 48,422 47,938 484 1.0 %
Weighted average 48,090 47,947 143 0.3 %
Owned/leased communities occupancy rate (weighted average) 88.7 % 88.0 % 0.7 % 0.8 %
Senior Housing average monthly revenue per unit⁽³⁾
$ 4,383 $ 4,271 $ 112 2.6 %

(dollars in thousands, except average monthly revenue per unit)
Years Ended
December 31,

Increase
(Decrease)

2013 2012 Amount Percent
Selected Segment Operating and Other Data:
Retirement Centers
Number of communities (period end) 76 76 — —
Total units⁽²⁾

Period end 14,454 14,433 21 0.1 %
Weighted average 14,439 14,445 (6 ) —
Occupancy rate (weighted average) 89.8 % 89.1 % 0.7 % 0.8 %
Senior Housing average monthly revenue per unit⁽³⁾
$ 3,381 $ 3,263 $ 118 3.6 %
Assisted Living
Number of communities (period end) 438 433 5 1.2 %
Total units⁽²⁾

Period end 22,158 21,551 607 2.8 %
Weighted average 21,679 21,625 54 0.2 %
Occupancy rate (weighted average) 89.7 % 88.9 % 0.8 % 0.9 %
Senior Housing average monthly revenue per unit⁽³⁾
$ 4,510 $ 4,390 $ 120 2.7 %
CCRCs - Rental
Number of communities (period end) 26 27 (1 ) (3.7 )%
Total units⁽²⁾

Period end 6,478 6,691 (213 ) (3.2 )%
Weighted average 6,669 6,667 2 —
Occupancy rate (weighted average) 86.8 % 86.3 % 0.5 % 0.6 %
Senior Housing average monthly revenue per unit⁽³⁾
$ 5,715 $ 5,588 $ 127 2.3 %
CCRCs - Entry Fee
Number of communities (period end) 14 14 — —
Total units⁽²⁾

Period end 5,332 5,263 69 1.3 %
Weighted average 5,303 5,210 93 1.8 %
Occupancy rate (weighted average) 84.2 % 83.7 % 0.5 % 0.6 %
Senior Housing average monthly revenue per unit⁽³⁾
$ 5,013 $ 4,978 $ 35 0.7 %
Other Entry Fee Data
Non-refundable entrance fees sales $ 44,191 $ 40,105 $ 4,086 10.2 %
Refundable entrance fees sales⁽⁴⁾
48,140 42,600 5,540 13.0 %
Total entrance fee receipts 92,331 82,705 9,626 11.6 %
Refunds (35,325 ) (27,356 ) 7,969 29.1 %
Net entrance fees $ 57,006 $ 55,349 $ 1,657 3.0 %
Management Services
Number of communities (period end) 95 97 (2 ) (2.1 )%
Total units⁽²⁾

Period end 17,410 17,998 (588 ) (3.3 )%
Weighted average 18,083 18,155 (72 ) (0.4 )%
Occupancy rate (weighted average) 85.4 % 84.5 % 0.9 % 1.1 %

Brookdale Ancillary Services
Outpatient Therapy treatment codes 3,325,129 3,566,654 (241,525 ) (6.8 )%
Home Health average census 4,498 3,710 788 21.2 %

~~(1)~~

~~Management services segment revenue includes reimbursements for which we are the primary obligor of costs incurred on behalf of managed communities.~~

~~(2)~~

~~Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.~~

~~(3)~~

Senior Housing average monthly revenue per unit represents the average of the total monthly resident fee revenues, excluding amortization of entrance fees and Brookdale Ancillary Services segment revenue, divided by average occupied units.

~~(4)~~

Refundable entrance fee sales for the years ended December 31, 2013 and 2012 include amounts received from residents participating in the MyChoice program, which allows new and existing residents the option to pay additional refundable entrance fee amounts in return for a reduced monthly service fee. MyChoice amounts received from residents totaled $19.0 million and $13.3 million for the years ended December 31, 2013 and 2012, respectively.

~~Resident Fee Revenue~~

Resident fee revenue increased $102.1 million in 2013, or 4.2%, over the prior year primarily as a result of an increase in the average monthly revenue per unit compared to the prior year, including an increase in revenue from our ancillary services programs, an increase in occupancy and an increase in consolidated units operated. During 2013, revenues grew 3.4% at the 523 communities we operated during both years with a 2.4% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances). Occupancy increased 0.8% in these communities year over year.

Retirement Centers segment revenue increased $22.4 million in 2013, or 4.4%, over the prior year primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both years.

Assisted Living segment revenue increased $38.5 million in 2013, or 3.8%, over the prior year primarily due to increases in average monthly revenue per unit and occupancy at the communities operated during both years, as well as the inclusion of revenue from eight communities acquired in 2013. The increase was partially offset by the impact of the disposition of three communities during 2013.

CCRCs - Rental segment revenue increased $11.5 million in 2013, or 3.0%, over the prior year primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both years. The increase was partially offset by the impact of the disposition of one community during 2013.

CCRCs - Entry Fee segment revenue increased $12.1 million in 2013, or 4.2%, over the prior year primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both years and an increase in the number of units operated. The increase was partially offset by a decrease in skilled therapy revenue due to lower Medicare reimbursement.

Brookdale Ancillary Services segment revenue increased $17.6 million in 2013, or 7.9%, over the prior year primarily due to the roll-out of our ancillary services programs to additional units subsequent to the prior year end. The increase was partially offset by a decrease in therapy service volume and by the impact of reimbursement changes.

~~Management Services Revenue~~

Total management services revenue increased $21.1 million in 2013, or 5.9%, over the prior year primarily due to additional costs incurred on behalf of managed communities resulting from an increase in the number of communities managed during 2013 prior to the acquisition of six previously managed communities and termination of a contract of one managed community in the fourth quarter of 2013.

~~Facility Operating Expense~~

Facility operating expense increased $41.0 million in 2013, or 2.5%, over the prior year primarily due to an increase in salaries and wages, an increase in marketing and advertising, and additional expenses incurred in connection with the expansion of our ancillary services programs. These increases were partially offset by a decrease in insurance expense.

Retirement Centers segment operating expenses increased $5.7 million in 2013, or 1.9%, over the prior year primarily due to an increase in salaries and wages due to wage increases and an increase in marketing and advertising expense. There was also an increase in real estate tax expense year over year and an increase in food and supplies expense driven by higher occupancy compared to the prior year. These increases were partially offset by a decrease in insurance expense.

Assisted Living segment operating expenses increased $10.0 million in 2013, or 1.5%, over the prior year primarily due to an increase in salaries and wages due to wage increases and an increase in marketing and advertising expense. There was also an increase in grounds maintenance and repairs expense, an increase in food and supplies expense driven by higher occupancy compared to the prior year, and an increase in real estate tax expense year over year. These increases were partially offset by a decrease in insurance expense.

CCRCs - Rental segment operating expenses increased $8.5 million in 2013, or 3.1%, over the prior year primarily driven by an increase in salaries and wages due to wage rate increases and an increase in hours worked year over year, an increase in bad debt expense compared to the prior year, an increase in healthcare supplies expense due to an increase in occupancy and residents with higher acuity needs, and an increase in marketing and advertising expense. These increases were partially offset by a decrease in insurance expense.

CCRCs - Entry Fee segment operating expenses decreased $2.9 million in 2013, or 1.3%, over the prior year primarily due to a decrease in insurance expense compared to the prior year and a decrease in future service obligations related to entrance fee contracts. These decreases were partially offset by an increase in salaries and wages due to wage increases, an increase in marketing and advertising expense, and an increase in bad debt expense compared to the prior year.

Brookdale Ancillary Services segment operating expenses increased $19.7 million in 2013, or 11.1%, over the prior year primarily due to an increase in expenses incurred in connection with the continued expansion of our ancillary service programs, an increase in therapy labor expense and an increase in bad debt expense.

~~General and Administrative Expense~~

General and administrative expense increased $1.8 million in 2013, or 1.0%, over the prior year primarily as the result of increases in salaries and wage expense and employee benefits expense primarily due to increased employee headcount and increases in travel, repairs and maintenance, and marketing and advertising expenses. These increases were partially offset by a decrease in integration and EMR roll-out costs compared to the prior year.

~~Facility Lease Expense~~

~~Facility lease expense decreased $7.3 million in 2013, or 2.6%, over the prior year primarily as a result of the purchase of 12 previously leased communities in 2012.~~

~~Depreciation and Amortization~~

Depreciation and amortization expense increased by $16.5 million in 2013, or 6.5%, over the prior year primarily as the result of the purchase of 12 previously leased communities in 2012 and the purchase of eight communities, including six previously managed communities, in 2013. Additionally, there was additional depreciation in 2013 resulting from increased capital expenditures year over year. These increases were partially offset by the impact of the disposition of four communities during 2013.

~~Asset Impairment~~

During 2013, we recognized $12.9 million of impairment charges related to asset impairments for property, plant and equipment and leasehold intangibles for certain communities primarily within the CCRCs - Rental and Assisted Living segments primarily due to the amount by which the carrying values of the assets exceeded the estimated fair value. During 2012, we recognized $27.7 million of impairment charges related to asset impairments for property, plant and equipment and leasehold intangibles for certain communities within the Assisted Living and Retirement Center segments. We compared the estimated fair value of the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimated fair value.

~~Gain on Facility Lease Termination~~

During 2012, we recognized an $11.6 million net gain on facility lease termination from the reversal of deferred lease liabilities associated with 12 previously-leased communities that were acquired during the year.

~~Costs Incurred on Behalf of Managed Communities~~

Costs incurred on behalf of managed communities increased $20.8 million in 2013, or 6.4% over the prior year. The increase is primarily due to an increase in the number of communities managed during 2013 prior to the acquisition of six previously managed communities and termination of a contract of one managed community in the fourth quarter of 2013.

~~Interest Income~~

~~Interest income decreased $2.7 million in 2013, or 66.6%, over the prior year primarily due to the liquidation of marketable securities in the prior year.~~

~~Interest Expense~~

Interest expense decreased $9.4 million in 2013, or 6.4%, over the prior year primarily due to decreased interest expense related to our mortgage debt, which had lower interest rates year over year and a gain recorded from the change in the fair value of interest rate swaps and caps due to an increase in interest rates since the purchase of the instruments.

~~Income Taxes~~

The difference in our effective tax rates for the years ended December 31, 2013 and 2012 was due to the impact of our improved financial results under generally accepted accounting principles. Tax expense primarily reflects our cash tax position for states that do not allow for or have suspended the use of net operating losses for the period. We recorded a valuation allowance against deferred tax benefits generated during 2013.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses. We consider an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate, or different estimates that could have been selected, could have a material impact on our consolidated results of operations or financial condition. We have identified the following critical accounting policies that affect significant estimates and judgments.

Revenue Recognition and Assumptions at Entrance Fee Communities

Our entrance fee communities provide housing and healthcare services through entrance fee agreements with residents. Under certain of these agreements, residents pay an entrance fee upon entering into the contract and are contractually guaranteed certain limited lifecare benefits in the form of healthcare discounts. The recognition of entrance fee income requires the use of various actuarial estimates. We recognize this revenue by recording the non-refundable portion of the residents' entrance fees as deferred entrance fee income and amortizing it into revenue using the straight-line method over the estimated remaining life expectancy of each resident or couple, adjusted annually. We periodically assess the reasonableness of these mortality tables and other actuarial ~~assumptions. We contributed all but two~~assumptions, and measurement of ~~our entry fee CCRCs to the CCRC Venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated.~~future service obligations.

Self-Insurance Liability Accruals

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain general liability and professional liability insurance policies for our owned, leased and managed communities under a master insurance program, ~~our~~the Company's current policies provide for deductibles for each and every claim.

As a result, we are effectively self-insured for claims that are less than the deductible amounts. In addition, we maintain a ~~large-deductible~~high-deductible workers compensation program and a self-insured employee medical program. We have secured our obligations related to ~~general liability, professional liability and~~ workers compensation programs with cash aggregating ~~$19.6~~ $12.4 million, deposits aggregating ~~$51.9~~ $37.4 million and letters of credit aggregating ~~$33.8~~$59.5 million as of December 31, 2014. We operate a wholly-owned captive insurance company, Senior Services Insurance Limited ("SSIL") for the purpose of insuring certain portions of the risk retention under our general liability and professional liability insurance program, but SSIL's coverage is currently limited to claims made prior to 2010.2016. Third-party insurers are responsible for claim costs above program deductibles and retentions.

The cost of our employee health and dental benefits, net of employee contributions, is shared by us and our communities based on the respective number of participants working directly either at our corporate offices or at the communities. Cash received is used to pay the actual costs of administering the program which include paid claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by us. Claims are paid as they are submitted to the plan administrator.

Outstanding losses and expenses for general liability and professional liability and workers compensation are estimated based on the recommendations of independent actuaries and management's estimates. Outstanding losses and expenses for our self-insured medical program are estimated based on the recommendation of our third party administrator and management's estimates.

We review the adequacy of our accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel and industry data, and adjust accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored and estimates are updated as information is available. Changes in self-insurance reserves are recorded as an increase or decrease to expense in the period that the determination is made.

Income Taxes

We account for income taxes under the provisions of Accounting Standards Codification ("ASC") 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are expected to be realized. As of December 31, ~~2014~~2016 and ~~2013,~~2015, we have a valuation allowance against deferred tax assets of approximately ~~$9.2~~$264.3 million and ~~$72.4~~$121.6 million, respectively. When we determine that it is more likely than not that we will be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would be made and reflected in income. This determination will be made by considering various factors, including the reversal and timing of existing temporary differences, tax planning strategies and estimates of future taxable income exclusive of the reversal of temporary ~~differences.~~differences, although we are currently precluded under GAAP from considering estimates of future taxable income in our analysis due to our cumulative historical operating losses.

We have elected the "with-and-without approach" regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to us.

Lease Accounting

We determine whether to account for our leases as either operating or capital or financing leases depending on the underlying terms. As of December 31, ~~2014,~~2016, we operated ~~583~~539 communities under long-term leases with operating, capital and financing lease obligations. The determination of this classification is complex and in certain situations requires a significant level of judgment. Our classification criteria is based on estimates regarding the fair value of the leased communities, minimum lease payments, effective cost of funds, the economic life of the community and certain other terms in the lease agreements. Communities under operating leases are accounted for in our consolidated statements of operations as lease expenses for actual rent paid plus or minus straight-line adjustments for fixed or estimated minimum lease escalators as well as amortization of above/below market rents and deferred gains. For communities under capital and financing lease obligation arrangements, a liability is established on our balance sheets and a corresponding long-term asset is recorded. Lease payments are allocated between principal and interest on the remaining base lease obligations. For capital lease assets, the asset is depreciated over the remaining lease term unless there is a bargain purchase option in which case the asset is depreciated over the useful life. For financing lease assets, the asset is depreciated over the useful life of the asset. In addition, we amortize leasehold improvements purchased during the term of the lease over the shorter of their economic life or the lease term. Sale-leaseback transactions are recorded as lease financing obligations when the transactions include a form of continuing involvement, such as purchase options.

Allowance for Doubtful Accounts and Contractual Adjustments

Accounts receivable are reported net of an allowance for doubtful accounts, and represent our estimate of the amount that ultimately will be realized in cash. The allowance for doubtful accounts was ~~$26.5~~$27.0 million and ~~$17.7~~$26.5 million as of December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. The adequacy of our 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. Recent changes in legislation are not expected to have a material impact on the collectability of our accounts receivable; however, changes in economic conditions could have an impact on the collection of existing receivable balances or future allowance calculations.

Approximately ~~80.7%~~82.1% and ~~80.0%~~81.9% of our resident fee revenues for the years ended December 31, ~~2014~~2016 and ~~2013,~~2015, respectively, were derived from private pay customers and ~~19.3%~~17.9% and ~~20.0%~~18.1% of our resident fee revenues for the years ended December 31, ~~2014~~2016 and ~~2013,~~2015, respectively, were derived from services covered by various third-party payor programs, including Medicare and Medicaid. Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any, under reimbursement programs. Revenue related to these billings is recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. We accrue contractual or cost related adjustments from Medicare or Medicaid when assessed (without regard to when the assessment is paid or withheld), even if we have not agreed to or are appealing the assessment. Subsequent positive or negative adjustments to these accrued amounts are recorded in net revenues when known.

Long-Lived Assets and Goodwill

As of December 31, ~~2014~~2016 and ~~2013,~~2015, our long-lived assets were comprised primarily of ~~$8.4~~$7.4 billion and ~~$3.9~~$8.0 billion of net property, plant and equipment and leasehold intangibles, respectively. In accounting for our property, plant and equipment and leasehold intangibles, we apply the provisions of ASC 360, Property, Plant and Equipment. Acquisitions are accounted for using the purchase method of accounting and the purchase prices are ~~allocated~~assigned to acquired assets and liabilities based on their estimated fair values. Goodwill recorded in connection with business combinations is allocated to the respective reporting unit and included in our application of the provisions of ASC 350, Intangibles – Goodwill and Other ("ASC 350"). ~~We account for goodwill under the provisions of ASC 350.~~ As of December 31, ~~2014~~2016 and ~~2013,~~2015, we had goodwill balances of ~~$736.8~~$705.5 million and ~~$109.6~~$725.7 million, respectively. The ~~increase~~decrease in goodwill during the year ended December 31, ~~2014~~2016 is attributed to the allocation of goodwill ~~recorded in connection with our acquisition of Emeritus.~~to communities sold or identified as assets held for sale.

We test long-lived assets other than goodwill and indefinite-lived intangible assets for recoverability annually during our fourth quarter or whenever changes in circumstances indicate the carrying value may not be recoverable. Recoverability of an asset ~~(group)~~ is estimated by comparing its carrying value to the future net undiscounted cash flows expected to be generated by the asset, ~~(group).~~calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying value of an asset ~~(group)~~ is not recoverable, we are required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset ~~(group)~~ exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the carrying amount of those assets is permanently adjusted and depreciated over its remaining useful life. During ~~2014, 2013~~2016, 2015 and ~~2012~~2014 we evaluated long-lived depreciable assets and determined that the undiscounted cash flows exceeded the carrying value of these assets for all except a small number of communities. Estimated fair values were determined for these certain properties and we recorded ~~non-cash~~ asset impairment charges of $166.2 million, $23.4 million and $10.0 million ~~$12.9 million~~for 2016, 2015 and ~~$27.7 million~~2014, respectively for ~~2014, 2013~~property, plant and ~~2012, respectively.~~equipment and leasehold intangibles. These impairment charges are primarily due to our decision to dispose of assets, either through sales or lease terminations, or lower than expected performance of the underlying communities and equal the amount by which the carrying values of the assets exceed the estimated fair ~~value.~~value or in the case of assets held for sale, fair value less costs to dispose. The asset impairment charges for the year ended December 31, 2016 include $41.1 million of charges related to the property, plant and equipment and leasehold intangibles of the leased communities subject to the disposition and lease restructuring transactions with HCP.

We test goodwill for impairment annually during our fourth quarter, or whenever indicators exist that suggest that our goodwill may not be recoverable. Factors we consider important in our analysis of whether an indicator of impairment exists, which could trigger an impairment of goodwill in the future, include a significant decline in our stock price for a sustained period since the last testing date, a decline in our market capitalization below net book value, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. We first assess qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. We are not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The quantitative goodwill impairment test is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying value.

Indefinite-lived intangible assets are tested for impairment annually during our fourth quarter or more frequently as required. The impairment test consists of a comparison of the estimated fair value of the indefinite-lived intangible asset with its carrying value. If the carrying amount exceeds its fair value, an impairment loss is recognized for that difference. During 2016, we recorded $28.2 million and $1.5 million of impairment charges related to intangible assets for community purchase options and health care licenses, respectively. These impairment charges are primarily due to lower than expected operating performance at the communities subject to the community purchase options and reflect the amount by which the carrying values of the community purchase options exceeded their estimated fair value.

In estimating the fair value of long-lived assets ~~(groups)~~ and reporting units for purposes of our goodwill impairment test, we generally use the income approach. The income approach utilizes future cash flow projections that are developed internally. Any estimates of future cash flow projections necessarily involve predicting an unknown future and require significant management judgments and estimates. In arriving at our cash flow projections, we consider our historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, and other factors. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments. Future events that may result in impairment charges include increases in interest rates, which could impact capitalization and discount rates, differences in the projected occupancy rates and changes in the cost structure of existing communities.

In using the income approach to estimate the fair value of long-lived assets ~~(groups)~~ and reporting units for purposes of our goodwill impairment test, we make certain key assumptions. Those assumptions include future revenues and future facility operating expenses, and future cash flows that we would receive upon a sale of the communities using estimated capitalization rates. We corroborate the capitalization rates we use in these calculations with capitalization rates observable from recent market transactions.

Where required, future cash flows are discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The weighted average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise.

As of our annual assessment date on October 1, 2016 and as of December 31, 2016, our estimated fair values of our reporting units exceeded their carrying values and we concluded, based on the first step process, that there was no impairment of goodwill. The fair value exceeded carrying value by more than 50% for each of our reporting units, with the exception of our Assisted Living and Brookdale Ancillary Services reporting units. The fair value exceeded the carrying value of our Assisted Living and Brookdale Ancillary Services reporting units by approximately 10% and 35%, respectively. Goodwill allocated to our Assisted Living and Brookdale Ancillary Services reporting units is approximately $551.3 million and $126.8 million, respectively, as of December 31, 2016. Determining the fair value of a reporting unit or asset group involves the use of significant estimates and assumptions, which we believe to be reasonable, that are unpredictable and inherently uncertain. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. Significant adverse changes in our future revenues and/or operating margins, significant changes in the market for senior housing or the valuation of the real estate of senior living communities, as well as other events and circumstances, including but not limited to increased competition and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that all or a portion of our goodwill is impaired. The fair value of our Assisted Living reporting unit was estimated utilizing revenue growth rates ranging from 3.0% to 4.0%, expense growth rates of 3.0%, discount rates of 9.75% to 11.0%, and capitalization rates of 7.75%.

Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there has been a decline in the fair value of our reporting units, including estimating future cash flows, and if necessary, the fair value of our assets and liabilities. As we periodically perform this assessment, changes in our estimates and assumptions may cause us to realize material impairment charges in the future. Although we make every reasonable effort to ensure the accuracy of our estimate of the fair value of our reporting units, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.

Investment in Unconsolidated Ventures

Investments in affiliated companies that we do not control, but in which we have the ability to exercise significant influence over governance and operation, are accounted for by using equity method. The initial carrying value of investments in unconsolidated ventures is based on the amount paid to purchase the investment interest or the carrying value of assets contributed to the unconsolidated ventures. The Company's reported share of earnings of an unconsolidated venture is adjusted for the impact, if any, of basis differences between its carrying value of the equity investment and its share of the venture's underlying assets.

We evaluate realization of investments in ventures accounted for using the equity method if circumstances indicate that the investment is other than temporarily impaired. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. If we determine that an equity method investment is other than temporarily impaired, it is recorded at its fair value with an impairment charge recognized in asset impairment expense for the difference between its carrying amount and fair value. During the fourth quarter of 2016, we recorded $36.8 million of impairment charges related to investments in unconsolidated ventures. These impairment charges are primarily due to lower than expected operating performance at the communities owned by the unconsolidated ventures and reflect the amount by which the carrying values of the investments exceeded their estimated fair value. In January 2017, we completed the sale of a 10% ownership interest (one-half of our interest) in the HCP 49 Venture for $26.8 million of net cash proceeds. During the fourth quarter of 2016, we recorded a $35.2 million impairment charge to reduce the carrying value of investment for our 20% ownership interest in the HCP 49 Venture.

Stock-Based Compensation

ASC 718, Compensation – Stock Compensation ("ASC 718") requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee's requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized when incurred.

Certain of our employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, our determination of the amount of stock compensation expense requires a significant level of judgment in estimating the probability of achievement of these performance targets. Additionally, we must make

estimates regarding employee forfeitures in determining compensation expense. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

Litigation

Litigation is inherently uncertain and the outcome of individual litigation matters is not predictable with assurance. As described in Note 1917 to the consolidated financial statements, we are involved in various legal actions and claims incidental to the conduct of our business which are comparable to other companies in the senior living and healthcare industries. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. In other instances, we may not be able to make a reasonable estimate of any liability because of uncertainties related to the outcome and/or the amount or range of losses. Changes in our current estimates, due to unanticipated events or otherwise, could have a material impact on our financial condition and results of operations.

New Accounting Pronouncements

See Note 2 ~~of the notes~~ to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for a discussion of new accounting pronouncements.

Liquidity and Capital Resources

The following is a summary of cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands):

	Year Ended December 31,						Year Ended December 31,
	2014			2013			2016			2015
Cash provided by operating activities	$	242,652		$	366,121		$	365,732		$	292,366
Cash used in investing activities		(314,882	)		(264,806	)
Cash provided by (used in) financing activities		117,802			(112,044	)
Cash provided by (used in) investing activities								176,825			(568,977	)
Cash (used in) provided by financing activities								(414,189	)		260,557
Net increase (decrease) in cash and cash equivalents		45,572			(10,729	)		128,368			(16,054	)
Cash and cash equivalents at beginning of year		58,511			69,240			88,029			104,083
Cash and cash equivalents at end of year	$	104,083		$	58,511		$	216,397		$	88,029

The ~~decrease~~increase in net cash provided by operating activities of ~~$123.5~~$73.4 million was primarily attributable to ~~an increase~~the payment of $81.4 million of cash during the prior year to terminate 15 community leases upon the acquisition of the underlying real estate associated with the communities and due to a $61.5 million decrease in integration, transaction, transaction-related and ~~transaction~~strategic project costs ~~in 2014. Integration costs include third-party expenses directly related~~compared to the integration of Emeritus as well as internal costs such as labor, reflecting time spent by our personnel on integration and transaction activity. Transaction costs relate to our acquisition of Emeritus and the completion of the transactions during 2014 with HCP.

~~The increase in cash used in investing activities of $50.1 million was primarily attributable to an increase in spending on property, plant, and equipment, and leasehold intangibles in 2014.~~prior year.

The change in net cash provided by (used in) ~~financing~~investing activities ~~year over year~~ was primarily attributable to ~~the receipt of $330.4~~$297.9 million of net proceeds from ~~a public equity offering~~the sale of ~~approximately 10.3~~assets, $219.0 million ~~shares~~ of ~~common stock.~~distributions from unconsolidated ventures and reduced acquisition and capital expenditure activity.

The change in net cash (used in) provided by financing activities was primarily attributable to $310.0 million of cash used to repay the balance of our secured credit facility during the current year which principal amount was primarily drawn during the prior year. Reduced proceeds from debt in the current year as compared to the prior year also impacted the change in net cash (used in) provided by financing activities.

Our principal sources of liquidity have historically been from:

	cash balances on hand;

	~~cash flows from operations;~~

	~~funds generated through unconsolidated venture arrangements;~~

	~~proceeds from our credit facilities;~~

	~~proceeds from mortgage financing, refinancing of various assets or sale-leaseback transactions; and~~

	~~with somewhat lesser frequency, funds raised in the debt or equity markets and proceeds from the selective disposition of underperforming and/or non-core assets.~~

61cash flows from operations;

proceeds from our credit facilities;

funds generated through unconsolidated venture arrangements;

proceeds from mortgage financing, refinancing of various assets or sale-leaseback transactions;

funds raised in the debt or equity markets; and

proceeds from the disposition of assets.

Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity.

Our liquidity requirements have historically arisen from:

	~~working capital;~~

working capital;

	~~operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;~~

operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;

	~~debt service and lease payments;~~

debt service and lease payments;

	~~acquisition consideration and transaction and integration costs;~~

acquisition consideration and transaction and integration costs;

	~~cash collateral required to be posted in connection with our interest rate swaps and related financial instruments;~~

capital expenditures and improvements, including the expansion, renovation, redevelopment and repositioning of our current communities and the development of new communities;

	~~capital expenditures and improvements, including the expansion of our current communities and the development of new communities;~~

cash collateral required to be posted in connection with our financial instruments and insurance programs;

	~~dividend payments;~~

purchases of common stock under our share repurchase authorizations;

	~~purchases of common stock under our share repurchase authorizations; and~~

other corporate initiatives (including integration, information systems, branding and other strategic projects); and

	~~other corporate initiatives (including integration, information systems and branding).~~

prior to 2009, dividend payments.

Over the near-term, we expect that our liquidity requirements will primarily arise from:

	~~working capital;~~

working capital;

	~~operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;~~

operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;

	~~debt service and lease payments;~~

debt service and lease payments;

	~~capital expenditures and improvements, including the expansion, renovation, redevelopment and repositioning of our existing communities;~~

acquisition consideration, capital contributions in connection with the Blackstone transaction, and transaction and integration costs;

	~~cash funding needs of our unconsolidated ventures for operating, capital expenditure and financing needs; and~~

capital expenditures and improvements, including the expansion, renovation, redevelopment and repositioning of our existing communities;

	~~other corporate initiatives (including integration, information systems and branding).~~

cash funding needs of our unconsolidated ventures for operating, capital expenditure and financing needs;

cash collateral required to be posted in connection with our financial instruments and insurance programs;

purchase of common stock under our share repurchase authorization; and

other corporate initiatives (including information systems and other strategic projects).

We are highly leveraged and have significant debt and lease obligations. As of December 31, ~~2014,~~2016, we have three principal corporate-level debt obligations: our ~~$500.0~~$400.0 million secured credit facility, our $316.3 million 2.75% convertible senior notes due June 15, 2018, and our separate ~~secured and unsecured~~ letter of credit facilities providing forfor up to ~~$98.7~~$64.5 million of ~~lett~~letters of credit in the aggregate. The remainder of our indebtedness is generally comprised of ~~approximately $3.2~~ approximately $3.2 billion of non-recourse property-level mortgage financings as of December 31, ~~2014.~~2016.

At December 31, ~~2014,~~2016, we had ~~$3.5~~$3.6 billion of debt outstanding excluding capital and financing lease obligations, ~~and our secured credit facility,~~ at a weighted-average interest rate of ~~5.0%~~4.77% (calculated using an imputed interest rate of 7.5% for our 2.75% convertible senior notes due June 15, 2018). No balance was drawn on our secured credit facility as of December 31, 2016. At December 31, ~~2014,~~2016, we had ~~$2.6~~$2.5 billion of capital and financing lease ~~obligations, $100.0 million was drawn on our secured credit facility,~~obligations and ~~$72.7~~$96.8 million of ~~lette~~rsletters of credit had been issued under our secured credit facility and separate letter of credit facilities. Approximately ~~$272.3~~$215.3 million of our debt and capital and financing lease obligations are due on or before December 31, ~~2015.~~2017. The current portion of long-term debt includes $60.5 million of mortgage debt related to 16 communities classified as held for sale as of December 31, 2016. This debt will either be repaid with the proceeds from the sale of the $97.8 million of assets held for sale or be assumed by the prospective purchasers. We also have substantial operating lease obligations and capital expenditure requirements. For the year ending December 31, ~~2015,~~2017 we will be required to make ~~approximately $396.0 million~~approximately $387.5 million of payments in connection with our operating leases existing ~~operating leases.~~at December 31, 2016 (prior to giving effect to the transactions with HCP and Blackstone pending as of December 31, 2016).

AtDuring the year ended December 31, ~~2014,~~2016, we ~~had $263.0~~increased our liquidity position by $389.4 million to $584.0 million as of December 31, 2016 compared to $194.6 million as of December 31, 2015. Total liquidity as of December 31, 2016 included $216.4 million of ~~negative working capital. We had $104.1 million of~~unrestricted cash and cash ~~equivalents at December 31, 2014,~~equivalents, excluding cash and escrow deposits-restricted and lease security deposits of ~~$151.5~~$107.5 million in the ~~aggregate. As of that date, we also had~~ ~~$388.4~~aggregate, and $367.6 million of availability on our secured credit facility.

~~On September 12, 2014, we completed a public equity offering of 10,298,506 shares of common stock resulting in net proceeds of approximately $330.4 million.~~ During the three months ended December 31, ~~2014,~~2016, the CCRC Venture obtained non-recourse mortgage financing on certain communities, and we ~~repaid $275.9~~received distributions of $221.6 million of ~~existing long-term~~the net proceeds from such financing. In January 2017, we completed the sale of a 10% ownership interest (one-half of our interest) in the HCP 49 Venture for $26.8 million of net cash proceeds.

During the year ended December 31, 2016, we used net proceeds from dispositions of owned communities to extinguish $94.5 million of related mortgage debt, ~~with a weighted average~~and we used net proceeds from dispositions of owned communities and community financings, distributions from the CCRC Venture and cash flows from operations to repay the outstanding balance on our secured credit facility, including the $100.0 million term loan, which reduced the total commitment amount to $400.0 million. We plan to use proceeds from our distribution from the CCRC Venture and our sale of one-half our interest ~~rate of 5.5% (including~~in the ~~$68 million loan from~~ HCP ~~used~~49 Venture to fund our ~~initial capital~~anticipated contribution of approximately $170.0 million to purchase a 15% equity interest in the Blackstone Venture, terminate the above market leases, and fund our share of anticipated closing costs and working captial. We expect the Blackstone Venture transactions to close during the three months ended March 31, 2017.

At December 31, 2016, we had $111.6 million of negative working capital. Due to the ~~HCP 49 Venture), financed primarily with~~nature of our business, it is not unusual to operate in the ~~proceeds~~position of ~~the public equity offering,~~negative working capital because we collect revenues much more quickly, often in advance, than we are required to pay obligations, and we have ~~used~~historically refinanced or extended maturities of debt obligations as they become current liabilities. Our operations result in a very low level of current assets primarily stemming from our deployment of cash to pay down long-term liabilities, in connection with our ongoing portfolio optimization initiative, and ~~are using the remaining net proceeds~~ to finance the exercise of purchase options on certain communities currently leased by us and for other general corporate purposes, which may include additional debt repayments and the acceleration of capital investments in our communities and corporate infrastructure platform.pursue development opportunities.

One of our primary growth strategies is growing the business through strategic capital allocation. During 2014 we made progress on this objective by making significant investments in our communities. We look at our capital deployment in two ways: (1) investment in our existing assets throughOur capital expenditures are comprised of community-level, corporate and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over $1,500 per occurrence, including for ~~recurring capital, corporate capital~~unit turnovers (subject to a $500 floor)) and community renovations, apartment upgrades and other major building infrastructure projects (referred to as EBITDA-enhancing and ~~(2) investment~~major projects expenditures in ~~our existing assets through our Program Max initiative. On some of our leased communities, certain of our capital spend is subject to third party lessor funding.~~

~~Investments in our current portfolio are comprised of recurring~~the table below). Corporate capital expenditures ~~and other major projects (including corporate initiatives). These major projects~~ include unusual or non-recurring capital projects, projects which create new or enhanced economics, such as major renovations or reposition projects at our communities, integration related expenditures (including the cost of developingthose for information ~~systems),~~technology systems, equipment and ~~expenditures supporting~~ the expansion of our support platform and ancillary services programs. Development capital expenditures include community expansions and major community redevelopment and repositioning projects, including our Program Max initiative, and the development of new communities.

Through our Program Max initiative, we intend to expand, renovate, redevelop and reposition certain of our ~~legacy communities and the newly acquired Emeritus~~ communities where economically advantageous. Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These Program Max projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present or physical plant modifications. ~~In 2014 we completed 16 projects which resulted in 396 net new units.~~ We currently have 1810 Program Max projects that have been approved, most of which have begun construction and are expected to generate ~~418~~129 net new units.

The following table summarizes our actual ~~2014~~2016 and anticipated ~~2015~~2017 capital expenditures for our consolidated communities (dollars in millions):

Actual 2014 Anticipated 2015 Range
   Recurring⁽¹⁾
$ 50.8 $ 75.0 - 77.0
   EBITDA-enhancing / Major Projects⁽²⁾
109.2 210.0 - 215.0
   Program Max⁽²⁾
94.4 125.0 - 175.0
   Corporate, integration and other 49.8 108.0 - 117.0
Total capital expenditures $ 304.2 $ 518.0 - 584.0

	Actual 2016		Anticipated 2017 Range
Community-level capital expenditures, net⁽¹⁾	$	160.9	$	150.0 - 155.0
Corporate⁽²⁾		59.9		40.0 - 45.0
Non-development capital expenditures, net	$	220.8	$	190.0 - 200.0

Development capital expenditures, net⁽³⁾		23.9		40.0 - 50.0
Total capital expenditures, net	$	244.7	$	230.0 - 250.0

~~(1) Payments are included in Cash From Facility Operations.~~

~~(2)~~(1)

~~Amounts~~Amount shown ~~are amounts of gross capital expenditures. Certain capital expenditures are subject to third party lessor funding. For~~for the year ended December 31, ~~2014 we received $34.6 million~~2016 is the amount invested, net of lessor ~~reimbursements. For 2015 we anticipate receiving~~reimbursements of $35.5 million, which is included in Adjusted Free Cash Flow. Recurring community-level capital expenditures of $58.6 million, net of lessor reimbursements of $8.9 million, are included in Cash From Facility Operations for the year ended December 31, 2016. Anticipated amounts shown for 2017 are amounts invested or anticipated to be invested, net of approximately ~~$115.0~~$5.0 million ~~- $170.0~~to $10.0 million of lessor reimbursements ~~for both categories~~received or anticipated to be received, and payments are included in ~~the table.~~Adjusted Free Cash Flow.

(2)	Payments are included in Adjusted Free Cash Flow.

(3)

Amount shown for the year ended December 31, 2016 is the amount invested, net of lessor reimbursements of $19.9 million. Anticipated amounts shown for 2017 are amounts invested or anticipated to be invested, net of approximately $40.0 million to $50.0 million of lessor reimbursements anticipated to be received.

During ~~2015,~~2017, we anticipate that our capital expenditures will be funded from cash on hand, cash flows from operations, lessor reimbursements in the amount of ~~$115.0~~approximately $45.0 million to ~~$170.0~~$60.0 million, amounts drawn on construction loans and, if necessary, amounts drawn on our secured credit facility.

~~As opportunities arise, we plan~~Execution on our portfolio optimization and growth initiatives, including our plans to continue ~~to take advantage~~expansion of our business through the ~~fragmented senior housing~~expansion, renovation, redevelopment and ~~care sectors by selectively purchasing~~repositioning of our existing communities, the development of new communities and the acquisition of operating companies, ~~asset portfolios, home health agencies~~senior living communities and ~~communities. We may also seek~~ancillary services companies will require additional capital, particularly if we were to ~~acquire the fee interest in communities that we currently~~accelerate our lease ~~or manage.~~restructuring, development and acquisition plans. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, or if we enter into an acquisition or strategic arrangement with another company, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the ~~interests~~percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain ~~this additional financing,~~them on terms acceptable to us, we may ~~be required~~have to delay ~~reduce the scope of,~~ or ~~eliminate one~~abandon some or ~~more aspects~~all of our ~~business development activities, any of which could reduce the growth of~~plans to restructure leases and grow our business.

We currently estimate that our existing cash flows from operations, together with ~~existing working capital,~~cash on hand, amounts available under our secured credit facility and, to a lesser extent, proceeds from anticipated dispositions of owned communities and financings and refinancings of various assets, will be sufficient to fund our liquidity needs for at least the next 12 months, assuming ~~that the overall economy does not substantially deteriorate.~~a relatively stable macroeconomic environment.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, the actual level of capital expenditures, our ~~expansion,~~portfolio optimization efforts, development and acquisition activity, general economic conditions and the cost of capital. Shortfalls in cash flows from operating results or other principal sources of liquidity may have an adverse impact on our ability to execute our business and growth strategies. Volatility in the credit and financial markets may also have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing. As a result, this may impact our ability to ~~grow~~execute on our ~~business,~~portfolio optimization and growth initiatives, maintain capital spending levels, ~~expand certain communities,~~ or execute other aspects of our business strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.

~~As of December 31, 2014, we are in compliance with the financial covenants of our outstanding debt and lease agreements.~~

Company Indebtedness, Long-Term Leases and Hedging Agreements

Indebtedness

As of December 31, ~~2014,~~ 2016, we have three principal corporate-level debt obligations: our ~~$500.0~~$400.0 million secured credit facility, our $316.3 million 2.75% convertible senior notes due June 15, 2018 and separate ~~secured and unsecured~~ letter of credit facilities providing for up to ~~$98.7~~$64.5 million of letters of credit in the aggregate. The remainder of our indebtedness is generally comprised of approximately $3.2 billion of non-recourse property-level mortgage ~~financings. As~~financings as of December 31, ~~2014 our outstanding property-level secured debt was $3.2 billion.~~2016.

As a result of our acquisition of Emeritus, we assumed approximately $1.4 billion aggregate principal amount of existing mortgage indebtedness. The mortgage loans are collateralized by a total of 179 underlying communities, bear interest either at fixed rates at a weighted average of 6.06% per annum or at variable rates at a weighted average of 5.49% per annum (in each case, as of July 31, 2014), and have remaining maturities ranging from approximately three months to 33 years. In addition, During 2016, we incurred ~~$283.3~~$275.6 million of ~~property-level~~property-level mortgage debt primarily related to the ~~financing of community acquisitions, the expansion of certain communities, the~~ refinancing of $176.2 million of existing ~~debt and the releveraging of certain assets during 2014. Approximately $252.7~~debt. Approximately $70.6 million of the new debt was issued at a ~~fixed~~variable interest rate and the remaining ~~$30.6~~$205.0 million waswas issued at ~~variable~~a fixed interest ~~rates.~~rate. Refer to Note 8 to the consolidated financial statements for a detailed discussion of the ~~significant~~ new mortgage debt instruments and related terms.

As of December 31, ~~2014,~~2016, we are in compliance with the financial covenants of our outstanding debt agreements.

Credit Facilities

On December 19, 2014, we entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation (which has since assigned its interest to Capital One Financial Corporation), as administrative agent, lender and swingline lender, and the other lenders from time to time parties thereto. The amended credit agreement amended and restated in its entirety our previously existing Third Amended and Restated Credit Agreement dated as of September 20, 2013, which provided a total commitment amount of $250.0 million. The amended agreement provides for a total commitment amount of $500.0 million, comprised of a $100.0 million term loan drawn at closing and a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of credit and a $50.0 million swingline feature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. ~~In addition, the amended credit agreement extended the~~The maturity date ~~from March 31, 2018 to~~is January 3, 2020 and ~~decreased the interest rate payable on drawn~~ amounts ~~and the fee payable on the unused portion of the facility. Amounts~~ drawn under the facility ~~will continue to~~ bear interest at 90-day LIBOR plus an applicable ~~margin; however, the amended agreement reduces the applicable~~ margin from ~~a range of 3.25% to 4.25% to~~ a range of 2.50% to 3.50%. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less than or equal to 50%, and a 3.50% margin at utilization greater than 50%. The ~~amended agreement also eliminates the minimum 0.5% LIBOR rate included in the prior agreement. The amended agreement reduces the~~ quarterly commitment fee on the unused portion of the facility ~~from 0.50% per annum to~~is 0.25% per annum when the outstanding amount of obligations (including revolving credit, swingline and term loans and letter of credit obligations) is greater than or equal to 50% of the total commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the total commitment amount. During the year ended December 31, 2016, we repaid the $100.0 million term loan balance, decreasing the total commitment amount to $400.0 million.

~~This secured credit~~Amounts drawn on the facility may be used to finance acquisitions, fund working capital and capital expenditures and for other general corporate purposes.

The ~~credit~~ facility ~~will continue to be~~is secured by first priority mortgages on certain of our communities. In addition, the amended agreement permits us to pledge the equity interests in subsidiaries that own other communities (rather than mortgaging such communities), provided that loan availability from pledged assets cannot exceed 10% of loan availability from mortgaged assets. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance of the communities securing the facility.

The ~~amended credit~~ agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth. A violation of any of these covenants could result in a default under the amended credit agreement, which would result in termination of all commitments under the ~~amended credit~~ agreement and all amounts owing under the ~~amended credit~~ agreement ~~and certain other loan~~ ~~agreements~~ becoming immediately due and ~~payable.~~payable and could trigger cross-default provisions in our other outstanding debt and lease documents.

As of December 31, ~~2014,~~2016, no borrowings were outstanding on the revolving credit facility, $32.4 million of letters of credit were outstanding and we had ~~$388.4~~$367.6 million of availability on our secured credit facility. We also had ~~secured and unsecured~~separate letter of credit facilities of up to ~~$98.7~~$64.5 million in the aggregate as of December 31, ~~2014.~~2016. Letters of credit totaling ~~$72.7~~$64.4 million had been issued under these separate facilities as of that date.

As of December 31, 2016, we are in compliance with the financial covenants of our outstanding credit facilities.

Convertible Debt

In June 2011, we completed a registered offering of $316.3 million aggregate principal amount of 2.75% convertible senior notes (the "Notes"). We received net proceeds of approximately $308.2 million after the deduction of underwriting commissions and offering expenses. We used a portion of the net proceeds to pay our cost of the convertible note hedge transactions described below, taking into account our proceeds from the warrant transactions described below, and used the balance of the net proceeds to repay existing outstanding debt.

The Notes are senior unsecured obligations and rank equally in right of payment to all of our other senior unsecured debt, if any. The Notes will be senior in right of payment to any of our debt which is subordinated by its terms to the Notes (if any). The Notes are also structurally subordinated to all debt and other liabilities and commitments (including trade payables) of our subsidiaries. The Notes are also effectively subordinated to our secured debt to the extent of the assets securing such debt.

The Notes bear interest at 2.75% per annum, payable semi-annually in cash. The Notes are convertible at an initial conversion rate of 34.1006 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $29.325 per share), subject to adjustment. On and after March 15, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time. In addition, Holders may convert their Notes at their option under the following circumstances: (i) during any fiscal quarter if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on the last day of such preceding fiscal quarter; (ii) during the five business day period after any five consecutive trading day period (the "measurement period"), in which the trading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; or (iii) upon the occurrence of specified corporate events. As of December 31, ~~2014,~~2016, the Notes are not convertible. Unconverted Notes mature at par inon June 15, 2018.

Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock at our election. It is our current intent and policy to settle the principal amount of the Notes (or, if less, the amount of the conversion obligation) in cash upon conversion.

In addition, following certain corporate transactions, we will increase the conversion rate for a holder who elects to convert in connection with such transaction by a number of additional shares of common stock as set forth in the supplemental indenture governing the Notes.

In connection with the offering of the Notes, in June 2011, we entered into convertible note hedge transactions (the "Convertible Note Hedges") with certain financial institutions (the "Hedge Counterparties"). The Convertible Note Hedges cover, subject to customary anti-dilution adjustments, 10,784,315 shares of common stock. We also entered into warrant transactions with the Hedge Counterparties whereby we sold to the Hedge Counterparties warrants to acquire, subject to customary anti-dilution adjustments, up to 10,784,315 shares of common stock (the "Sold Warrant Transactions"). The warrants have a strike price of $40.25 per share, subject to customary anti-dilution adjustments.

The Convertible Note Hedges are expected to reduce the potential dilution with respect to common stock upon conversion of the Notes in the event that the price per share of common stock at the time of exercise is greater than the strike price of the Convertible Note Hedges, which corresponds to the initial conversion price of the Notes and is similarly subject to customary anti-dilution adjustments. If, however, the price per share of common stock exceeds the strike price of the Sold Warrant Transactions when they expire, there would be additional dilution from the issuance of common stock pursuant to the warrants.

The Convertible Note Hedges and Sold Warrant Transactions are separate transactions (in each case entered into by us and the Hedge Counterparties), are not part of the terms of the Notes and will not affect the holders' rights under the Notes. Holders of the Notes do not have any rights with respect to the Convertible Note Hedges or the Sold Warrant Transactions.

These hedging transactions had a net cost of approximately $31.9 million, which was paid from the proceeds of the Notes and recorded as a reduction of additional paid-in capital.

Long-Term Leases

As of December 31, ~~2014,~~2016, we have ~~583~~539 communities operated under long-term leases. The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees its performance and the lease payments under the master lease.

The community leases contain customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial performance covenants, such as net worth and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of default and/or trigger cross-default provisions in our outstanding debt and other lease documents. Further, an event of default related to an individual property or limited number of properties within a master lease portfolio would result in a default on the entire master lease portfolio and could trigger cross-default provisions in our other outstanding debt and lease documents. Certain leases contain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is not met.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or tied to changes in leased property revenue or the consumer price index.

~~As a result of our acquisition of Emeritus on July 31, 2014, we acquired entities that are lessees under~~ The Company is responsible for all operating ~~capital~~costs, including repairs, property taxes and ~~financing leases covering 311 communities, as well as certain other leases such as office leases~~insurance. The initial lease terms primarily vary from 10 to 20 years and ~~leases associated with Emeritus' Nurse on Call business.~~generally include renewal options ranging from 5 to 30 years. The ~~community leases contain customary~~remaining base lease terms ~~including assignment~~vary from less than one year to 16 years and ~~change of control restrictions, maintenance~~generally provide for renewal or extension options and capital expenditure obligations, termination provisions and financial covenants. In connection with the closing of our acquisition of Emeritus, we have entered into guarantees of certain of these leases.in some instances, purchase options.

For the year ended December 31, ~~2014,~~2016, our minimum annual cash lease payments for our capital and financing leases and operating leases were ~~$139.2~~$233.0 million and ~~$328.5 million,~~$384.0 million, respectively. For the year ending December 31, ~~2015,~~2017, we will be required to make ~~approximately $247.0~~approximately $241.9 million and ~~$396.0~~$387.5 million of cash payments in connection with our ~~existing~~ capital and financing leases and operating leases existing at December 31, 2016 (prior to giving effect to the transactions with HCP and Blackstone pending as of December 31, 2016), respectively.

As of December 31, ~~2014,~~2016, we are in compliance with the financial covenants of our long-term leases.

Derivative Instruments

In the normal course of business, we have entered into certain interest rate protection agreements to effectively manage the risk above certain interest rates for a portion of our variable rate debt. As of December 31, ~~2014,~~2016, we have ~~$846.3~~$807.0 million in aggregate notional amount of interest rate caps and ~~$136.6~~$453.3 million of variable rate debt, excluding our secured credit facility and capital and financing lease obligations, that is not subject to any cap or swap agreements.

Contractual Commitments

The following table presents a summary of our material indebtedness, including the related interest payments, lease and other contractual commitments, as of December 31, ~~2014.~~2016 (prior to giving effect to the transactions with HCP and Blackstone pending as of December 31, 2016).

Payments Due during the Year Ending December 31,
Total 2015 2016 2017 2018 2019 Thereafter
(dollars in millions)
Contractual Obligations: ��
Long-term debt and line of credit obligations⁽¹⁾
$ 4,305.2 $ 314.7 $ 219.2 $ 696.5 $ 1,391.9 $ 208.1 $ 1,474.8
Capital and financing lease obligations⁽²⁾
5,055.7 247.0 323.4 280.1 283.8 291.5 3,629.9
Operating lease obligations⁽²⁾
3,127.5 396.0 396.0 381.7 366.0 348.1 1,239.7
Refundable entrance fee obligations⁽³⁾
25.1 3.4 3.4 3.4 3.4 3.4 8.1
Total contractual obligations $ 12,513.5 $ 961.1 $ 942.0 $ 1,361.7 $ 2,045.1 $ 851.1 $ 6,352.5

Total commercial construction commitments $ 97.5 $ 75.7 $ 21.8 $ — $ — $ — $ —

				Payments Due during the Year Ending December 31,
	Total			2017			2018			2019			2020			2021			Thereafter
	(dollars in thousands)
Contractual Obligations:
Long-term debt and line of credit obligations⁽¹⁾		$	4,208,792		$	311,624		$	1,359,388		$	228,618		$	550,496		$	390,717		$	1,367,949
Capital and financing lease obligations⁽²⁾			4,567,568			416,239			277,829			256,539			200,308			186,342			3,230,311
Operating lease obligations⁽²⁾			2,943,410			387,521			377,521			359,282			317,654			279,040			1,222,392
Refundable entrance fee obligations⁽³⁾			23,984			1,308			1,308			1,308			1,308			1,308			17,444
Total contractual obligations		$	11,743,754		$	1,116,692		$	2,016,046		$	845,747		$	1,069,766		$	857,407		$	5,838,096

Total commercial construction commitments		$	104,670		$	61,751		$	42,919		$	—		$	—		$	—		$	—

(1)

Includes line of credit and contractual interest for all fixed-rate obligations and assumes interest on variable rate instruments at the December 31, ~~2014~~2016 rate. Long-term debt obligation payments in 2017 include the following debt instruments: (i) $60.5 million of debt on assets held for sale and (ii) $29.1 million of demand notes payable to the unconsolidated CCRC Venture, which we utilize in certain states in lieu of cash reserves.

(2)	Reflects future cash payments after giving effect to non-contingent lease escalators and assumes payments on variable rate instruments at the December 31, ~~2014~~2016 rate. Additionally, the contractual obligation amounts include the residual value for financing lease obligations.

(3)

Future refunds of entrance fees are estimated based on historical payment trends. These refund obligations are generally offset by proceeds received from resale of the vacated apartment units. Historically, proceeds from resales of entrance fee units each year generally offset refunds paid and generate excess cash to us.

The foregoing amounts exclude outstanding letters of credit of $7$96.8~~2.7~~ million as of December 31, ~~2014.~~2016.

We have entered into an agreement with Blackstone pursuant to which we have agreed to form the Blackstone Venture into which Blackstone will contribute 64 communities and into which we expect to contribute a total of approximately $170.0 million to purchase a 15% equity interest, terminate the above market leases, and fund our share of anticipated closing costs and working capital. See Note 4 to the consolidated financial statements for more information regarding the formation of the Blackstone Venture.

Impacts of Inflation

Resident fees from the communities we own or lease and management fees from communities we manage for third parties or unconsolidated ventures in which we have an ownership interest are our primary sources of revenue. These revenues are affected by the amount of monthly resident fee rates and community occupancy rates. The rates charged are highly dependent on local market conditions and the competitive environment in which our communities operate. Substantially all of our retirement center, assisted living, and CCRC residency agreements allow for adjustments in the monthly fee payable not less frequently than every 12 or 13 months which enables us to seek increases in monthly fees due to inflation, increased levels of care or other factors. Any pricing increase would be subject to market and competitive conditions and could result in a decrease in occupancy in the communities. We believe, however, that our ability to periodically adjust the monthly fee serves to reduce the adverse effect of inflation. In addition, employee compensation expense is a principal element of facility operating costs and is also dependent upon local market conditions. There can be no assurance that resident fees will increase or that costs will not increase due to inflation or other causes.

At December 31, ~~2014,~~2016, approximately ~~$962.9 million~~$1.3 billion of our indebtedness, excluding our secured credit facility, bears interest at floating rates. We have mitigated our exposure to floating rates by using interest rate caps under our debt arrangements. Inflation, and its impact on floating interest rates, could affect the amount of interest payments due on our secured credit facility and other variable rate debt instruments.

Off-Balance Sheet Arrangements

As of December 31, ~~2014,~~2016, we do not have an interest in any "off-balance sheet arrangements" (as defined in Item 303(a)(4) of Regulation S-K) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

We own interests in certain unconsolidated ventures as described under Note 5 to the consolidated financial statements. Except in limited circumstances, our risk of loss is limited to our investment in each venture. We also own interests in certain other unconsolidated ventures that are not considered variable interest entities. The equity method of accounting has been applied in the accompanying financial statements with respect to our investment in unconsolidated ventures.

Non-GAAP Financial Measures

~~A non-GAAP~~This Annual Report on Form 10-K contains financial ~~measure is~~measures utilized by management to evaluate our operating performance and liquidity that are not calculated in accordance with U.S. generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. In this report, we define and use the non-GAAP financialaccepted accounting principles ("GAAP"). Each of these measures, Adjusted EBITDA, Cash From Facility Operations ("CFFO") and ~~Facility Operating Income,~~Adjusted Free Cash Flow, should not be considered in isolation from or as ~~set forth below.~~superior to or as a substitute for net income (loss), income (loss) from operations, net cash provided by (used in) operating activities, or other financial measures determined in accordance with GAAP. We use these non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

We strongly urge you to review the reconciliations of Adjusted EBITDA from our net income (loss), our CFFO and Adjusted Free Cash Flow from our net cash provided by (used in) operating activities, and our proportionate share of each of CFFO and Adjusted Free Cash Flow of unconsolidated ventures from such ventures' net cash provided by (used in) operating activities, along with our consolidated financial statements included herein. We also strongly urge you not to rely on any single financial measure to evaluate our business. We caution investors that amounts presented in accordance with our definitions of Adjusted EBITDA, CFFO and Adjusted Free Cash Flow may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the same manner.

Adjusted EBITDA

Definition of Adjusted EBITDA

We changed our definition and calculation of Adjusted EBITDA when we reported results for the second quarter of 2016, including our Quarterly Report on Form 10-Q filed on August 9, 2016. Prior period amounts of Adjusted EBITDA presented herein have been recast to conform to the new definition. The current definition of Adjusted EBITDA reflects the removal of the following adjustments to our net income (loss) that were used in the former definition: the addition of our proportionate share of CFFO of unconsolidated ventures and our entrance fee receipts, net of refunds, and the subtraction of our amortization of entrance fees.

We define Adjusted EBITDA as ~~follows:~~

~~Net~~net income (loss) before:

	~~provision (benefit) for income taxes;~~

	~~non-operating (income) expense items;~~

	~~(gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination);~~

	provision (benefit) for income taxes; non-operating (income) expense items; depreciation ~~and amortization (including non-cash impairment charges);~~

	~~straight-line lease expense (income), net of amortization of (above) below market rents;~~

	~~amortization of deferred gain;~~

	~~amortization of deferred entrance fees;~~

	~~non-cash stock-based compensation expense; and~~

	~~change in future service obligation;~~

and ~~including:~~



entrance fee receipts and refunds (excluding (i) first generation entrance fee receipts from the sale of units at a recently opened entrance fee CCRC prior to stabilization and (ii) first generation entrance fee refunds not replaced by second generation entrance fee receipts at the recently opened community prior to stabilization).

amortization (including non-cash impairment charges); (gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination); straight-line lease expense (income), net of amortization of (above) below market rents; amortization of deferred gain; non-cash stock-based compensation expense; and change in future service obligation.

Management's Use of Adjusted EBITDA

We use Adjusted EBITDA to assess our overall ~~financial and~~ operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current ~~financial~~operating goals as well as achieve optimal ~~financial~~operating performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

Adjusted EBITDA provides us with a measure of ~~financial~~operating performance, independent of items that are beyond the control of management in the short-term, such as the change in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), taxation and interest expense associated with our capital structure. This metric measures our ~~financial~~operating performance based on operational factors that management can impact in the short-term, namely revenues and the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the ~~financial~~operating performance of the business on a ~~monthly~~regular basis. We believe that Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in our industry.

Limitations of Adjusted EBITDA

Adjusted EBITDA has limitations as an analytical tool. ~~It should not be viewed in isolation or as a substitute for GAAP measures of earnings.~~ Material limitations in making the adjustments to our ~~earnings~~net income (loss) to calculate Adjusted EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

	the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities (or facility lease termination) and extinguishment of debt activities generally represent charges (gains), which may significantly affect our operating results; and

	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

depreciation and amortization and asset impairment represent the wear and tear and/or reduction in value of our communities and other assets, which affects the services we provide to residents and may be indicative of future needs for capital expenditures.

~~An investor or potential investor may find this item important~~We believe Adjusted EBITDA is useful to investors in evaluating our operating performance ~~results of~~because it is helpful in identifying trends in our day-to-day performance since the items excluded have little or no significance to our day-to-day operations and ~~financial position. We use non-GAAP financial measures to supplement~~it provides an assessment of our ~~GAAP results in order to provide a more complete understanding of the factors~~revenue and ~~trends affecting our business.~~

Adjusted EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on Adjusted EBITDA as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of Adjusted EBITDA to GAAP net income (loss), along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Adjusted EBITDA measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

expense management.

6870

The table below ~~shows the reconciliation of our~~reconciles Adjusted EBITDA from net ~~loss to Adjusted EBITDA~~income (loss) for the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014 (in thousands):

Years Ended December 31⁽¹⁾,

2014 2013 2012
Net loss $ (149,426 ) $ (3,584 ) $ (66,467 )
(Benefit) provision for income taxes (181,305 ) 1,756 1,519
Other non-operating income (7,235 ) (2,725 ) (593 )
Equity in (earnings) loss of unconsolidated ventures (171 ) (1,484 ) 3,488
Debt modification and extinguishment costs 6,387 1,265 221
Interest expense:
Debt 128,002 96,131 98,183
Capital and financing lease obligations 109,998 25,194 30,155
Amortization of deferred financing costs and debt (premium) discount 7,477 17,054 18,081
Change in fair value of derivatives 2,711 (980 ) 364
Interest income (1,343 ) (1,339 ) (4,012 )
(Loss) income from operations (84,905 ) 131,288 80,939
Gain on facility lease termination — — (11,584 )
Loss on acquisition — — 636
Depreciation and amortization 537,035 268,757 252,281
Asset impairment 9,992 12,891 27,677
Straight-line lease expense 1,439 2,597 6,668
Amortization of (above) below market lease, net (3,444 ) — —
Amortization of deferred gain (4,372 ) (4,372 ) (4,372 )
Amortization of entrance fees (21,220 ) (29,009 ) (25,362 )
Non-cash stock-based compensation expense 28,299 25,978 25,520
Change in future service obligation 670 (1,917 ) 2,188
Entrance fee receipts⁽²⁾
53,046 92,331 82,705
Entrance fee disbursements (25,865 ) (35,325 ) (27,356 )
Adjusted EBITDA $ 490,675 $ 463,219 $ 409,940

	Years Ended December 31⁽¹⁾,
	2016			2015			2014
Net income (loss)	$	(404,636	)	$	(458,155	)	$	(149,426	)
Provision (benefit) for income taxes		5,378			(92,209	)		(181,305	)
Equity in (earnings) loss of unconsolidated ventures		(1,660	)		804			(171	)
Debt modification and extinguishment costs		9,170			7,020			6,387
Gain on sale of assets, net		(7,218	)		(1,270	)		(446	)
Other non-operating income		(14,801	)		(8,557	)		(6,789	)
Interest expense		385,617			388,764			248,188
Interest income		(2,933	)		(1,603	)		(1,343	)
Income (loss) income from operations		(31,083	)		(165,206	)		(84,905	)
Depreciation and amortization		520,402			733,165			537,035
Asset impairment		248,515			57,941			9,992
Loss on facility lease termination		11,113			76,143			—
Straight-line lease expense (income)		767			6,956			1,439
Amortization of (above) below market lease, net		(6,864	)		(7,158	)		(3,444	)
Amortization of deferred gain		(4,372	)		(4,372	)		(4,372	)
Non-cash stock-based compensation expense		32,285			31,651			28,299
Change in future service obligation		—			(941	)		670
Adjusted EBITDA	$	770,763		$	728,179		$	484,714

(1)

The calculation of Adjusted EBITDA includes integration, transaction, transaction-related and ~~EMR roll-out~~strategic project costs of ~~$146.4~~$54.2 million, ~~$14.5~~$116.8 million and ~~$23.5~~$146.4 million for the years ended December 31, 2016, 2015 and 2014, ~~2013~~respectively. Integration costs include transition costs associated with the Emeritus merger and ~~2012, respectively.~~

~~(2)~~

~~Includes~~organizational restructuring (such as severance and retention payments and recruiting expenses), third party consulting expenses directly related to the ~~receipt~~integration of ~~refundable~~Emeritus (in areas such as cost savings and ~~non-refundable entrance fees.~~synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects. Transaction and transaction-related costs include third party costs directly related to the acquisition of Emeritus, other acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Strategic project costs include costs associated with certain strategic projects related to refining our strategy, building out enterprise-wide capabilities for the post-merger platform (including the EMR roll-out project) and reducing costs and achieving synergies by capitalizing on scale.

Cash From Facility Operations and Adjusted Free Cash Flow

~~Definition~~Definitions of Cash From Facility Operations and Adjusted Free Cash Flow

We changed our definition and calculation of CFFO when we reported results for the third quarter of 2016, including our Quarterly Report on Form 10-Q filed on November 3, 2016. Prior period amounts of our CFFO have been recast to reflect our CFFO separate from, and exclusive of, our proportionate share of CFFO of unconsolidated ventures. Previously, in connection with our reporting results for the second quarter of 2016 including our Quarterly Report on Form 10-Q filed on August 9, 2016, we began reporting CFFO as a measure of liquidity, and as such we changed the definition of CFFO to reflect the reconciliation of such measure from our net cash provided by (used in) operating activities. This previous change had no effect on the amounts of CFFO presented herein for this period or prior periods.

We define Cash From Facility Operations (CFFO) as ~~follows:~~

~~Net~~net cash provided by (used in) operating activities before: changes in operating assets and liabilities; gain (loss) on facility lease termination; and distributions from unconsolidated ventures from cumulative share of net earnings; and adjusted ~~for:~~

	~~changes in operating assets~~for: recurring capital expenditures, net; lease financing debt amortization with fair market value or no purchase options; proceeds from refundable entrance fees; refunds of entrance fees; and ~~liabilities;~~

	~~deferred interest and fees added to principal;~~

	~~refundable entrance fees received;~~

	~~first generation entrance fee receipts at a recently opened entrance fee CCRC prior to stabilization;~~

	~~entrance fee refunds disbursed adjusted for first generation entrance fee refunds not replaced by second generation entrance fee receipts at the recently opened community prior to stabilization;~~

	~~lease financing debt amortization with fair market value or no purchase options;~~

	~~gain (loss) on facility lease termination;~~

	~~recurring capital expenditures, net;~~

	~~distributions from unconsolidated ventures from cumulative share of net earnings;~~

	~~CFFO from unconsolidated ventures; and~~



other.

Recurring capital expenditures include routine expenditures capitalized in accordance with GAAP that are funded from current operations. Amounts excluded from recurring capital expenditures consist primarily of capital expenditures related to community expansions, renovations and major projects ~~renovations,~~(including major community ~~repositionings, expansions,~~redevelopment and repositioning projects), the development of new communities and corporate capital expenditures (including systems projects ~~or other non-recurring or unusual capital items (including~~and integration capital expenditures) ~~or community purchases~~ that are funded using lease or financing proceeds, available cash and/or proceeds from the sale of communities.

We define Adjusted Free Cash Flow as net cash provided by (used in) operating activities before: changes in operating assets and liabilities; gain (loss) on facility lease termination; and distributions from unconsolidated ventures from cumulative share of net earnings; plus: proceeds from refundable entrance fees, net of refunds; and property insurance proceeds; less: lease financing debt amortization and Non-Development CapEx. Non-Development CapEx is comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades and other major building infrastructure projects for our communities. Non-Development CapEx does not include capital expenditures for community expansions and major community redevelopment and repositioning projects, including our Program Max initiative, and the development of new communities. Amounts of Non-Development CapEx are presented net of lessor reimbursements received or anticipated to be received in the calculation of Adjusted Free Cash Flow.

Our proportionate share of each of CFFO and Adjusted Free Cash Flow of unconsolidated ventures is calculated based on our equity ownership percentage and in a manner consistent with the definition of CFFO and Adjusted Free Cash Flow for our consolidated entities, respectively. Our investments in our unconsolidated ventures are accounted for under the equity method of accounting and, therefore, our proportionate share of each of CFFO and Adjusted Free Cash Flow of unconsolidated ventures does not represent cash available to our consolidated business except to the extent it is distributed to us.

Management's Use of Cash From Facility Operations and Adjusted Free Cash Flow

We use CFFO and Adjusted Free Cash Flow to assess our overall liquidity. ~~This measure provides~~These measures provide an assessment of controllable expenses and ~~affords~~afford management the ability to make decisions which are expected to facilitate meeting current financial and liquidity goals as well as to achieve optimal financial performance. ~~It provides an indicator~~They provide indicators for management to determine if adjustments to current spending decisions are needed.

~~This metric measures~~These metrics measure our liquidity based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. CFFO ~~is one~~and Adjusted Free Cash Flow are some of the metrics used by our senior management and board of directors (i) to review our ability to service our outstanding indebtedness, ~~(including~~including our credit facilities, ~~and long-term leases),~~ (ii) to review our ability to pay dividends to stockholders or engage in share repurchases, (iii) to review our ability to make ~~regular recurring~~ capital expenditures, ~~to maintain and improve our communities on a period-to-period basis,~~ (iv) for other corporate planning purposes ~~including preparation of our annual budget,~~and/or (v) in making compensation determinations for certain of our associates (including our named executive officers) and (vi) in setting various covenants in our credit agreements. These agreements generally require us to escrow or spend a minimum of between $250 and $450 per unit per year. Historically, we have spent in excess of these per unit amounts; however, there is no assurance that we will have funds available to escrow or spend these per unit amounts in the future. If we do not escrow or spend the required minimum annual amounts, we would be in default of the applicable debt or lease agreement which could trigger cross default provisions in our outstanding indebtedness and lease arrangements..

Limitations of Cash From Facility Operations and Adjusted Free Cash Flow

Each of CFFO and Adjusted Free Cash Flow has limitations as an analytical tool. ~~It should not be viewed~~Material limitations in ~~isolation or~~making the adjustments to our net cash provided by (used in) operating activities to calculate such measures, and using these non-GAAP financial measures as ~~a substitute for~~compared to GAAP ~~measures of~~net cash ~~flow from operations.~~ provided by (used in) operating activities, include:

CFFO ~~does~~and Adjusted Free Cash Flow do not represent cash available for dividends or discretionary expenditures, since we ~~may~~ have mandatory debt service requirements orand other non-discretionary expenditures not reflected in these measures; and

the ~~measure. Material limitations in making the adjustment~~cash portion of non-recurring charges related to gain (loss) on lease termination and extinguishment of debt activities generally represent charges (gains), which may significantly affect our ~~cash flow from operations to calculate~~financial results.

In addition, our proportionate share of each of CFFO and ~~using this non-GAAP financial measure~~Adjusted Free Cash Flow of unconsolidated ventures has limitations as ~~compared~~an analytical tool because such measures do not represent cash available directly for use by our consolidated business except to ~~GAAP operating cash flows, include:~~

	the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

the extent actually distributed to us, and we do not have control, or we share control in determining, the timing and amount of distributions from our unconsolidated ventures and, therefore, we may never receive such cash.

We believe each of CFFO and Adjusted Free Cash Flow is useful to investors because it assists their ability to meaningfully evaluate (1) our ability to service our outstanding indebtedness, including our credit facilities and capital and financing leases, (2) our ability to pay dividends to stockholders ~~and~~or engage in share repurchases, (3) our ability to make ~~regular recurring~~ capital expenditures, ~~to maintain~~ and ~~improve~~(4) the underlying value of our ~~communities.~~assets, including our interests in real estate.

We believe presentation of our proportionate share of each of CFFO and Adjusted Free Cash Flow of unconsolidated ventures is useful to investors since such measure reflects the cash generated by the operating activities of the unconsolidated ventures for the reporting period and, to the extent such cash is not ~~an alternative~~distributed to us, it generally represents cash ~~flows provided~~used or to be used by the ventures for the repayment of debt, investing in expansions or ~~used in operations as calculated~~acquisitions, reserve requirements, capital expenditures for community renovations, apartment upgrades and ~~presented in accordance with GAAP. You should not rely on~~other major building infrastructure projects (in the case of CFFO), or other corporate uses by such ventures, and such uses reduce our potential need to make capital contributions to the ventures of our proportionate share of cash needed for such items.

The table below reconciles our CFFO ~~as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of CFFO to GAAP~~and Adjusted Free Cash Flow from net cash provided by (used in) operating activities along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because CFFO is not a measure of financial performance under GAAP and is susceptible to varying calculations, the CFFO measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

~~The table below shows the reconciliation of net cash provided by operating activities to CFFO~~ for the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014 (in thousands):

Years Ended December 31⁽¹⁾,

2014 2013 2012
Net cash provided by operating activities $ 242,652 $ 366,121 $ 290,969
Changes in operating assets and liabilities 37,099 (33,198 ) (20,698 )
Refundable entrance fees received⁽²⁾⁽³⁾
20,342 48,140 42,600
Entrance fee refunds disbursed (25,865 ) (35,325 ) (27,356 )
Recurring capital expenditures, net (50,762 ) (42,901 ) (38,306 )
Lease financing debt amortization with fair market value or no purchase options (28,618 ) (13,927 ) (12,120 )
Distributions from unconsolidated ventures from cumulative share of net earnings (1,840 ) (2,691 ) (1,507 )
CFFO from unconsolidated ventures 25,334 7,804 5,376
Cash From Facility Operations $ 218,342 $ 294,023 $ 238,958

	Years Ended December 31⁽¹⁾,
	2016			2015			2014
Net cash provided by operating activities	$	365,732		$	292,366		$	242,652
Net cash provided by (used in) investing activities		176,825			(568,977	)		(314,882	)
Net cash (used in) provided by financing activities		(414,189	)		260,557			117,802
Net increase (decrease) in cash and cash equivalents	$	128,368		$	(16,054	)	$	45,572

Net cash provided by operating activities	$	365,732		$	292,366		$	242,652
Changes in operating assets and liabilities		76,252			11,312			37,099
Proceeds from refundable entrance fees		3,083			1,939			20,342
Refunds of entrance fees		(3,984	)		(4,411	)		(25,865	)
Lease financing debt amortization		(63,267	)		(56,922	)		(42,035	)
Loss on facility lease termination		11,113			76,143			—
Distributions from unconsolidated ventures from cumulative share of net earnings		(23,544	)		(7,825	)		(1,840	)
Non-development capital expenditures, net		(220,767	)		(324,479	)		(209,026	)
Property insurance proceeds		9,137			3,175			—
Adjusted Free Cash Flow	$	153,755		$	(8,702	)	$	21,327

Add: Non-development capital expenditures, net	$	220,767		$	324,479		$	209,026
Less: Recurring capital expenditures, net		(58,583	)		(60,937	)		(50,762	)
Less: Property insurance proceeds		(9,137	)		(3,175	)		—
Add: Lease financing debt amortization with bargain purchase option		5,765			5,626			13,417
CFFO	$	312,567		$	257,291		$	193,008

(1)

The ~~calculation~~calculations of CFFO and Adjusted Free Cash ~~From Facility Operations includes~~Flow include integration, transaction, transaction-related and ~~EMR roll-out~~strategic project costs of ~~$146.4~~$62.1 million, ~~$14.5~~$123.7 million and ~~$23.5~~$146.4 million for the years ended December 31, 2016, 2015 and 2014 ~~2013~~(including $7.9 million and ~~2012, respectively.~~

~~(2)~~

~~Entrance fee receipts include promissory notes issued to us by the resident in lieu~~$6.9 million of ~~a portion of the entrance fees due. Notes issued (net of collections)~~debt modification costs excluded from Adjusted EBITDA for the years ended December 31, ~~2014, 2013~~2016 and ~~2012 were $9.3 million, $1.4 million~~2015, respectively). Integration costs include transition costs associated with the Emeritus merger and ~~$0.2 million, respectively.~~organizational restructuring (such as severance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration of Emeritus (in areas such as cost savings and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects. Transaction and transaction-related costs include third party costs directly related to the acquisition of Emeritus, other acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Strategic project costs include costs associated with certain strategic projects related to refining our strategy, building out enterprise-wide capabilities for the post-merger platform (including the EMR roll-out project) and reducing costs and achieving synergies by capitalizing on scale.

~~(3)~~

Total entrance fee receipts for the year ended December 31, 2014, 2013 and 2012 were $53.0 million, $92.3 million and $82.7 million, respectively, including $32.7 million, $44.2 million and $40.1 million, respectively, of non-refundable entrance fee receipts included in net cash provided by operating activities.

~~Facility Operating Income~~

~~Definition of Facility Operating Income~~

~~We define Facility Operating Income as follows:~~

~~Net income (loss)~~ ~~before:~~

	~~provision (benefit) for income taxes;~~

	~~non-operating (income) expense items;~~

	~~(gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination);~~

	~~depreciation and amortization (including non-cash impairment charges);~~

	~~facility lease expense;~~

	~~general and administrative expense, including non-cash stock-based compensation expense;~~

	~~transaction costs;~~

	~~change in future service obligation;~~

	~~amortization of deferred entrance fee revenue; and~~

	~~management fees.~~

~~Management's Use of Facility Operating Income~~

We use Facility Operating Income to assess our facility operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day facility performance because the items excluded have little or no significance on our day-to-day facility operations. This measure provides an assessment of revenue generation and expense management and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as to achieve optimal facility financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

Facility Operating Income provides us with a measure of facility financial performance, independent of items that are beyond the control of management in the short-term, such as the change in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), taxation and interest expense associated with our capital structure. This metric measures our facility financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Facility Operating Income is one of the metrics used by our senior management and board of directors to review the financial performance of the

business on a monthly basis. Facility Operating Income is also used by research analysts and investors to evaluate the performance of and value companies in our industry by investors, lenders and lessors. In addition, Facility Operating Income is a common measure used in the industry to value the acquisition or sales price of communities and is used as a measure of the returns expected to be generated by a community.

A number of our debt and lease agreements contain covenants measuring Facility Operating Income to gauge debt or lease coverages. The debt or lease coverage covenants are generally calculated as facility net operating income (defined as total operating revenue less operating expenses, all as determined on an accrual basis in accordance with GAAP). For purposes of the coverage calculation, the lender or lessor will further require a pro forma adjustment to facility operating income to include a management fee (generally 4% to 5% of operating revenue) and an annual capital reserve (generally $250 to $450 per unit). An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position, particularly on a facility-by-facility basis.

~~Limitations of Facility Operating Income~~

Facility Operating Income has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings. Material limitations in making the adjustments to our earnings to calculate Facility Operating Income, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

	interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results; and

	depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affects the services we provide to our residents and may be indicative of future needs for capital expenditures.

An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position on a facility-by-facility basis. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

Facility Operating Income is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. You should not rely on Facility Operating Income as a substitute for any such GAAP financial measure. We strongly urge you to review the reconciliation of Facility Operating Income to GAAP net income (loss), along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Facility Operating Income is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Facility Operating Income measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.

The table below ~~shows the reconciliation~~reconciles our proportionate share of each of CFFO and Adjusted Free Cash Flow of unconsolidated ventures from net ~~loss to Facility Operating Income~~cash provided by (used in) operating activities of such unconsolidated ventures for the years ended December 31, 2016, 2015 and 2014 ~~2013 and 2012 (dollars in~~(in thousands):. For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of our unconsolidated ventures.

Years Ended December 31,
2014 2013 2012
Net loss $ (149,426 ) $ (3,584 ) $ (66,467 )
(Benefit) provision for income taxes (181,305 ) 1,756 1,519
Other non-operating income (7,235 ) (2,725 ) (593 )
Equity in (earnings) loss of unconsolidated ventures (171 ) (1,484 ) 3,488
Debt modification and extinguishment costs 6,387 1,265 221
Interest expense:
Debt 128,002 96,131 98,183
Capital and financing lease obligations 109,998 25,194 30,155
Amortization of deferred financing costs and debt (premium) discount 7,477 17,054 18,081
Change in fair value of derivatives 2,711 (980 ) 364
Interest income (1,343 ) (1,339 ) (4,012 )
(Loss) income from operations (84,905 ) 131,288 80,939
Gain on facility lease termination — — (11,584 )
Depreciation and amortization 537,035 268,757 252,281
Asset impairment 9,992 12,891 27,677
Loss on acquisition — — 636
Facility lease expense 323,830 276,729 284,025
General and administrative (including non-cash stock-based compensation expense) 280,267 180,627 178,829
Transaction costs 66,949 3,921 —
Change in future service obligation 670 (1,917 ) 2,188
Amortization of entrance fees (21,220 ) (29,009 ) (25,362 )
Management fees (42,239 ) (31,125 ) (30,786 )
Facility Operating Income $ 1,070,379 $ 812,162 $ 758,843

	Years Ended December 31⁽¹⁾,
	2016			2015			2014
Net cash provided by operating activities	$	198,524		$	180,266		$	89,605
Net cash used in investing activities		(118,935	)		(1,218,101	)		(350,433	)
Net cash (used in) provided by financing activities		(88,262	)		1,028,562			290,402
Net (decrease) increase in cash and cash equivalents	$	(8,673	)	$	(9,273	)	$	29,574

Net cash provided by operating activities	$	198,524		$	180,266		$	89,605
Changes in operating assets and liabilities		(2,508	)		(7,634	)		(7,853	)
Proceeds from refundable entrance fees		43,698			37,819			17,202
Refunds of entrance fees		(51,373	)		(42,663	)		(22,444	)
Non-development capital expenditures, net		(98,305	)		(121,895	)		(34,010	)
Adjusted Free Cash Flow of unconsolidated ventures	$	90,036		$	45,893		$	42,500

Brookdale weighted average ownership percentage		36.2	%		49.0	%		34.3	%
Brookdale's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures	$	32,630		$	22,470		$	14,563

Adjusted Free Cash Flow of unconsolidated ventures	$	90,036		$	45,893		$	42,500
Add: Non-development capital expenditures, net		98,305			121,895			34,010
Less: Recurring capital expenditures, net		(19,836	)		(19,843	)		(6,906	)
CFFO of unconsolidated ventures	$	168,505		$	147,945		$	69,604

Brookdale weighted average ownership percentage		34.4	%		38.8	%		33.2	%
Brookdale's proportionate share of CFFO of unconsolidated ventures	$	58,000		$	57,379		$	23,142

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

We are subject to market risks from changes in interest rates charged on our credit facilities, other floating-rate indebtedness and lease payments subject to floating rates. The impact on earnings and the value of our long-term debt and lease payments are subject to change as a result of movements in market rates and prices. As of December 31, ~~2014,~~2016, we had approximately ~~$2.6~~$2.3 billion of long-term fixed rate debt, ~~$962.9 million~~$1.3 billion of long-term variable rate debt, ~~excluding~~including our secured credit facility, and ~~$2.6~~$2.5 billion of capital and financing lease obligations. As of December 31, ~~2014,~~2016, our total fixed-rate debt and variable-rate debt outstanding had a weighted-average interest rate of ~~5.0%~~4.8% (calculated using an imputed interest rate of 7.5% for our $316.3 million 2.75% convertible senior notes due June 15, 2018).

We enter into certain interest rate cap agreements with major financial institutions to effectively manage our risk above certain interest rates on variable rate debt. As of December 31, ~~2014, $2.6~~2016, $2.3 billion, or ~~72.6%~~64.8%, of our long-term debt, excluding our ~~secured credit facility and~~ capital and financing lease obligations, has fixed rates. As of December 31, ~~2014, $826.2~~2016, $798.6 million, or ~~23.5%~~22.4%, of our long-term debt, excluding ~~our secured credit facility and~~ capital and financing lease obligations, is subject to interest rate cap agreements. The remaining ~~$136.6~~$453.3 million, or ~~3.9%~~12.8%, of our debt is variable rate debt, not subject to any interest rate cap or swap agreements. A change in interest rates would have impacted our annual interest expense related to all outstanding variable rate debt, excluding our ~~secured credit facility and~~ capital and financing lease obligations, as follows (after consideration of hedging instruments currently in place): a 100 basis point increase in interest rates would have an impact of ~~$9.5~~$12.9 million, a 500 basis point increase in interest rates would have an impact of ~~$40.8~~ $55.0 million and a 1,000 basis point increase in interest rates would have an impact of ~~$48.2~~$78.9 million.

7374

Item 8.

Financial Statements and Supplementary Data.

BROOKDALE SENIOR LIVING INC.

INDEX TO FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firm	7576
Report of Independent Registered Public Accounting Firm	7677
Consolidated Balance Sheets as of December 31, ~~2014~~2016 and ~~2013~~2015	7778
Consolidated Statements of Operations for the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~	78
~~Consolidated Statements of Comprehensive Income for the Years Ended December 31,~~ 2014 ~~2013 and 2012~~	79
Consolidated Statements of Equity for the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014	80
Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014	81
Notes to Consolidated Financial Statements	82
Schedule II — Valuation and Qualifying Accounts	~~115~~119

7475

Report of Independent Registered Public Accounting Firm

The Board of Directors and ~~Shareholders~~Stockholders of Brookdale Senior Living Inc.

We have audited the accompanying consolidated balance sheets of Brookdale Senior Living Inc. (the Company) as of December 31, ~~2014~~2016 and ~~2013,~~2015, and the related consolidated statements of operations, ~~comprehensive income,~~ equity, and cash flows for each of the three years in the period ended December 31, ~~2014.~~2016. Our audits also included the financial statement schedule listed in the accompanying index to the financial statements. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, ~~2014~~2016 and ~~2013,~~2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2014,~~2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, ~~2014,~~2016, based on criteria established in Internal ~~Control—Integrated~~Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February ~~24, 2015~~14, 2017 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP

Chicago, Illinois
2414 February ~~2015~~2017

7576

Report of Independent Registered Public Accounting Firm

The Board of Directors and ~~Shareholders~~Stockholders of Brookdale Senior Living Inc.

We have audited Brookdale Senior Living Inc.'s (the Company) internal control over financial reporting as of December 31, ~~2014,~~2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management's Assessment of Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Emeritus Corporation, which is included in the 2014 consolidated financial statements of the Company since its acquisition on July 31, 2014 and which constitut~~ed $6.2 billion and $4.4 billion of total assets and liabilities, respectively, as of December 31, 2014~~ ~~and $785.5 mil~~lion of revenues for the period then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Emeritus Corporation.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2014,~~2016 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, ~~2014~~2016 and ~~2013~~2015 and the related consolidated statements of operations, ~~comprehensive income,~~ equity, and cash flows for each of the three years in the period ended December 31, ~~2014,~~2016 and our report dated February ~~24, 2015~~14, 2017 expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP

Chicago, Illinois
2414 February ~~2015~~2017

7677

BROOKDALE SENIOR LIVING INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except stock amounts)

	December 31,						December 31,
	2014			2013			2016			2015
Assets
Current assets
Cash and cash equivalents	$	104,083		$	58,511		$	216,397		$	88,029
Cash and escrow deposits – restricted		38,862			38,191			32,864			32,570
Accounts receivable, net		149,730			104,262			141,705			144,053
Deferred tax asset		84,199			17,643
Assets held for sale								97,843			110,620
Prepaid expenses and other current assets, net		237,915			76,255			130,695			122,671
Total current assets		614,789			294,862			619,504			497,943
Property, plant and equipment and leasehold intangibles, net		8,389,505			3,895,475			7,379,305			8,031,376
Cash and escrow deposits – restricted		56,376			57,611			28,061			33,382
Investment in unconsolidated ventures		312,925			44,103			167,826			371,639
Goodwill		736,805			109,553			705,476			725,696
Other intangible assets, net		154,773			158,757			83,007			129,186
Other assets, net		256,190			177,396			234,508			259,342
Total assets	$	10,521,363		$	4,737,757		$	9,217,687		$	10,048,564
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	159,922		$	168,592		$	145,649		$	173,454
Current portion of capital and financing lease obligations		112,343			33,362			69,606			62,150
Trade accounts payable		76,314			65,840			77,356			128,006
Accrued expenses		422,654			209,479			328,037			372,874
Refundable entrance fees and deferred revenue		101,613			388,400			106,946			99,277
Tenant security deposits		4,916			5,171			3,548			4,387
Total current liabilities		877,762			870,844			731,142			840,148
Long-term debt, less current portion		3,356,808			2,138,162			3,413,998			3,459,371
Capital and financing lease obligations, less current portion		2,536,883			266,462			2,415,914			2,427,438
Line of credit		100,000			30,000			—			310,000
Deferred entrance fee revenue		5,877			86,862
Deferred liabilities		250,469			154,870			267,364			266,537
Deferred tax liability		243,474			81,299			80,646			69,051
Other liabilities		267,849			88,321			230,891			217,292
Total liabilities		7,639,122			3,716,820			7,139,955			7,589,837
Preferred stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2014 and 2013; no shares issued and outstanding		—			—
Common stock, $0.01 par value, 400,000,000 and 200,000,000 shares authorized at December 31, 2014 and 2013, respectively; 189,466,395 and 130,155,012 shares issued and 187,037,994 and 127,726,611 shares outstanding (including 3,552,143 and 3,372,937 unvested restricted shares), respectively		1,870			1,277
Preferred stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2016 and 2015; no shares issued and outstanding								—			—
Common stock, $0.01 par value, 400,000,000 shares authorized at December 31, 2016 and 2015; 193,224,082 and 190,767,191 shares issued and 190,045,681 and 188,338,790 shares outstanding (including 4,608,187 and 3,453,991 unvested restricted shares), respectively								1,900			1,883
Additional paid-in-capital		4,034,655			2,025,471			4,102,397			4,069,283
Treasury stock, at cost; 2,428,401 shares at December 31, 2014 and 2013		(46,800	)		(46,800	)
Treasury stock, at cost; 3,178,401 and 2,428,401 shares at December 31, 2016 and 2015, respectively								(56,440	)		(46,800	)
Accumulated deficit		(1,108,001	)		(959,011	)		(1,969,875	)		(1,565,478	)
Total Brookdale Senior Living Inc. stockholders' equity		2,881,724			1,020,937			2,077,982			2,458,888
Noncontrolling interest		517			—			(250	)		(161	)
Total equity		2,882,241			1,020,937			2,077,732			2,458,727
Total liabilities and equity	$	10,521,363		$	4,737,757		$	9,217,687		$	10,048,564

See accompanying notes to consolidated financial statements.

7778

BROOKDALE SENIOR LIVING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	For the Years Ended December 31,									For the Years Ended December 31,
	2014			2013			2012			2016			2015			2014
Revenue
Resident fees	$	3,301,297		$	2,515,033		$	2,412,936		$	4,168,621		$	4,177,127		$	3,301,297
Management fees		42,239			31,125			30,786			70,762			60,183			42,239
Reimbursed costs incurred on behalf of managed communities		488,170			345,808			325,016			737,597			723,298			488,170
Total revenue		3,831,706			2,891,966			2,768,738			4,976,980			4,960,608			3,831,706
Expense
Facility operating expense (excluding depreciation and amortization of $503,662, $238,153 and $229,072, respectively)		2,210,368			1,671,945			1,630,919
General and administrative expense (including non-cash stock-based compensation expense of $28,299, $25,978 and $25,520, respectively)		280,267			180,627			178,829
Facility operating expense (excluding depreciation and amortization of $469,388, $684,448 and $503,662, respectively)											2,799,402			2,788,862			2,210,368
General and administrative expense (including non-cash stock-based compensation expense of $32,285, $31,651 and $28,299, respectively)											313,409			370,579			280,267
Transaction costs		66,949			3,921			—			3,990			8,252			66,949
Facility lease expense		323,830			276,729			284,025			373,635			367,574			323,830
Depreciation and amortization		537,035			268,757			252,281			520,402			733,165			537,035
Asset impairment		9,992			12,891			27,677			248,515			57,941			9,992
Loss on acquisition		—			—			636
Gain on facility lease termination		—			—			(11,584	)
Loss on facility lease termination											11,113			76,143			—
Costs incurred on behalf of managed communities		488,170			345,808			325,016			737,597			723,298			488,170
Total operating expense		3,916,611			2,760,678			2,687,799			5,008,063			5,125,814			3,916,611
(Loss) income from operations		(84,905	)		131,288			80,939
Income (loss) from operations											(31,083	)		(165,206	)		(84,905	)

Interest income		1,343			1,339			4,012			2,933			1,603			1,343
Interest expense:
Debt		(128,002	)		(96,131	)		(98,183	)		(174,027	)		(173,484	)		(128,002	)
Capital and financing lease obligations		(109,998	)		(25,194	)		(30,155	)		(202,012	)		(211,132	)		(109,998	)
Amortization of deferred financing costs and debt premium (discount)		(7,477	)		(17,054	)		(18,081	)		(9,400	)		(3,351	)		(7,477	)
Change in fair value of derivatives		(2,711	)		980			(364	)		(178	)		(797	)		(2,711	)
Debt modification and extinguishment costs		(6,387	)		(1,265	)		(221	)		(9,170	)		(7,020	)		(6,387	)
Equity in earnings (loss) of unconsolidated ventures		171			1,484			(3,488	)		1,660			(804	)		171
Gain on sale of assets, net											7,218			1,270			446
Other non-operating income		7,235			2,725			593			14,801			8,557			6,789
Loss before income taxes		(330,731	)		(1,828	)		(64,948	)
Benefit (provision) for income taxes		181,305			(1,756	)		(1,519	)
Net loss		(149,426	)		(3,584	)		(66,467	)
Net loss attributable to noncontrolling interest		436			—			—
Net loss attributable to Brookdale Senior Living Inc. common stockholders	$	(148,990	)	$	(3,584	)	$	(66,467	)
Income (loss) before income taxes											(399,258	)		(550,364	)		(330,731	)
(Provision) benefit for income taxes											(5,378	)		92,209			181,305
Net income (loss)											(404,636	)		(458,155	)		(149,426	)
Net (income) loss attributable to noncontrolling interest											239			678			436
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders										$	(404,397	)	$	(457,477	)	$	(148,990	)

Basic and diluted net loss per share attributable to Brookdale Senior Living Inc. common stockholders	$	(1.01	)	$	(0.03	)	$	(0.54	)
Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders										$	(2.18	)	$	(2.48	)	$	(1.01	)

Weighted average shares used in computing basic and diluted net loss per share		148,185			123,671			121,991			185,653			184,333			148,185

See accompanying notes to consolidated financial statements.

~~BROOKDALE SENIOR LIVING INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(In thousands)~~

For the Years Ended
December 31,

2014 2013 2012

Net loss $ (149,426 ) $ (3,584 ) $ (66,467 )
Other comprehensive income:
Unrealized gain on marketable securities – restricted
— — 1,846
Other — — (831 )
Total other comprehensive income, net of tax — — 1,015
Comprehensive loss (149,426 ) (3,584 ) (65,452 )
Comprehensive loss attributable to noncontrolling interest 436 — —
Comprehensive loss attributable to Brookdale Senior Living Inc. common stockholders $ (148,990 ) $ (3,584 ) $ (65,452 )

~~See accompanying notes to consolidated financial statements.~~

BROOKDALE SENIOR LIVING INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014

(In thousands)

	Common Stock																									Common Stock
	Shares		Amount		Additional Paid-In- Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Stockholders' Equity			Noncontrolling Interest			Total Equity			Shares			Amount			Additional Paid-In- Capital			Treasury Stock			Accumulated Deficit			Stockholders' Equity			Noncontrolling Interest			Total Equity
Balances at January 1, 2012		125,354	$	1,254	$	1,970,820		$	(46,800	)	$	(888,960	)	$	(1,015	)	$	1,035,299		$	—		$	1,035,299
Compensation expense related to restricted stock grants		—		—		25,520			—			—			—			25,520			—			25,520
Net loss		—		—		—			—			(66,467	)		—			(66,467	)		—			(66,467	)
Issuance of common stock under Associate Stock Purchase Plan		74		—		1,401			—			—			—			1,401			—			1,401
Restricted stock, net		1,261		13		(100	)		—			—			—			(87	)		—			(87	)
Unrealized gain on marketable securities - restricted		—		—		—			—			—			1,846			1,846			—			1,846
Other		—		—		305			—			—			(831	)		(526	)		—			(526	)
Balances at December 31, 2012		126,689		1,267		1,997,946			(46,800	)		(955,427	)		—			996,986			—			996,986
Compensation expense related to restricted stock grants		—		—		25,978			—			—			—			25,978			—			25,978
Net loss		—		—		—			—			(3,584	)		—			(3,584	)		—			(3,584	)
Issuance of common stock under Associate Stock Purchase Plan		62		—		1,503			—			—			—			1,503			—			1,503
Restricted stock, net		976		10		(10	)		—			—			—			—			—			—
Other		—		—		54			—			—			—			54			—			54
Balances at December 31, 2013		127,727		1,277		2,025,471			(46,800	)		(959,011	)		—			1,020,937			—			1,020,937
Balances at January 1, 2014																											127,727		$	1,277		$	2,025,471		$	(46,800	)	$	(959,011	)	$	1,020,937		$	—		$	1,020,937
Noncontrolling interest in Emeritus acquisition		—		—		—			—			—			—			—			953			953			—			—			—			—			—			—			953			953
Compensation expense related to restricted stock grants		—		—		28,299			—			—			—			28,299			—			28,299			—			—			28,299			—			—			28,299			—			28,299
Net loss		—		—		—			—			(148,990	)		—			(148,990	)		(436	)		(149,426	)
Net income (loss)																											—			—			—			—			(148,990	)		(148,990	)		(436	)		(149,426	)
Common stock issued in connection with Emeritus acquisition		47,584		476		1,648,306			—			—			—			1,648,782			—			1,648,782			47,584			476			1,648,306			—			—			1,648,782			—			1,648,782
Issuance of common stock from equity offering, net		10,299		103		330,283			—			—			—			330,386			—			330,386			10,299			103			330,283			—			—			330,386			—			330,386
Issuance of common stock under Associate Stock Purchase Plan		64		—		2,004			—			—			—			2,004			—			2,004			64			—			2,004			—			—			2,004			—			2,004
Restricted stock, net		1,364		14		(14	)		—			—			—			—			—			—			1,364			14			(14	)		—			—			—			—			—
Other		—		—		306			—			—			—			306			—			306			—			—			306			—			—			306			—			306
Balances at December 31, 2014		187,038	$	1,870	$	4,034,655		$	(46,800	)	$	(1,108,001	)	$	—		$	2,881,724		$	517		$	2,882,241			187,038			1,870			4,034,655			(46,800	)		(1,108,001	)		2,881,724			517			2,882,241
Compensation expense related to restricted stock grants																											—			—			31,651			—			—			31,651			—			31,651
Net income (loss)																											—			—			—			—			(457,477	)		(457,477	)		(678	)		(458,155	)
Issuance of common stock under Associate Stock Purchase Plan																											122			1			2,869			—			—			2,870			—			2,870
Restricted stock, net																											1,179			12			(12	)		—			—			—			—			—
Other																											—			—			120			—			—			120			—			120
Balances at December 31, 2015																											188,339			1,883			4,069,283			(46,800	)		(1,565,478	)		2,458,888			(161	)		2,458,727
Compensation expense related to restricted stock grants																											—			—			32,285			—			—			32,285			—			32,285
Net income (loss)																											—			—			—			—			(404,397	)		(404,397	)		(239	)		(404,636	)
Issuance of common stock under Associate Stock Purchase Plan																											172			2			2,347			—			—			2,349			—			2,349
Restricted stock, net																											2,396			24			(24	)		—			—			—			—			—
Purchase of treasury stock																											(750	)		(8	)		8			(9,640	)		—			(9,640	)		—			(9,640	)
Other																											(111	)		(1	)		(1,502	)		—			—			(1,503	)		150			(1,353	)
Balances at December 31, 2016																											190,046		$	1,900		$	4,102,397		$	(56,440	)	$	(1,969,875	)	$	2,077,982		$	(250	)	$	2,077,732

See accompanying notes to consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For the Years Ended December 31,									For the Years Ended December 31,
	2014			2013			2012			2016			2015			2014
Cash Flows from Operating Activities
Net loss	$	(149,426	)	$	(3,584	)	$	(66,467	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Debt modification and extinguishment costs		6,387			1,265			221
Net income (loss)										$	(404,636	)	$	(458,155	)	$	(149,426	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on extinguishment of debt, net											1,251			121			6,387
Depreciation and amortization, net		544,512			285,811			270,362			529,802			736,516			544,512
Asset impairment		9,992			12,891			27,677			248,515			57,941			9,992
Equity in (earnings) loss of unconsolidated ventures		(171	)		(1,484	)		3,488			(1,660	)		804			(171	)
Distributions from unconsolidated ventures from cumulative share of net earnings		1,840			2,691			1,507			23,544			7,825			1,840
Amortization of deferred gain		(4,372	)		(4,372	)		(4,372	)		(4,372	)		(4,372	)		(4,372	)
Amortization of entrance fees		(21,220	)		(29,009	)		(25,362	)		(4,195	)		(3,204	)		(21,220	)
Proceeds from deferred entrance fee revenue		32,704			44,191			40,105			13,980			11,113			32,704
Deferred income tax benefit		(182,371	)		(183	)		(525	)
Deferred income tax provision (benefit)											3,248			(95,261	)		(182,371	)
Change in deferred lease liability		1,439			2,597			6,668			767			6,956			1,439
Change in fair value of derivatives		2,711			(980	)		364			178			797			2,711
(Gain) loss on sale of assets		(446	)		(972	)		332
Loss on acquisition		—			—			636
Gain on facility lease termination		—			—			(11,584	)
Gain on sale of assets, net											(7,218	)		(1,270	)		(446	)
Change in future service obligation		670			(1,917	)		2,188			—			(941	)		670
Non-cash stock-based compensation		28,299			25,978			25,520			32,285			31,651			28,299
Non-cash interest expense on financing leases		12,647			—			—
Non-cash interest expense on financing lease obligations											26,496			23,472			12,647
Amortization of (above) below market rents, net		(3,444	)		—			—			(6,864	)		(7,158	)		(3,444	)
Other		—			—			(487	)		(9,137	)		(3,157	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		3,510			(5,449	)		(3,415	)		1,581			5,608			3,510
Prepaid expenses and other assets, net		(52,868	)		7,483			8,687			2,954			51,079			(52,868	)
Accounts payable and accrued expenses		16,812			33,837			4,854			(83,248	)		(60,564	)		16,812
Tenant refundable fees and security deposits		(1,183	)		(792	)		(1,547	)		(839	)		(524	)		(1,183	)
Deferred revenue		(3,370	)		(1,881	)		12,119			3,300			(6,911	)		(3,370	)
Net cash provided by operating activities		242,652			366,121			290,969			365,732			292,366			242,652
Cash Flows from Investing Activities
Increase in lease security deposits and lease acquisition deposits, net		(48,944	)		(2,051	)		(7,999	)
Decrease (increase) in cash and escrow deposits — restricted		56,935			10,726			(4,810	)
Purchase of marketable securities — restricted		—			—			(1,557	)
Sale of marketable securities — restricted		—			—			35,124
(Increase) decrease in lease security deposits and lease acquisition deposits, net											(2,225	)		10,866			(48,944	)
Decrease in cash and escrow deposits — restricted											5,027			29,286			56,935
Additions to property, plant and equipment, and leasehold intangibles, net		(304,245	)		(257,527	)		(208,412	)		(333,647	)		(411,051	)		(304,245	)
Acquisition of assets, net of related payables and cash received		(40,441	)		(34,686	)		(272,523	)		(12,157	)		(191,216	)		(40,441	)
Acquisition of Emeritus Corporation, cash acquired		28,429			—			—			—			—			28,429
Payments on notes receivable, net		3,269			168			131
Investment in unconsolidated ventures		(26,499	)		(17,172	)		(5,368	)		(13,377	)		(69,297	)		(26,499	)
Distributions received from unconsolidated ventures		12,275			1,600			350			218,973			9,054			12,275
Proceeds from sale of assets, net		4,339			34,136			9,243			297,932			49,226			4,339
Property insurance proceeds											9,137			3,157			—
Other		—			—			487			7,162			998			3,269
Net cash used in investing activities		(314,882	)		(264,806	)		(455,334	)
Net cash provided by (used in) investing activities											176,825			(568,977	)		(314,882	)
Cash Flows from Financing Activities
Proceeds from debt		326,639			662,934			372,291			387,348			585,650			326,639
Repayment of debt and capital and financing lease obligations		(584,345	)		(724,133	)		(191,835	)		(469,309	)		(485,762	)		(584,345	)
Proceeds from line of credit		442,000			425,000			375,000			1,276,500			1,175,000			442,000
Repayment of line of credit		(372,000	)		(475,000	)		(360,000	)		(1,586,500	)		(965,000	)		(372,000	)
Purchase of treasury stock											(9,640	)		—			—
Proceeds from public equity offering, net		330,386			—			—			—			—			330,386
Payment of financing costs, net of related payables		(9,393	)		(11,576	)		(5,563	)		(2,938	)		(32,622	)		(9,393	)
Refundable entrance fees:
Proceeds from refundable entrance fees		20,342			48,140			42,600			3,083			1,939			20,342
Refunds of entrance fees		(25,865	)		(35,325	)		(27,356	)		(3,984	)		(4,411	)		(25,865	)
Cash portion of loss on extinguishment of debt		(4,101	)		(502	)		(118	)		—			(44	)		(4,101	)
Payment on lease termination		(7,750	)		—			—			(9,250	)		(17,000	)		(7,750	)
Purchase of derivatives and payment of swap termination		—			(2,863	)		(1,908	)
Other		1,889			1,281			(342	)		501			2,807			1,889
Net cash provided by (used in) financing activities		117,802			(112,044	)		202,769
Net cash (used in) provided by financing activities											(414,189	)		260,557			117,802
Net increase (decrease) in cash and cash equivalents		45,572			(10,729	)		38,404			128,368			(16,054	)		45,572
Cash and cash equivalents at beginning of year		58,511			69,240			30,836			88,029			104,083			58,511
Cash and cash equivalents at end of year	$	104,083		$	58,511		$	69,240		$	216,397		$	88,029		$	104,083

See accompanying notes to consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Organization

Brookdale Senior Living Inc. ("Brookdale" or the "Company") is the leading operator of senior living communities throughout the United States. The Company is committed to providing senior living solutions primarily within properties that are designed, purpose-built and operated to provide the highest quality service, care and living accommodations for residents. The Company operates independent living, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through its ancillary services ~~program,~~programs, the Company also offers a range of outpatient therapy, home health ~~personalized living~~ and hospice ~~services.~~services to residents of many of its communities and to seniors living outside its communities.

2. Summary of Significant Accounting Policies

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles ("GAAP"). The significant accounting policies are summarized below:

Principles of Consolidation

The consolidated financial statements include the accounts of Brookdale and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Investments in affiliated companies that the Company does not control, but has the ability to exercise significant influence over governance and operation, are accounted for by the equity method. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying consolidated financial statements. Noncontrolling interest represents the share of consolidated entities owned by third parties. Noncontrolling interest is adjusted for the noncontrolling holder's share of additional contributions, distributions and the proportionate share of the net income or loss of each respective entity.

The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board ("FASB") ~~Accounting Standards Codification ("ASC")~~ASC 810, Consolidation ("ASC 810"). ASC 810 broadly defines a VIE as an entity ~~in which either (i)~~with one or more of the ~~equity investors as a group, if any, lack~~following characteristics: (a) the ~~power through voting or similar rights to direct the activities of such entity that most significantly impact such entity's economic performance or (ii) the~~total equity investment at risk is insufficient to finance ~~that~~the entity's activities without additional subordinated financial ~~support. The Company identifies~~support; (b) as a group, the ~~primary beneficiary of a VIE as the enterprise that has both~~holders of the ~~following characteristics:~~equity investment at risk lack (i) the ~~power~~ability to ~~direct the activities of the VIE that most significantly impact~~make decisions about the entity's ~~economic performance; and~~activities through voting or similar rights, (ii) the obligation to absorb the expected losses ~~or receive benefits~~ of the ~~VIE~~entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that ~~could potentially be significant~~are not proportional to their economic interests, and substantially all of the ~~entity.~~entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary ~~beneficiary.~~beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. Refer to Note 5 for more information about the Company's VIE relationships.

Use of Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, goodwill and asset impairments, self-insurance reserves, performance-based compensation, the allowance for doubtful accounts, depreciation and amortization, income taxes and other contingencies. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from the original estimates.

Revenue Recognition

Resident Fees

Resident fee revenue is recorded when services are rendered and consists of fees for basic housing and support services and fees associated with additional services such as assisted living care, skilled nursing care, ancillary services and personalized health ~~and assisted living care.~~services. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly in advance. Revenue for certain skilled nursing services and ancillary ~~charges~~services is recognized as services are provided, and issuch fees are billed monthly in arrears.

~~Entrance Fees~~

Certain of the Company's communities have residency agreements which require the resident to pay an upfront entrance fee prior to ~~occupying~~moving into the community. The non-refundable portion of the entrance fee is recorded as deferred revenue and amortized over the estimated stay of the resident based on an actuarial valuation. The refundable portion of a resident's entrance fee is generally refundable within a certain number of months or days following contract termination or upon the resale of the unit. The refundable portion of the fee is not amortized and is included in refundable entrance fees. All refundable amounts due to residents at any time in the future are classified as current liabilities. The Company contributed all but two of the entry fee CCRCs to an unconsolidated venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated. See Note 4 for more information about the unconsolidated venture.

Management Fees

Management fee revenue is recorded as services are provided to the owners of the communities. ~~Revenues~~Management fees are determined by an agreed upon percentage of gross revenues (as defined).

Reimbursed Costs Incurred on Behalf of Managed Communities

The Company manages certain communities under contracts which provide for payment to the Company of a monthly management fee plus reimbursement of certain operating expenses. Where the Company is the primary obligor with respect to any such operating expenses, the Company recognizes revenue when the goods have been delivered or the service has been rendered and the Company is due reimbursement. Such revenue is included in "reimbursed costs incurred on behalf of managed communities" on the consolidated statements of operations. The related costs are included in "costs incurred on behalf of managed communities" on the consolidated statements of operations.

Purchase Accounting

In determining the allocation of the purchase price of companies and communities to net tangible and identified intangible assets acquired and liabilities assumed, the Company makes estimates of fair value using information obtained as a result of pre-acquisition due diligence, marketing, leasing activities and/or independent appraisals. The Company ~~allocates~~assigned the purchase prices for companies or communities to assets acquired and liabilities assumed based on their determined fair values in accordance with the provisions of ASC 805, Business Combinations ("ASC 805"). The determination of fair value involves the use of significant judgment and estimation. The Company determines fair values as follows:

Working capital assets acquired and working capital liabilities assumed are valued on a carryover/cost basis which approximates fair value.

Property, plant and equipment are valued utilizing either a discounted cash flow projection of future revenue and costs and capitalization and discount rates using current market conditions, or a direct capitalization method. The Company allocates the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimated remaining lives of the buildings, not to exceed 40 years. The Company determines the allocated values of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciates such values over the assets' estimated remaining useful lives as determined at the applicable acquisition date. The Company determines the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analysis of recently acquired and existing comparable properties within its portfolio.

In connection with a business combination, the Company may assume rights and obligations under certain lease agreements pursuant to which the Company becomes the lessee of a given property. The Company assumes the lease classification previously determined by the prior lessee absent a modification in the assumed lease agreement. The Company assesses assumed operating leases, including ground leases, to determine whether the lease terms are favorable or unfavorable to the Company given current market conditions on the acquisition date. To the extent the lease terms are favorable or unfavorable relative to market conditions on the acquisition date, the Company recognizes an intangible asset or liability at fair value. The Company amortizes any acquired lease-related intangibles to facility lease expense over the remaining life of the associated lease plus any assumed bargain renewal periods.

The fair value of acquired lease-related intangibles associated with the relationship with the Company's residents, if any, reflects the estimated value of in-place leases as represented by the cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired space was vacant. The Company amortizes any acquired in-place lease intangibles to depreciation and amortization expense over the average remaining length of stay of the residents, which is evaluated on an acquisition by acquisition basis but is generally estimated at 12 months.

The Company estimates the fair value of purchase option intangible assets by discounting the difference between the applicable property's acquisition date fair value and the stated or anticipated future option price.

The Company estimates the fair value of trade names using a royalty rate methodology and amortizes that value over the estimated useful life of the trade name.

Management contracts and other acquired contracts are valued at a multiple of management fees and operating income or are valued utilizing discounted cash flow projections that assume certain future revenues and costs over the remaining contract term. The assets are then amortized over the estimated term of the agreement.

The Company calculates the fair value of acquired long-term debt by discounting the remaining contractual cash flows of each instrument at the current market rate for those borrowings, which the Company approximates based on the rate at which the Company would expect to incur a replacement instrument on the date of acquisition, and recognizes any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.

Capital lease assets are valued by the Company as a right-to-use asset. Financing lease assets are valued as if the Company owns the assets and thus are recorded at fair value. Capital and financing lease obligations are valued based on the present value of the estimated lease payments applying a discount rate equal to the Company's estimated incremental borrowing rate at the date of acquisition. Additionally, the valuation of financing lease obligations reflects a residual value component.

Preacquisition contingencies are valued when considered probable and reasonably estimable, and estimated legal fees are accrued for in accordance with the Company's existing policy. Self-insurance reserves including incurred but not reported liabilities are estimated by actuary analyses.

A deferred tax asset or liability is recognized at statutory rates for the difference between the book and tax bases of the acquired assets and liabilities. The tax bases of assets and liabilities in the Emeritus transaction were carried over at historical values.

The excess of the fair value of liabilities assumed and common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill, which is not amortized by the Company.

Deferred Financing Costs

Third-party fees and costs incurred to obtain long-term debt ~~and leases~~ are recorded ~~in other assets~~as a direct adjustment to the carrying value of debt and amortized on a straight-line basis, which approximates the effective yield method, over the term of the related ~~debt or lease.~~debt. Unamortized deferred financing fees are written-off if the associated debt is retired before the maturity date. Upon the refinancing of mortgage debt or amendment of the line of credit, unamortized deferred financing fees and additional financing costs incurred are accounted for in accordance with ASC 470-50, Debt Modifications and Extinguishments.

Income Taxes

Income taxes are accounted for under the asset and liability approach which requires recognition of deferred tax assets and liabilities for the differences between the financial reporting and tax bases of assets and liabilities. A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company has elected the "with-and-without approach" regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements and Disclosures establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Cash and cash equivalents and cash and escrow deposits – restricted are reflected in the accompanying consolidated balance sheets at amounts considered by management to reasonably approximate fair value due to the short maturity.

The Company's derivative assets include interest rate caps that effectively manage the risk above certain interest rates for a portion of the Company's variable rate debt. The derivative positions are valued using models developed internally by the respective counterparty that use as their basis readily observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy. The Company considers the credit risk of its counterparties when evaluating the fair value of its derivatives.

The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding debt (including the Company's secured credit facility but excluding capital and financing lease obligations) with a carrying value of approximately ~~$3.5~~$3.6 billion a~~nd $2.3~~and $3.9 billion as of December 31, ~~2014~~2016 and ~~2013, respectively. The Company had capital and financing lease obligations with a carrying value of $2.6 billion and $0.3 billion as of December 31, 2014 and December 31, 2013,~~2015, respectively. Fair value of the debt ~~and capital and financing lease obligations~~ approximates carrying value in all periods. The Company's fair value of debt disclosure is classified within Level 2 of the valuation hierarchy.

Cash and Cash Equivalents

The Company defines cash and cash equivalents as cash and investments with maturities of 90 days or less when purchased.

Cash and Escrow Deposits – Restricted

Cash and escrow deposits – restricted consist principally of deposits required by certain lenders and lessors pursuant to the applicable agreement and consist of the following (dollars in thousands):

	December 31,				December 31,
	2014		2013		2016		2015
Current:
Real estate tax escrows	$	17,926	$	9,252
Real estate tax and property insurance escrows					$	19,671	$	18,862
Replacement reserve escrows		15,535		9,139		6,970		8,011
Resident deposits		1,054		8,249		764		862
Other		4,347		11,551		5,459		4,835
Subtotal		38,862		38,191		32,864		32,570
Long term:
Letter of credit collateral		21,935		19,975
Insurance deposits		19,299		11,227		12,941		15,318
CCRC escrows		13,214		26,209		13,301		13,233
Debt service reserve		1,728		—		1,819		3,429
Letter of credit collateral						—		1,202
Other		200		200		—		200
Subtotal		56,376		57,611		28,061		33,382
Total	$	95,238	$	95,802	$	60,925	$	65,952

Accounts Receivable, net

Accounts receivable are reported net of an allowance for doubtful accounts, to represent the Company's estimate of the amount that ultimately will be realized in cash. The allowance for doubtful accounts was ~~$26.5~~$27.0 million and ~~$17.7~~$26.5 million as of December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. 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.

Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any, under reimbursement programs. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicare or Medicaid are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent ~~positive or negative~~ adjustments to these accrued amounts are recorded in net revenues when known.

Assets Held for Sale

The Company designates communities as held for sale when it is probable that the properties will be sold within one year. The Company records these assets on the consolidated balance sheet at the lesser of the carrying value and fair value less estimated selling costs. If the carrying value is greater than the fair value less the estimated selling costs, the Company records an impairment charge. The Company allocates a portion of the goodwill of a reporting unit to the disposal if the disposal constitutes a business. The Company determines the fair value of the communities based primarily on purchase and sale agreements from prospective purchasers (Level 2 input). The Company evaluates the fair value of the assets held for sale each period to determine if it has changed. The long-lived assets are not depreciated while classified as held for sale.

Property, Plant and Equipment and Leasehold Intangibles

Property, plant and equipment and leasehold intangibles, which include amounts recorded under capital and financing leases, are recorded at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, which are as follows:

Asset Category		Estimated Useful Life (in years)
Buildings and improvements		40
Furniture and equipment		3 – 7
Resident lease intangibles		1 – 43

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and improvements, which improve and/or extend the useful life of the asset, are capitalized and depreciated over their estimated useful life or if the renovations or improvements are made with respect to communities subject to an operating lease, over the shorter of the estimated useful life of the renovations or improvements, or the term of the operating lease. Assets under capital and financing leases and leasehold improvements are depreciated over the shorter of the estimated useful life of the assets or the term of the lease. Facility operating expense excludes depreciation and amortization directly attributable to the operation of the facility.

Long-lived assets ~~(groups)~~ are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets held for use are assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the ~~asset.~~asset, 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 value, with any amount in excess of fair value recognized as an expense in the current period. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods and estimated capitalization ~~rates.~~rates (Level 3).

Goodwill and Intangible Assets

The Company follows ASC 350, Goodwill and Other Intangible Assets, and tests goodwill for impairment annually or whenever indicators of impairment arise. Factors the Company considers important in the analysis of whether an indicator of impairment exists, which could trigger an impairment of goodwill in the future, include a significant decline in the Company's stock price for a sustained period since the last testing date, a decline in the Company's market capitalization below net book value, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. The Company first assesses qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The quantitative goodwill impairment test is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying value. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of estimates and assumptions such as revenue and expense growth rates, capitalization rates and discount rates.

Acquired intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and all intangible assets are reviewed for impairment if indicators of impairment arise. The evaluation of impairment for definite-lived intangibles is based upon a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. 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 intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period.

Indefinite-lived intangible assets are not amortized but are tested for impairment annually during the fourth quarter or more frequently as required. The impairment test consists of a comparison of the estimated fair value of the indefinite-lived intangible asset with its carrying value. If the carrying amount exceeds its fair value, an impairment loss is recognized for that difference.

Amortization of the Company's definite-lived intangible assets is computed using the straight-line method over the estimated useful lives of the assets, which are as follows:

Asset Category		Estimated Useful Life (in years)
Trade names		2 -– 5
Other		3 – 9

Stock-Based Compensation

The Company follows ASC 718, Compensation - Stock Compensation ("ASC 718") in accounting for its share-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee's requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date are recognized when incurred.

Certain of the Company's employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company's determination of the amount of stock compensation expense requires a significant level of judgment in estimating the probability of achievement of these performance targets. Additionally, the Company must make estimates regarding employee forfeitures in determining compensation expense. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

For all share-based awards with graded vesting other than awards with performance-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis (or, if applicable, on the accelerated method) over the requisite service period. For graded-vesting awards with performance-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 quarterly. 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.

Convertible Debt Instruments

Convertible debt instruments are accounted for under ASC 470-20, Debt – Debt with Conversion and Other Options. This guidance requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion, including partial cash settlement, to separately account for the liability (debt) and equity (conversion option) components of the instruments in a manner that reflects the issuer's estimated non-convertible debt borrowing rate.

Self-Insurance Liability Accruals

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the Company maintains general liability and professional liability insurance policies for its owned, leased and managed communities under a master insurance program, the Company's current policies provide for deductibles for each and every claim. As a result, the Company is, in effect, self-insured for claims that are less than the deductible amounts. In addition, the Company maintains a high deductible workers compensation program and a self-insured employee medical program.

The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel and industry data, and adjusts accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored, and estimates are updated as information isbecomes available.

During the year ended December 31, 2016, the Company reduced its estimate for the amount of expected losses for general liability and professional liability and workers compensation claims, based on recent historical claims experience. As a result, the Company decreased the accrued reserves for general liability and professional liability and workers compensation claims by $22.7 million and $12.7 million, respectively, during the year ended December 31, 2016. The reduction in these accrued reserves decreased facility operating expense by $35.4 million for the year ended December 31, 2016.

Investment in Unconsolidated Ventures

In accordance with ASC 810, Consolidation, the general partner or managing member of a venture consolidates the venture unless the limited partners or other members have either (1) the substantive ability to dissolve the venture or otherwise remove the general partner or managing member without cause or (2) substantive participating rights in significant decisions of the venture, including authorizing operating and capital decisions of the venture, including budgets, in the ordinary course of business. The Company has reviewed all ventures where it is the general partner or managing member and has determined that in all cases the limited partners or other members have substantive participating rights such as those set forth above and, therefore, nonone of these ventures are consolidated.

The initial carrying value of investments in unconsolidated ventures is based on the amount paid to purchase the investment interest or the carrying value of assets contributed to the unconsolidated ventures. The Company's reported share of earnings of an unconsolidated venture is adjusted for the impact, if any, of basis differences between its carrying value of the equity investment and its share of the venture's underlying assets.

Distributions received from an investee are recognized as a reduction in the carrying amount of the investment. If distributions are received from an investee that would reduce the carrying amount of an equity method investment below zero, the Company evaluates the facts and circumstances of the dividends to determine the appropriate accounting for the excess distribution, including an evaluation of the source of the proceeds and implicit or explicit commitments to fund the investee. The excess distribution is either recorded as a gain on investment, or in instances where the source of proceeds is from financing activities or the Company ~~generally~~has a significant commitment to fund the investee, the excess distribution would result in an equity method liability and the Company would continue to record its share of the investee's earnings and losses. When the Company does not have ~~future requirements~~a significant requirement to contribute additional capital over and above the original capital ~~commitments,~~commitment and ~~therefore,~~the carrying value of the investment in unconsolidated venture is reduced to zero, the Company discontinues applying the equity method of accounting ~~when its investment is reduced to zero barring~~unless the venture has an expectation of an imminent return to profitability. If the venture subsequently reports net income, the equity method of accounting is resumed only after the Company's share of that net income equals the share of net losses not recognized during the period the equity method was suspended.

The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances indicate that the Company's investment is other than temporarily impaired. A current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. If the Company determines that an equity method investment is other than temporarily impaired, it is recorded at its fair value with an impairment charge recognized in asset impairment expense for the difference between its carrying amount and fair value.

Community Leases

The Company, as lessee, makes a determination with respect to each of its community leases as to whether each should be accounted for as an operating lease or capital lease. The classification criteria is based on estimates regarding the fair value of the leased community, minimum lease payments, effective cost of funds, the economic life of the community and certain other terms in the lease agreements. In a business combination, the Company assumes the lease classification previously determined by the prior lessee absent a modification, as determined by ASC 840, Leases ("ASC 840"), in the assumed lease agreement. Payments made under operating leases are accounted for in the Company's consolidated statements of operations as lease expense for actual rent paid plus or minus a straight-line adjustment for estimated minimum lease escalators and amortization of deferred gains in situations where sale-leaseback transactions have occurred.

For communities under capital lease and lease financing obligation arrangements, a liability is established on the Company's consolidated balance sheets representing the present value of the future minimum lease payments and a residual value for financing leases and a corresponding long-term asset is recorded in property, plant and equipment and leasehold intangibles in the consolidated balance sheets. For capital lease assets, the asset is depreciated over the remaining lease term unless there is a bargain purchase option in which case the asset is depreciated over the useful life. For financing lease assets, the asset is depreciated over the useful life of the asset. Leasehold improvements purchased during the term of the lease are amortized over the shorter of their economic life or the lease term.

All of the Company's leases contain fixed or formula-based rent escalators. To the extent that the escalator increases are tied to a fixed index or rate, lease payments are accounted for on a straight-line basis over the life of the lease. In addition, all rent-free or rent holiday periods are recognized in lease expense on a straight-line basis over the lease term, including the rent holiday period.

Sale-leaseback accounting is applied to transactions in which an owned community is sold and leased back from the ~~buyer.~~buyer if certain continuing involvement criteria are met. Under sale-leaseback accounting, the Company removes the community and related liabilities from the consolidated balance sheets. Gain on the sale is deferred and recognized as a reduction of facility lease expense for operating leases and a reduction of interest expense for capital leases.

For leases in which the Company is involved with the construction of the building, the Company accounts for the lease during the construction period under the provisions of ASC 840. If the Company concludes that it has substantively all of the risks of ownership during construction of a leased property and therefore is deemed the owner of the project for accounting purposes, it records an asset and related financing obligation for the amount of

total project costs related to construction in progress. Once construction is complete, the Company considers the requirements under ASC 840-40. If the arrangement qualifies for sale-leaseback accounting, the Company removes the assets and related liabilities from the consolidated balance sheets. If the arrangement does not qualify for sale-leaseback accounting, the Company continues to amortize the financing obligation and depreciate the assets over the lease term.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders' equity.

New Accounting Pronouncements

In January ~~2015,~~2017, the FASB issued ~~Accounting Standards Update~~ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment ("~~ASU") No. 2015-01,~~ ~~Simplifying Income Statement—Presentation by Eliminating the Concept of Extraordinary Items~~ ("ASU ~~2015-01"~~2017-04"). ASU ~~2015-01 is intended to reduce complexity and cost of compliance with GAAP by eliminating~~2017-04 removes Step 2 from the ~~concept of extraordinary items in the statement of operations.~~goodwill impairment test. The amendments are effective for annual or any interim goodwill impairment tests in ~~this update~~fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact the adoption of ASU 2017-04 will have on its consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 provides a criteria to determine when an integrated set of assets and activities (a "set") is not a business and narrows the definition of the term output so that it is consistent with the description of outputs in Topic 606. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2015,~~2017 and early adoption is only permitted for transactions that have not been reported in financial statements that have been issued or made available for issuance. The Company is currently evaluating the impact the adoption of ASU 2017-01 will have on its consolidated financial statements and disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, a consensus of the FASB Emerging Issues Task Force ("ASU 2016-18"). ASU 2016-18 intends to address the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. The Company ~~plans~~is currently evaluating the impact the adoption of ASU 2016-18 will have on its consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows-Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 clarifies how cash receipts and cash payments in certain transactions are presented in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have 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 ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 is intended to simplify the accounting for share-based payment transactions, including the accounting for income taxes and forfeitures, as well as the classification of awards and classification on the statement of cash flows. The updated guidance also requires the recognition of excess tax benefits within the provision for income taxes within the statements of operations rather than within stockholders' equity in the consolidated balance sheet. The Company will adopt ~~ASU 2015-01 effective~~this standard on January 1, 2017. The Company expects to adopt the new standard on a prospective basis and record a cumulative effect adjustment within the condensed consolidated statement of equity as of January 1, 2017. The Company has concluded that the adoption of ASU 2016-09 will not have an impact with regards to the application to the Company's accounting for income taxes on its consolidated balance sheet as of January 1, 2017. Additionally, upon adoption of ASU 2016-09, the Company will account for forfeitures as they occur and this will necessitate more non-cash stock-based compensation earlier in the life of a granted equity instrument and subsequent reversal of expense as forfeitures occur.

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 amends the existing accounting principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability on the balance sheet for most leases. Additionally, ASU 2016-02 makes targeted changes to lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements and disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted ASU 2015-02 on January 1, 2016, and it isdid not ~~expected to~~ have a material impact on the Company's consolidated financial statements and disclosures.

In August 2014, the FASB issued ASU No. 2014-15,, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern(" ("ASU 2014-15"). ASU 2014-15 defines management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. The Company adopted ASU 2014-15 ~~is effective for the Company beginning in~~during the fourth quarter of ~~2016. The Company is currently evaluating~~2016, and it did not have a material impact on the ~~impact that the adoption of ASU 2014-15 will have on its~~Company's consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers(" ("ASU 2014-09"). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. ~~Under~~The five step model defined by ASU 2014-09 ~~an entity will~~requires the Company to (i) identify the contracts with the customer, (ii) identify the performance obligations in the contact, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when ~~it transfers~~each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to ~~customers~~the customer in an amount that reflects ~~what it expects~~the consideration expected in exchange for ~~the~~those goods or services. ASU 2014-09 may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). ASU 2014-09, as amended, is effective for the Company's fiscal year beginning January 1, 2018, and, at that time, the Company inexpects to adopt the ~~first quarter~~new standard under the modified retrospective approach. Under the modified retrospective approach, the guidance is applied to the most current period presented, recognizing the cumulative effect of ~~2017.~~the adoption change as an adjustment to beginning retained earnings. The Company ~~is currently evaluating~~continues to evaluate the impact the adoption of ASU 2014-09 will have on its consolidated financial statements and disclosures. The evaluation includes identifying revenue streams by like contracts to allow for ease of implementation. In addition, the Company is monitoring specific developments for the senior living industry and evaluating potential changes to our business processes, systems, and controls to support the recognition and disclosure under the new standard. Preliminary conclusions based upon procedures to-date include the following:

~~In April 2014,~~

Resident Fees: The Company does not anticipate that the ~~FASB issued ASU No. 2014-08,~~ ~~Reporting Discontinued Operations~~adoption of 2014-09 will result in a significant change to the amount and ~~Disclosures~~timing of ~~Disposals~~the recognition of ~~Components~~resident fee revenue.

Management Fees and Reimbursed Costs Incurred on Behalf of ~~an Entity~~Managed Communities ~~("ASU 2014-08"). ASU 2014-08 changes~~: The Company manages certain communities under contracts which provide for payment to the ~~definition~~Company of a ~~discontinued operation to include only those disposals~~monthly management fee plus reimbursement of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. ASU 2014-08 is effective prospectively for fiscal years beginning after December 15, 2014 and is available for early adoption as of January 1, 2014.certain operating expenses. The Company ~~adopted~~does not anticipate that there will be any significant change to the ~~provisions~~amount and timing of ~~ASU 2014-08 as~~revenue recognized for these monthly management fees. Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of ~~January 1, 2014 and incorporated~~certain metrics identified in the ~~provisions of this update to its consolidated financial statements upon adoption. The~~contract. Upon adoption of ASU ~~2014-08 did not have a material~~2014-09, the Company anticipates that incentive fee revenue may be recognized earlier during the annual contract period. The Company is still evaluating the performance obligations and assessing the transfer of control for each operating service identified in the contracts, which may impact the amount of revenue recognized for reimbursed costs incurred on behalf of managed communities with no net impact to the amount of income from operations.

Equity in Earnings (Loss) of Unconsolidated Ventures: Certain of the Company's ~~financial condition or results of operations.~~

~~In July 2013, the FASB issued ASU No. 2013-11,~~ ~~Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists~~ ("ASU 2013-11"). ASU 2013-11 changes the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting dateunconsolidated ventures accounted for under the ~~tax law~~equity method have residency agreements which require the resident to pay an upfront entrance fee prior to moving into the community and a portion of the ~~applicable jurisdiction to settle any additional income taxes that would result from~~upfront entrance fee is non-refundable. The Company's unconsolidated ventures are still evaluating the ~~disallowance~~impact of ~~a tax position, or (ii)~~ the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The Company adopted the provisions of this update as of January 1, 2014 and incorporated the provisions of this update in its consolidated financial statements upon adoption. The adoption of ASU ~~2013-11 did not have a material~~2014-09, which may impact the recognition of equity in earnings of unconsolidated ventures.

Additionally, real estate sales with customers are within the scope of ASU 2014-09. Under ASU 2014-09 the revenue recognition for real estate sales is largely based on the ~~Company's financial condition or results~~transfer of ~~operations.~~control versus continuing involvement under the current guidance. As a result, more transactions may qualify as sales of real estate and revenue may be recognized sooner. The Company will apply the five step revenue model to all future real estate transaction with customers.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's consolidated financial position or results of operations.

8991

3. Earnings Per Share

Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units and convertible debt instruments and warrants.

During ~~fiscal~~the years ended December 31, 2016, 2015 and 2014, ~~2013 and 2012,~~ the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock, restricted stock ~~unit awards~~units and convertible debt instruments and warrants were antidilutive for each year and were not included in the computation of diluted weighted average shares. The weighted average restricted stock and restricted stock ~~unit awards~~units excluded from the calculations of diluted net loss per share were ~~3.6~~4.3 million, ~~3.9~~3.7 million and ~~4.5~~3.6 million for the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012,~~2014, respectively.

The calculation of diluted weighted average shares excludes the impact of conversion of the outstanding principal amount of $316.3 million of the Company's 2.75% convertible senior notes due June 15, 2018. As of December 31, ~~2014, 2013~~2016, 2015 and ~~2012,~~2014, the maximum number of shares issuable upon conversion of the notes is approximately 13.8 million (after giving effect to additional make-whole shares issuable upon conversion in connection with the occurrence of certain events); however it is the Company's current intent and policy to settle the principal amount of the notes in cash upon conversion. The maximum number of shares issuable upon conversion of the notes in excess of the amount of principal that would be settled in cash is approximately 3.0 million.

In addition, the calculation of diluted weighted average shares excludes the impact of the exercise of warrants to acquire the Company's common stock. As of December 31, ~~2014, 2013~~2016, 2015 and ~~2012,~~2014, the number of shares issuable upon exercise of the warrants was approximately 10.8 million. See Note 8 for more information about the 2.75% convertible notes and warrants.

4. Acquisitions, Dispositions and Other Significant Transactions

2016 Dispositions of Owned Communities

The Company began 2016 with 17 of its owned communities classified as held for sale as of December 31, 2015. During the year ended December 31, 2016, the Company entered into agreements to sell an additional 51 communities and completed the dispositions of 51 owned communities. These transactions are summarized below.

During the three months ended March 31, 2016, the Company sold seven of the 17 communities held for sale as of December 31, 2015 for an aggregate sales price of $46.7 million. The results of operations of these communities are reported in the Assisted Living and CCRCs – Rental segments within the consolidated financial statements through the respective disposition dates. The remaining 10 communities were classified as held for sale as of December 31, 2016.

During the three months ended June 30, 2016, the Company entered into an agreement with a third party to sell a 12-state portfolio of 44 owned communities for an aggregate sales price of $252.5 million. During the three months ended September 30, 2016, the Company sold 32 of these communities for an aggregate sales price of $177.5 million. During the three months ended December 31, 2016, the Company sold nine of these communities for an aggregate sales price of $47.7 million. The results of operations of these 41 communities are reported within the Assisted Living segment within the consolidated financial statements through the respective disposition dates. During the three months ended December 31, 2016, the agreement was amended to remove one community from the portfolio, and the aggregate sales price of the portfolio was decreased by $4.7 million. The remaining two communities within the portfolio were classified as held for sale as of December 31, 2016.

During 2016, the Company identified seven additional owned communities as held for sale. During the three months ended December 31, 2016, the Company sold three of these communities for an aggregate sales price of $33.0 million. The results of operations of these three communities are reported in the Assisted Living, CCRCs – Rental and Retirement Center segments through the respective disposition dates. The remaining four communities were classified as held for sale as of December 31, 2016.

As of December 31, 2016, $97.8 million was recorded as assets held for sale and $60.5 million of mortgage debt was included in the current portion of long-term debt within our consolidated balance sheet with respect to the 16 communities held for sale as of such date. This debt will either be repaid with the proceeds from the sales or be assumed by the prospective purchasers. The results of operations of the 16 communities are reported in the following segments within the consolidated financial statements: Assisted Living (13 communities) and CCRCs – Rental (three communities). The 16 communities had resident fee revenue of $47.2 million and facility operating expenses of $42.0 million for the year ended December 31, 2016. During the year ended December 31, 2016, the Company recognized $15.8 million of impairment expense related to assets held for sale, primarily due to the excess of carrying value, including allocated goodwill, over the estimated selling price less costs to dispose.

2016 Dispositions and Restructurings of Leased Communities

On November 1, 2016, the Company announced that it had entered into agreements to, among other things, terminate triple-net leases with respect to 97 communities, four of which would be contributed to an existing unconsolidated venture in which the Company holds an equity interest and 64 of which would be owned by a venture in which the Company expects to acquire a non-controlling interest. The transactions include the following components:

HCP, Inc. ("HCP") and affiliates of Blackstone Real Estate Advisors VIII L.P. (collectively, "Blackstone") entered into an agreement pursuant to which HCP has agreed to sell 64 communities—which are currently leased to the Company and have a remaining average lease term of approximately 12 years—to Blackstone for a purchase price of $1.125 billion (the "HCP Sale Transaction"). Separately, the Company entered into an agreement with Blackstone pursuant to which the Company has agreed to form a venture (the "Blackstone Venture") into which Blackstone will contribute the 64 communities and into which the Company expects to contribute a total of approximately $170.0 million to purchase a 15% equity interest, terminate the leases, and fund its share of anticipated closing costs and working capital. Following closing, the Company will manage the communities on behalf of the venture. The Company expects the Blackstone Venture transactions to close during the three months ended March 31, 2017. The results of operations of the 64 communities are reported in the following segments within the consolidated financial statements: Assisted Living (48 communities), Retirement Centers (nine communities) and CCRCs-Rental (seven communities). The 64 communities had resident fee revenue of $264.7 million, facility operating expenses of $182.0 million and cash lease payments of $88.4 million for the year ended December 31, 2016.

The Company and HCP agreed to terminate triple-net leases with respect to eight communities. HCP agreed to contribute immediately thereafter four of such communities to an existing unconsolidated venture with HCP in which the Company has a 10% equity interest. During the three months ended December 31, 2016, the triple-net leases with respect to seven communities were terminated and HCP contributed four of the communities to the existing unconsolidated venture. The triple-net lease with respect to the remaining community was terminated during January 2017. The results of operations of the eight communities are reported in the following segments within the consolidated financial statements: Assisted Living (six communities), Retirement Centers (one community) and CCRCs-Rental (one community). The eight communities had resident fee revenue of $41.1 million, facility operating expenses of $30.6 million and cash lease payments of $11.3 million for the year ended December 31, 2016.

The Company and HCP agreed to terminate triple-net leases with respect to 25 communities, which the Company expects to occur in stages through the end of fiscal 2017 (the "HCP Termination Transactions"). During the three months ended December 31, 2016, the Company and HCP amended the leases with respect to these 25 communities to shorten the term of the leases to facilitate the HCP Termination Transactions, with the term with respect to each such community to end on the earlier of October 31, 2017 and the date on which such community is sold or the operations of such community are transferred, at the direction of HCP, to a third party tenant or operator. As a result of the agreement to amend and terminate the community lease agreements for these 25 communities, the Company recorded an $11.1 million loss on facility lease termination within the consolidated statement of operations for the year ended December 31, 2016. The results of operations of the 25 communities are reported in the following segments within the consolidated financial statements: Assisted Living (23 communities) and CCRCs-Rental (two communities). The 25 communities had resident fee revenue of $72.2 million, facility operating expenses of $58.6 million and cash lease payments of $18.9 million for the year ended December 31, 2016.

The transactions related to the Blackstone Venture may require the Company to record a significant charge in fiscal 2017 for the amount by which the initial carrying value of the investment in the Blackstone Venture exceeds its fair value. The initial carrying value of the investment in the Blackstone Venture would be based on the total of the approximately $170.0 million of cash expected to be contributed to purchase the equity interest and the carrying value of the Company's assets and liabilities under operating and capital and financing leases expected to be contributed by the Company and deconsolidated from the Company's consolidated financial statements. As of December 31, 2016, the carrying value of the lease obligations for the 64 communities exceed the carrying value of the assets under operating and capital and financing leases by approximately $107.0 million. In connection with these contributions, for accounting purposes, if the approximately $63.0 million net contribution amount exceeds the fair value of the Company's anticipated 15% interest in the Blackstone Venture, a charge may be required for the excess amount upon closing of the Blackstone Venture. Additionally, it is expected that these transactions related to the Blackstone Venture may require the Company to record a significant increase to the Company's existing tax valuation allowance, after considering the change in the Company's future reversal of estimated timing differences resulting from these transactions, mainly caused by removing the deferred positions related to the contributed leases. The Company has recorded valuation allowances of $264.3 million at December 31, 2016 against its $369.5 million of federal and state net operating carryforwards and tax credits as the Company anticipates these losses will not be utilized prior to expiration. The actual amount of charges related to the transactions related to the Blackstone Venture and the increase to the valuation allowance will be determined following the closing of the Blackstone Venture.

Asset Impairment

The following is a summary of the asset impairment expense (dollars in millions):

	For the Years Ended December 31,
	2016		2015		2014
Property, plant and equipment and leasehold intangibles, net (Note 6)	$	166.2	$	23.4	$	10.0
Investment in unconsolidated ventures (Note 5)		36.8		—		—
Other intangible assets, net (Note 7)		29.7		0.9		—
Assets held for sale		15.8		33.6		—
Asset impairment	$	248.5	$	57.9	$	10.0

During the three months ended December 31, 2016, asset impairment expense includes $151.3 million of charges for property, plant and equipment and leasehold intangibles, $36.8 million of charges for investments in unconsolidated ventures, $29.7 million of charges for other intangible assets and $4.1 million of charges for assets held for sale.

2015 Community Acquisitions

On December 29, 2014, the Company exercised its purchase option under the Master Lease (as defined below) with HCP. As a result, the Company agreed to purchase the fee simple interest of nine communities previously leased to the Company for an aggregate purchase price of $60.0 million. On December 31, 2014, the Company paid the full purchase price of $51.4 million of cash as a deposit for the purchase of eight of the nine communities, and the Company took title to these eight communities at the closing on January 1, 2015. On May 1, 2015, the Company acquired the ninth community and paid the remainder of the purchase price of $8.6 million of cash. The results of operations of these communities are reported in the Assisted Living and CCRCs - Rental segments within the consolidated financial statements.

In February 2015, the Company acquired the underlying real estate associated with 15 communities that were previously leased for an aggregate purchase price of $268.6 million. The results of operations of these communities are reported in the Retirement Centers, Assisted Living, and CCRCs – Rental segments within the consolidated financial statements for the year ended December 31, 2015. The Company financed the transaction with cash on hand, amounts drawn on the secured credit facility and $20.0 million of seller financing. The $20.0 million note has a five year term and bears interest at a fixed rate of 8.0%. The fair value of the communities acquired was determined to approximate $187.2 million. The fair values of the property, plant and equipment of the acquired communities were determined utilizing a direct capitalization method considering stabilized facility operating income and market capitalization rates. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 3 measurements within the fair value hierarchy. The range of capitalization rates utilized was 6.25% to 8.75%, depending upon the property type, geographical location, and the quality of the respective community. The Company recorded the difference between the amount paid and the estimated fair value of the communities acquired ($76.1 million) as a loss on facility lease termination on the consolidated statement of operations for the year ended December 31, 2015, which includes the reversal of $5.3 million of deferred lease liabilities associated with the termination of the operating lease agreements. The payment for the termination of the lease agreements has been included within net cash provided by operating activities within the consolidated statement of cash flows for the year ended December 31, 2015.

In October 2015, the Company acquired the underlying real estate associated with five communities that were previously leased for an aggregate purchase price of $78.4 million. The results of operations of these communities are reported in the Assisted Living segment. The Company financed the transaction with seller-financing.

2015 Dispositions of Owned Communities

During the year ended December 31, 2015, the Company sold 17 communities for an aggregate selling price of $82.9 million. The results of operations of the communities are reported in the Retirement Centers, Assisted Living, and CCRCs - Rental segments within the consolidated financial statements through the respective disposition dates. As of December 31, 2015, the Company identified 17 communities as held for sale. As of December 31, 2015, $110.6 million was recorded as assets held for sale and $60.8 million of mortgage debt related to communities held for sale was included in the current portion of long-term debt within the Company's consolidated balance sheet. During the year ended December 31, 2015, the Company recognized $18.4 million of impairment expense related to communities sold in 2015 and $15.2 million of impairment expense related to communities identified as assets held for sale as of December 31, 2015, primarily due to the excess of carrying value, including allocated goodwill, over the estimated selling price less costs to dispose.

2014 Acquisition of Emeritus

On July 31, 2014, the Company completed the merger contemplated by that certain Agreement and Plan of Merger, dated as of February 20, ~~2014, (the "Merger Agreement")~~2015, by and among Emeritus Corporation ("Emeritus"), the Company, and Broadway Merger Sub Corporation, a wholly-owned subsidiary of the Company ("Merger Sub"), pursuant to which Merger Sub merged with and into Emeritus, with Emeritus continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the "Merger"). Prior to the Merger, Emeritus was a senior living service provider focused on operating residential style communities throughout the United States. As of July 31, 2014 Emeritus operated 493 communities, including assisted living and dementia care communities. Many of these communities offer independent living alternatives and, to a ~~lessor~~lesser extent, skilled nursing care. As of July 31, 2014, Emeritus owned 182 communities and leased 311 communities. Prior to the Merger, Emeritus also offered a range of outpatient therapy and home health services in Florida, Arizona and Texas.

For accounting purposes, the Merger was accounted for by the Company as a purchase. The results of Emeritus' operations have been included in the consolidated financial statements subsequent to July 31, 2014. Revenue and loss from operations of Emeritus included in the Company's consolidated statements of operations for the year ended December 31, 2014 were $785.5 million and $128.2 million, respectively.

The aggregate acquisition-date fair value of the consideration transferred in the Merger was approximately $3.0 billion which consisted of the issuance of 47.6 million shares of the Company's common stock with a fair value of approximately $1.6 billion upon the cancellation of all shares of Emeritus' common stock and stock options, as well as the Company's assumption of approximately $1.4 billion aggregate principal amount of existing mortgage indebtedness of Emeritus. The fair value of the 47.6 million common shares issued was determined based on the closing market price of the Company's common shares on July 31, 2014, the effective date of the Merger.

As a result of the acquisition of Emeritus, the Company acquired, directly or indirectly, entities that ~~are~~were lessees under operating and capital leases covering 311 communities, as well as certain other leases such as office leases and leases associated with Emeritus' Nurse on Call home health business. The community leases contain customary terms, including assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants. In connection with the Merger, the Company entered into guarantees of certain of these leases.

The $1.4 billion aggregate principal amount of existing mortgage debt assumed, directly or indirectly, by the Company in the Merger iswas collateralized by a total of 179 underlying communities, ~~bears~~bore interest either at fixed rates at a weighted average of 6.06% per annum or at variable rates at a weighted average of 5.49% per annum (in each case, as of July 31, 2014), and had remaining maturities ranging from approximately three months to 33 years. The mortgage loans ~~contain~~contained customary terms including assignment and change of control restrictions, acceleration provisions and financial covenants. In connection with the Merger, the Company entered into guarantees of certain of these debt arrangements.

Emeritus maintained general and professional liability coverage for its owned, leased and managed communities under insurance policies that provided for self-insured retention. In certain historical periods Emeritus was uninsured for a subset of communities. In addition, it maintained a large-deductible workers compensation and a self-insured employee medical program. Emeritus accrued for claims under these three programs and therefore maintained reserves for liabilities related thereto. The Company acquired these liabilities as a result of the Merger, evaluated the adequacy of Emeritus' insurance reserves by reviewing historical claims, investigating claim files with assistance from Emeritus' third party administrators and other consultants, reviewing Emeritus' historical actuarial reports, and obtaining new actuarial valuations for claims incurred but not paid as of the date of the Merger. The Company also acquired tail insurance to provide coverage for general and professional liability claims incurred before the Merger date but made after, and maintains reserves for deductibles payable under the tail policies.

~~On June 4, 2013, in~~ ~~Joan Boice et al. v. Emeritus Corporation et al.~~, the Sacramento County Superior Court entered final judgment in favor of Joan Boice (deceased) and against Emeritus in the amount of $250,000 in compensatory damages and $23.0 million in punitive damages. Judgment was also entered in favor of Joan Boice's three adult children for $250,000 and the court awarded the plaintiffs' lawyer over $4.1 million in attorneys' fees. The judgment accrues interest at prescribed statutory rates. On July 8, 2013, Emeritus filed a Notice of Appeal challenging, among other things, the excessive nature of the punitive damages award. Emeritus was required to post a bond in connection with its appeal, and made a cash deposit in the amount of $20.9 million to collateralize the bond. The amount of the cash deposit and the reserve regarding the judgment have been contemplated in the preliminary purchase price allocation. Subsequent to the closing of the Merger, the Company was no longer required to collateralize the bond with a cash deposit.

The fair values of the acquired property, plant and equipment, including communities and assets under capital and financing leases, were determined utilizing a direct capitalization method considering stabilized facility operating income and market capitalization rates. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 3 measurements within the fair value hierarchy. The range of capitalization rates utilized was 5.5% to 9.75%, depending upon the property type, geographical location, and the quality of the respective community.

The fair values of the acquired capital and financing lease obligations were determined utilizing a discounted cash flow approach considering the estimated contractual lease payments and a market discount rate. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 3 measurements within the fair value hierarchy. The range of discount rates utilized was 6.0% to 10.75%, depending upon the remaining lease term, property type, geographical location, and the quality of the respective community.

The fair values of the acquired long-term debt obligations were determined utilizing a discounted cash flow approach considering the estimated contractual long-term debt payments and a market discount rate. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 2 measurements within the fair value hierarchy. The range of discount rates utilized was 3.0% to 7.0%, depending upon the remaining debt term and collateral securing the indebtedness.

The table below presents at the ~~time of the filing of this report, a preliminary~~ allocation of purchase price to the assets acquired and liabilities assumed (in millions):


Cash and cash equivalents	$	28		$	28
Property, plant and equipment and leasehold intangibles		5,506			5,506
Goodwill		639			645
Other intangible assets, net		259			259
Other assets, net		308			307
Trade accounts payable and accrued expenses		(297	)		(297	)
Long-term debt		(1,516	)		(1,516	)
Capital and financing lease obligations		(2,692	)		(2,692	)
Deferred tax liability		(337	)		(339	)
Other liabilities		(248	)		(251	)
Noncontrolling interest		(1	)		(1	)
Fair value of Brookdale common stock issued	$	1,649		$	1,649

The goodwill of ~~$639.3~~$645.2 million iswas primarily attributable to the synergies expected to arise after the Merger. The Retirement Centers, Assisted Living and Brookdale Ancillary Services segments were allocated goodwill of $20.5 million, ~~$492.0~~$497.9 million and $126.8 million, respectively. The goodwill is not deductible for tax purposes.

The allocation of fair values of the assets acquired and liabilities assumed has changed from the allocation reported in "Note 4 – Acquisitions and Other Significant Transactions" in the Notes to Consolidated Financial Statements (Unaudited) included in Part I of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 filed with the SEC on November 10, 2014. The changes to the Company's valuation assumptions were based on more accurate information becoming available concerning the subject assets and liabilities. None of these changes had a material impact on the Company's consolidated financial statements. The allocation of fair values is subject to further adjustment due primarily to information not readily available at the acquisition date related to subjective reserves and property valuations and adjustments to our valuation assumptions and the related deferred tax impact. The Company's assessment of the fair values and the allocation of the purchase price to the identified tangible and intangible assets and liabilities are its current best estimate of fair value.

The following table provides the pro forma consolidated operational data as if the Company had acquired Emeritus on January 1, 2013 (unaudited, in millions, except share and per share data):

Year Ended
December 31,

2014 2013
Total revenue $ 5,055 $ 4,853
Net loss attributable to common stockholders (103 ) (424 )

Basic and diluted net loss per share attributable to common stockholders $ (0.59 ) $ (2.48 )
Weighted average shares used in computing basic and diluted net loss per share (in thousands) 175,823 171,255


	2014
Total revenue	$	5,055
Net income (loss) attributable to common stockholders		(103	)

Basic and diluted net income (loss) per share attributable to common stockholders	$	(0.59	)
Weighted average shares used in computing basic and diluted net income (loss) per share (in thousands)		175,823

The Company incurred $57.1 million of transaction costs related to the acquisition of Emeritus for the year ended December 31, 2014. Transaction costs are primarily comprised of transaction fees and direct acquisition costs, including legal, finance, consulting, professional fees and other third party costs. The ~~pro forma~~proforma consolidated operational data for the year ended December 31, 2014 excludes ~~$57.1 million of transaction costs that were directly attributable to the Merger. The proforma consolidated operational data for the year ended December 31, 2013 includes~~ $57.1 million of transaction costs that were directly attributable to the Merger. On August 29, 2014, the Company completed the HCP Transactions (as defined below). The pro forma consolidated operational data reflects the Company's full ownership interests and previously existing lease terms through the closing of the HCP Transactions on August 29, 2014 and reflects the Company's subsequent venture arrangements and amended lease terms for the remainder of the 2014 period.

The pro forma consolidated operational data is based on assumptions and estimates considered appropriate by the Company's management; however, these pro forma results are not necessarily indicative of the results of operations that would have been obtained had the Merger occurred at the beginning of the ~~periods~~period presented, nor ~~do they~~does it purport to represent the consolidated results of operations for future periods. The pro forma consolidated operational data does not include the impact of any synergies that have been, or may be, achieved from the acquisition of Emeritus or any strategies that management has implemented or considered or may implement or consider in order to continue to efficiently manage operations.

On July 30, 2014, in connection with the Merger, the Company's Certificate of Incorporation was amended to authorize up to 400 million shares of common stock.

2014 HCP Transactions

On August 29, 2014, the Company completed the transactions contemplated by that certain Master Contribution and Transactions Agreement (the "Master Agreement"), dated as of April 23, 2014, by and between the Company and ~~HCP, Inc. ("HCP").~~HCP. At the closing of these transactions (the "Closing"), the Company and HCP entered into two ventures and amended the terms of certain existing agreements between the Company and HCP ("HCP Transactions").

Each of the ventures contemplated by the Master Agreement uses a "RIDEA" structure, whereby at the Closing each of the Company and HCP invested in an "opco" entity and a "propco" entity. The propco owns most of the applicable communities and leases such communities to the opco pursuant to long-term leases entered into at the Closing. The opco owns the remainder of the applicable communities not owned by the propco, and at the Closing the opco engaged an affiliate of the Company to manage all of the owned and leased communities pursuant to management agreements with 15-year terms subject to certain extension options.

Venture Relating to Entry Fee CCRCs. At the Closing, the Company and HCP entered into a venture with respect to certain entry fee CCRCs previously owned, leased and/or operated by the Company. The Company owns a 51% ownership interest, and HCP owns a 49% ownership interest, in each of the propco and opco (together, the "CCRC Venture"). Pursuant to the terms of the Master Agreement, at the Closing the Company contributed to the CCRC Venture eight wholly-owned entities (owning eight CCRCs subject, in certain cases, to existing debt) and certain purchase options with respect to the HCP Communities (as defined below), and HCP contributed to the CCRC Venture three wholly-owned entities (owning three properties in two CCRCs (the "HCP Communities")). In addition, HCP contributed $323.5 million in cash and the CCRC Venture completed the purchases of four communities managed by the Company for an aggregate purchase price of $323.5 million immediately following the Closing. Each of the CCRCs in the CCRC Venture is managed by the Company pursuant to market rate management agreements entered into at the Closing, and the Company ~~has~~ agreed to guarantee certain obligations of the manager under the applicable management agreements. Each of the propco and opco is governed by a board of managers consisting of six members, with three representatives appointed by each of the Company and HCP.

The results of operations and financial position of the ten previously owned or leased entry fee CCRCs, including refundable entrance fee liabilities and deferred revenue, were in all material respects deconsolidated from the Company prospectively upon formation of the CCRC Venture. The Company's interest in the CCRC Venture is accounted for under the equity method of accounting. The Company's investment basis in the CCRC Venture is based on the carrying values of the net assets it contributed which is less than the Company's proportional share of underlying fair value of equity.

Venture Relating to Emeritus / HCP Communities. At the Closing, the Company and HCP entered into a venture with respect to 49 independent living, assisted living, memory care and/or skilled nursing care communities previously owned by HCP and leased and historically operated by Emeritus. The Company acquired the leases in the Merger, recorded them at fair value at the acquisition date, and in this transaction effectively terminated the leases; therefore the Company has written off all of the recorded lease values in connection with this termination. ~~The~~As of the formation date, the Company ~~owns~~owned a 20% ownership interest, and HCP ~~owns~~owned an 80% ownership interest, in each of the propco and opco (together, the "HCP 49 Venture"). Pursuant to the terms of the Master Agreement, at the Closing an HCP affiliate made a loan to the Company at prevailing interest rates in the original principal amount of approximately ~~$68~~$68.0 million to fund the Company's initial capital contribution to the HCP 49 Venture. HCP contributed 49 communities to propco. At the Closing, propco leased the communities to opco. Each of the communities in the HCP 49 Venture is managed by an affiliate of the Company, and the Company ~~has~~ agreed to guarantee certain obligations of the manager under the applicable market rate management agreements. During the three months ended December 31, 2014, the Company repaid the ~~$68~~$68.0 million loan from HCP primarily with the proceeds from the public equity offering completed during the third ~~quarter.~~quarter of 2014.

The results and financial position of the communities were, in all material respects, deconsolidated from the Company prospectively upon formation of the HCP 49 Venture. The Company's interest in the venture is accounted for under the equity method of accounting.

Pursuant to the terms of the Master Agreement, the Company iswas required to pay HCP a fee related to the lease restructuring in the amount of $34 million, which ~~fee is payable~~was paid over a two-year period beginning September 30, 2014. The elimination of the recorded lease values upon termination of the aforementioned leases approximated the $34 million liability to HCP.

Amendments to Existing Agreements (including Triple Net Leases). At the Closing, the Company and HCP amended and restated (i) that certain Master Lease and Security Agreement, dated as of October 31, 2012, by and between Emeritus and certain affiliates of HCP, with respect to 112 communities, and (ii) certain other triple net leases between Emeritus and affiliates of HCP, with respect to 41 communities, together into a single master lease with the communities subject thereto separated into three pools (the "Master Lease"). The term of the Master Lease is 14 years for the pool 1 communities, 15 years for the pool 2 communities and 16 years for the pool 3 communities, with an average of approximately 15 years, in each case subject to two extension options of approximately 10 years each, and the Master Lease is guaranteed by the Company. The Master Lease ~~provides~~provided for total base rent in 2014 of approximately $158 million, with lower future rent payments and escalations compared to the previously existing leases. HCP ~~has~~ agreed to make available up to $100 million for capital expenditures related to the communities during calendar years 2014 through 2017 at an initial lease rate of 7.0%. The Master Lease ~~includes~~included certain customary covenants, with respect to, among other things, capital expenditure requirements, restrictions on the ownership, operation and management of competing communities and transfer restrictions (including restrictions on changes of control of the Company). The Master Lease also ~~includes~~included customary events of default and remedies relating thereto. In addition, the Master Lease ~~includes~~included a fair value purchase option in favor of the Company for up to ten communities at an aggregate purchase price not to exceed ~~$60~~$60.0 million. ~~As described further in Note 22, on~~On December 29, 2014 the Company exercised this purchase option and agreed to purchase nine communities for an aggregate purchase price of ~~$60~~$60.0 million.

In connection with the transactions contemplated by the Master Agreement, at the Closing, (i) the parties terminated the purchase option rights granted by HCP to Emeritus pursuant to 49 of the previously existing Emeritus leases, (ii) the parties agreed to modify the existing term extension hurdle and incentive management fee structure applicable to an existing venture between the Company and HCP in respect of 20 independent living, assisted living, memory care and/or skilled nursing care communities, and (iii) HCP released certain deposits and reserves posted by the Company and held by HCP or its affiliates in connection with existing leases between the parties. For accounting purposes, the amended leases were treated as new leases and classified as either capital or financing leases. The terminated purchase options were included in the determination of recorded capital or financing lease related balances.

~~2014 Community Acquisitions and Dispositions~~

In July 2014, the Company acquired the underlying real estate associated with four communities that were previously leased for an aggregate purchase price of $51.4 million. The results of operations of three and one of these communities, prior and subsequent to the acquisition, are reported in the Retirement Centers and Assisted Living segments, respectively. The Company financed the transactions with $17.0 million of seller-financing secured by three of the communities. The balance of the purchase price was paid from cash on hand.

During the ~~year~~three months ended December 31, ~~2014,~~2016, the Company and HCP entered into three amendments to the Master Lease effective November 1, 2016 to facilitate the HCP Termination Transactions and the HCP Sale Transaction. The amendments, among other things: (i) shortened the term of the Master Lease with respect to 19 communities to facilitate the HCP Termination Transactions, with the term with respect to each such community to end on the earlier of October 31, 2017 and the date on which such community is sold ~~four communities for an aggregate selling price of $9.2 million. The results of~~or the operations of such community are transferred, at the direction of HCP, to a third party tenant or operator; (ii) removed 57 communities ~~were previously reported~~from the Master Lease as of November 1, 2016, to facilitate the HCP Sale Transaction; and (iii) extended by one year the period during which the Company is permitted to undertake capital projects for which it is entitled to reimbursement by HCP. Simultaneously, the Company and HCP entered into a separate lease with HCP, with the Company as guarantor, covering the 57 communities removed from the Master Lease on terms that are substantially the same as those contained in the ~~Assisted Living and CCRCs - Rental segments.~~Master Lease. The Blackstone Venture is expected to acquire the 57 communities encumbered by such new lease, at which time the new lease will be terminated.

Equity Offering

In September 2014, the Company completed a public equity offering of 10,298,506 shares of common stock, which yielded net proceeds of approximately $330.4 million, net of approximately $0.4 million of costs related to the offering. During the three months ended December 31, 2014, the Company repaid $275.9 million of existing long-term debt with a weighted average interest rate of approximately 5.5%, financed primarily with the proceeds of the public equity offering, and the Company has used and is using net proceeds to finance the exercise of purchase options on certain communities currently leased by the Company and for other general corporate purposes, which may include additional debt repayments and the acceleration of capital investments in the Company's communities and corporate infrastructure platform.

~~2013 Acquisitions and Dispositions~~

Effective May 24, 2013, the Company acquired the underlying real estate interest in an entrance fee CCRC that the Company previously managed for an aggregate purchase price of $15.4 million, which included the assumption of the existing mortgage debt and certain liabilities in addition to cash paid. The results of operations of the community are included in the CCRCs - Entry Fee segment for the six month period ended June 30, 2014 and the CCRCs - Rental segment for the six month period ended December 31, 2014.

Effective May 31, 2013, the Company purchased the underlying real estate in an assisted living community for a price of $2.4 million. The results of operations of the community are reported in the Assisted Living segment.

Effective October 1, 2013, the Company acquired seven communities for an aggregate purchase price of $80.9 million. Prior to the acquisition, the Company managed six of the communities since the acquisition of Horizon Bay Realty, L.L.C. in September 2011. The acquisition was financed with $60.8 million of first mortgage debt through the assumption of $52.7 million of existing debt and the issuance of $8.1 million of first mortgage financing secured by one of the communities. The balance of the purchase price was paid from cash on hand. The results of operations of the communities acquired are reported in the Assisted Living segment.

During the year ended December 31, 2013, the Company purchased two home health agencies and one hospice agency for an aggregate purchase price of approximately $2.6 million. The purchase price of the acquisitions has been ascribed to an indefinite useful life intangible asset and recorded on the consolidated balance sheets under other intangible assets, net.

During the year ended December 31, 2013, the Company sold four communities for an aggregate selling price of $35.2 million. The results of operations of the communities were previously reported in the Assisted Living and CCRCs - Rental segments.

5. Variable Interest Entities and Investment in Unconsolidated Ventures

Variable Interest Entities

At December 31, ~~2014,~~2016, the Company has equity interests in unconsolidated VIEs. The Company has determined that it does not have the power to direct the activities of the VIEs that most significantly impact the VIEs' economic performance and is not the primary beneficiary of these VIEs in accordance with ASC 810. The Company's interests in the VIEs are, therefore, accounted for under the equity method of accounting.

The Company holds a 51% equity interest in the CCRC Venture. The CCRC Venture's opco has been identified as a VIE. The equity members of the CCRC Venture's opco share certain operating rights, and the Company acts as manager to the CCRC Venture ~~opco; however,~~opco. However, the Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance. The assets of the CCRC Venture opco primarily consist of the CCRCs that it owns and leases, resident fees receivable, notes receivable and cash and cash equivalents. The obligations of the CCRC Venture opco primarily consist of community lease obligations, mortgage debt, accounts payable, accrued expenses and refundable entrance fees. Assets generated by the CCRC operations (primarily rents from CCRC residents) of the CCRC Venture opco may only be used to settle its contractual obligations (primarily the rental costs and operating expenses incurred to operate the communities). See Note 4 for more information about the Company's entry into the CCRC Venture.

The Company holds ~~a 20%~~an equity ownership interest in ~~the HCP 49 Venture. The opco and propco~~each of the propco and opco of three ventures ("RIDEA Ventures") that operate senior housing communities in a RIDEA structure. As of December 31, 2016, the Company's equity ownership interest is 10% for two of the ventures and 20% for one venture. As of December 31, 2016, HCP ~~49 Venture~~owns the remaining 90% and 80% equity ownership interests in the RIDEA Ventures. The RIDEA Ventures have been identified as VIEs. The equity members of the ~~HCP 49 Venture~~RIDEA Ventures share certain operating rights, and the Company acts as a manager to the ~~HCP 49 Venture opco; however,~~opcos of the RIDEA Ventures. However, the Company does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact the economic performance of these VIEs. The assets of the ~~HCP 49 Venture propco~~RIDEA Ventures primarily consist of the senior housing communities that ~~it owns and cash and cash equivalents. The obligations of~~ the ~~HCP 49 Venture propco primarily consist of a note payable to HCP. The assets of the HCP 49 Venture opco primarily consist of the senior housing communities that it leases,~~RIDEA Ventures own, resident fees receivable and cash and cash equivalents. The obligations of the ~~HCP 49 Venture opco~~RIDEA Ventures primarily consist of ~~community lease obligations,~~notes payable, accounts payable and accrued expenses. Assets generated by the operations of the senior housing communities (primarily rents from senior housing residents) of the HCP 49 Venture may only be used to settle its contractual obligations (primarily the rental costs and operating expenses incurred to operate the communities). See Note 4 for more information about the Company's entry into the HCP 49 Venture.

The carrying value and classification of the related assets, liabilities and maximum exposure to loss as a result of the Company's involvement with these VIEs are summarized below at December 31, ~~2014~~2016 (in millions):

VIE	Asset	Maximum Exposure to Loss		Carrying Amount		Asset	Maximum Exposure to Loss		Carrying Amount

CCRC Venture opco	Investment in unconsolidated ventures	$	191.9	$	191.9	Investment in unconsolidated ventures	$	50.1	$	50.1
HCP 49 Venture opco and propco	Investment in unconsolidated ventures	$	70.5	$	70.5
RIDEA Ventures						Investment in unconsolidated ventures	$	92.1	$	92.1

100

As of December 31, ~~2014,~~2016, the Company ~~has not provided, and~~ is not required to provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIEs.

Investment in Unconsolidated Ventures

The Company owns interests in the following ventures that are accounted for under the equity method as of December 31, ~~2014:~~2016:

Venture	Ownership Percentage
CCRC Venture		51%
HCP 49 Venture		20%
BKD-HCN venture opco and propco		20%
HCP 35 Venture		10%
S-H Twenty-One venture opco and propco		10%

96Combined summarized financial information of the unconsolidated ventures accounted for under the equity method as of December 31, and for the years then ended are as follows (dollars in millions):

Statement of Operations Information	2016			2015			2014
Total revenue	$	1,133		$	964		$	439
Facility operating expenses		(779	)		(679	)		(293	)
Net income (loss)		(4	)		(18	)		(10	)

Balance Sheet Information	2016		2015
Current assets	$	128	$	143
Noncurrent assets		3,932		4,156
Current liabilities		1,153		583
Noncurrent liabilities		2,215		2,294

During the year ended December 31, 2016, the CCRC Venture obtained non-recourse mortgage financing on certain communities and received proceeds of $434.5 million. The CCRC Venture distributed the net proceeds to its investors and the Company received proceeds of $221.6 million. As a result of the distribution, the Company's carrying value of its equity method investment in the CCRC Venture propco was reduced below zero and the Company has recorded a $60.2 million equity method liability within other liabilities within the consolidated balance sheet as of December 31, 2016.

In January 2017, the Company completed the sale of a 10% ownership interest in the HCP 49 Venture for $26.8 million of net cash proceeds. The Company retained a 10% ownership interest in the HCP 49 Venture.

The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances indicate that the Company's investment is other than temporarily impaired. During 2016, the Company recorded $36.8 million of non-cash impairment charges related to investments in unconsolidated ventures. These impairment charges are primarily due to lower than expected operating performance at the communities owned by the unconsolidated ventures and reflect the amount by which the carrying values of the investments exceeded their estimated fair value.

On June 30, 2015, the Company and HCP entered into a venture, which acquired 35 senior housing communities ("HCP 35 Venture") for $847 million. The venture uses a RIDEA structure, whereby the Company and HCP invested in an "opco" and a "propco". The Company contributed $30.3 million in cash to the HCP 35 Venture. The Company owns a 10% ownership interest, and HCP owns a 90% ownership interest, in each of the propco and opco. The Company had operated these communities under a management agreement since 2011 and continued to manage the communities under a market rate long-term management agreement with the venture as of the closing of the venture. The Company's interest in the venture is accounted for under the equity method of accounting.

101

6. Property, Plant and Equipment and Leasehold Intangibles, Net

As of December 31, ~~2014~~2016 and ~~2013,~~2015, net property, plant and equipment and leasehold intangibles, which include assets under capital and financing leases, consisted of the following (in thousands):

	2014			2013			2016			2015
Land	$	475,485		$	302,444		$	455,307		$	486,567
Buildings and improvements		5,017,991			3,508,693			5,053,204			5,260,826
Leasehold improvements		56,515			59,948			126,325			100,430
Furniture and equipment		735,837			623,352			974,516			895,447
Resident and leasehold operating intangibles		852,746			435,012			705,000			783,434
Construction in progress		99,408			88,309			69,803			138,054
Assets under capital and financing leases		3,057,516			699,973			2,879,996			2,909,653
		10,295,498			5,717,731			10,264,151			10,574,411
Accumulated depreciation and amortization		(1,905,993	)		(1,822,256	)		(2,884,846	)		(2,543,035	)
Property, plant and equipment and leasehold intangibles, net	$	8,389,505		$	3,895,475		$	7,379,305		$	8,031,376

During the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012,~~2014, the Company evaluated property, plant and equipment and leasehold intangibles for ~~impairment.~~impairment and identified properties with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their carrying value for these identified properties ~~with impairment indicators~~ and recorded an impairment charge for the excess of carrying value over fair value. The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $166.2~~$10.0~~ million for the year ended December 31, 2016, primarily within the Assisted Living and CCRCs - Rental segments, $24.3 million for the year ended December 31, 2015, primarily within the Assisted Living and CCRCs - Rental segments and $10.0 million for the year ended December 31, 2014, primarily within the ~~Retirement Centers and Assisted Living segments,~~ ~~$12.9 million for the year ended December 31, 2013, primarily within the~~ CCRCs -– Rental ~~and Assisted Living segments and $27.7 million for the year ended December 31, 2012, primarily within the Retirement Centers~~ and Assisted Living segments. These impairment charges are primarily due to lower than expected operating performance at these properties and reflect the amount by which the carrying values of the assets exceeded their estimated fair value.

During the years ended December 31, 2016 and 2015, the Company recorded $15.8 million and $33.6 million, respectively, of non-cash impairment charges related to communities identified as held for sale, inclusive of the allocation of goodwill to the disposed communities. These impairment charges are primarily due to the excess of carrying value, including allocated goodwill, over the estimated selling price less costs to dispose. Refer to Note 4 for more information about the Company's community dispositions and assets held for sale.

For the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012,~~2014, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of ~~$529.1~~$514.2 million, ~~$264.1~~$721.0 million and ~~$248.5~~$529.1 million, respectively.

Future amortization expense for resident and leasehold operating intangibles is estimated to be as follows (dollars in thousands):

Year Ending December 31,	Future Amortization		Future Amortization
2015	$	264,051
2016		23,121
2017		16,742	$	9,664
2018		9,624		7,601
2019		5,819		6,209
2020				4,353
2021				2,731
Thereafter		18,858		9,958
Total	$	338,215	$	40,516

In connection with the acquisition of Emeritus, the Company recorded intangible assets for resident-in-place leases and below market operating lease intangibles. The Company is amortizing the resident-in-place leases and below market operating lease intangibles over their estimated weighted average useful lives of one and nine years, respectively.

97102

7. Goodwill and Other Intangible Assets, Net

The following is a summary of ~~changes in~~ the carrying amount of goodwill ~~for the years ended~~as of December 31, ~~2014~~2016 and ~~2013~~December 31, 2015 presented on an operating segment basis (dollars in thousands):

	December 31, 2014									December 31, 2013							December 31, 2016							December 31, 2015
	Gross Carrying Amount		Emeritus Acquisition		Accumulated Impairment and Other Charges			Net		Gross Carrying Amount		Accumulated Impairment and Other Charges			Net		Gross Carrying Amount		Dispositions and Other Reductions			Net		Gross Carrying Amount		Dispositions and Other Reductions			Net
Retirement Centers	$	7,642	$	20,499	$	(521	)	$	27,620	$	7,642	$	(521	)	$	7,121	$	28,141	$	(820	)	$	27,321	$	28,141	$	(721	)	$	27,420
Assisted Living		90,640		491,983		(248	)		582,375		102,680		(248	)		102,432		600,162		(48,817	)		551,345		591,814		(20,348	)		571,466
Brookdale Ancillary Services		—		126,810		—			126,810		—		—			—		126,810		—			126,810		126,810		—			126,810
Total	$	98,282	$	639,292	$	(769	)	$	736,805	$	110,322	$	(769	)	$	109,553	$	755,113	$	(49,637	)	$	705,476	$	746,765	$	(21,069	)	$	725,696

~~Goodwill is tested~~The Company concluded that goodwill for ~~impairment annually with a test date~~all reporting units was not impaired as of October 1, ~~or sooner if indicators~~2016 (the Company's annual measurement date) and as of ~~impairment are present. No indicators of impairment were present during the three years ended~~ December 31, ~~2014. As~~2016. Factors the Company considers important in its analysis, which could trigger an impairment of such assets, include significant underperformance relative to historical or projected future operating results, significant negative industry or economic trends, a significant decline in the Company's stock price for a sustained period and a decline in its market capitalization below net book value. A change in anticipated operating results or the other metrics indicated above could necessitate further analysis of potential impairment at an interval prior to the Company's annual measurement date.

Approximately $28.5 million and $0.1 million of goodwill in the Assisted Living and Retirement Centers segments, respectively, was allocated to the communities identified inas held for sale during 2016. Refer to Note 4 for more information about the ~~purchase price allocation~~Company's assets held for ~~the Merger is preliminary and the finalization of such estimate may result in future adjustments to goodwill balances reported in the table above.~~sale.

The following is a summary of other intangible assets at December 31, ~~2014~~2016 and ~~2013~~2015 (dollars in thousands):

	December 31, 2014							December 31, 2013							December 31, 2016							December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Community purchase options	$	55,738	$	—		$	55,738	$	122,649	$	—		$	122,649	$	4,738	$	—		$	4,738	$	40,270	$	—		$	40,270
Health care licenses		64,538		—			64,538		33,853		—			33,853		65,126		—			65,126		66,612		—			66,612
Trade names		27,800		(4,179	)		23,621		—		—			—		27,800		(21,135	)		6,665		27,800		(14,209	)		13,591
Other		13,531		(2,655	)		10,876		3,331		(1,076	)		2,255		13,531		(7,053	)		6,478		13,531		(4,818	)		8,713
Total	$	161,607	$	(6,834	)	$	154,773	$	159,833	$	(1,076	)	$	158,757	$	111,195	$	(28,188	)	$	83,007	$	148,213	$	(19,027	)	$	129,186

Amortization expense related to definite-lived intangible assets for the years ended December 31, 2016, 2015 and 2014 ~~2013 and 2012~~ was ~~$8.0~~$9.2 million, ~~$4.7~~$12.2 million and ~~$3.8~~$8.0 million, respectively. Health care licenses were determined to be indefinite-lived intangible assets and are not subject to amortization. ~~No indicators of impairment were present during the year ended December 31, 2014.~~

~~In connection with the acquisition of Emeritus, the Company recorded intangible assets for~~The community purchase options, trade names, management contracts and health care licenses. Health care licenses were determined to be indefinite-lived intangible assets and are not subject to amortization. The lease purchase options are not currently amortized, but will be added to the cost basis of the related communities if the option is exercised, and will then be depreciated over the estimated useful life of the community. During the year ended December 31, 2016, the Company exercised one community purchase option and added the $7.3 million carrying value of the community purchase option intangible to the cost basis of the property, plant and equipment of the community. The Company is amortizing the trade names and management contract intangibles assets over their estimated weighted average useful lives of three years and nine years, respectively. ~~The weighted average amortization periods at acquisition for the other intangible assets is three years.~~

During ~~the year ended December 31, 2014,~~2016, the Company ~~contributed certain~~recorded $28.2 million and $1.5 million of non-cash impairment charges related to community purchase options and health care licenses, respectively. These impairment charges are primarily due to lower than expected operating performance at the ~~CCRC Venture and terminated~~communities subject to the community purchase ~~option rights pursuant to 49~~options and reflect the amount by which the carrying values of the ~~previously existing Emeritus leases in connection with closing the HCP Transactions. See Note 4 for more information about the Company's~~ community purchase ~~option activity.~~options exceeded their estimated fair value.

103

Future amortization expense for intangible assets with definite lives is estimated to be as follows (dollars in thousands):

Year Ending December 31,
Future
Amortization

2015 $ 12,193
2016 8,165
2017 3,726
2018 3,717
2019 2,638
Thereafter 4,058
Total $ 34,497

Year Ending December 31,	Future Amortization
2017	$	3,575
2018		3,565
2019		2,487
2020		982
2021		982
Thereafter		1,552
Total	$	13,143

8. Debt

Long-term Debt and Capital and Financing Lease Obligations

Long-term debt and capital and financing lease obligations consist of the following (dollars in thousands):

December 31,
2014 2013
Mortgage notes payable due 2015 through 2047; weighted average interest rate of 4.84% in 2014, net of debt premium of $59.6 million in 2014 and net of debt premium of $1.3 million in 2013 (weighted average interest rate of 4.12% in 2013) $ 3,105,410 $ 2,037,649
Capital and financing lease obligations payable through 2030; weighted average interest rate of 8.57% in 2014 (weighted average interest rate of 8.14% in 2013) 2,649,226 299,824
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount of $43.9 million and $54.8 million in 2014 and 2013, respectively, interest at 2.75% per annum, due June 2018 272,345 261,443
Construction financing due 2017 through 2019; weighted average interest rate of 4.90% in 2014 (weighted average interest rate of 6.22% in 2013) 50,118 4,476
Notes payable issued to finance insurance premiums, weighted average interest rate of 2.82% in 2014 (weighted average interest rate of 2.65% in 2013), due 2015 22,586 3,186
Other notes payable, weighted average interest rate of 4.75% in 2014 and maturity dates ranging from 2015 to 2016 66,271 –
Total debt and capital and financing lease obligations 6,165,956 2,606,578
Less current portion 272,265 201,954
Total long-term debt and capital and financing lease obligations $ 5,893,691 $ 2,404,624

	December 31,
	2016		2015
Mortgage notes payable due 2017 through 2047; weighted average interest rate of 4.50% in 2016, including net debt premium and deferred financing costs of $(4.5) million in 2016 and including net debt premium and deferred financing costs of $3.3 million in 2015 (weighted average interest rate of 4.51% in 2015)	$	3,184,229	$	3,246,513
Capital and financing lease obligations payable through 2032; weighted average interest rate of 8.08% in 2016 (weighted average interest rate of 8.11% in 2015)		2,485,520		2,489,588
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount and deferred financing costs of $20.9 million and $34.3 million in 2016 and 2015, respectively, interest at 2.75% per annum, due June 15, 2018		295,397		281,902
Construction financing due 2032; weighted average interest rate of 8.00% in 2016 (weighted average interest rate of 4.84% in 2015)		3,644		24,105
Other notes payable, weighted average interest rate of 5.33% in 2016 (weighted average interest rate of 5.16% in 2015) and maturity dates ranging from 2017 to 2020		76,377		80,305
Total long-term debt and capital and financing lease obligations		6,045,167		6,122,413
Less current portion		215,255		235,604
Total long-term debt and capital and financing lease obligations, less current portion	$	5,829,912	$	5,886,809

As of December 31, 2016 and 2015, the current portion of long-term debt within the Company's consolidated financial statements includes $60.5 million and $60.8 million, respectively, of mortgage notes payable secured by assets held for sale. This debt will either be assumed by the prospective purchasers or be repaid with the proceeds from the sales. Refer to Note 4 for more information about the Company's assets held for sale.

The annual aggregate scheduled maturities of long-term debt and capital and financing lease obligations outstanding as of December 31, ~~2014~~2016 are as follows (dollars in thousands):

Year Ending December 31,	Long-term Debt		Capital and Financing Lease Obligations			Total Debt			Long-term Debt			Capital and Financing Lease Obligations			Total Debt
2015	$	151,764	$	246,992		$	398,756
2016		61,515		323,446			384,961
2017		554,036		280,077			834,113		$	154,114		$	416,239		$	570,353
2018		1,301,391		283,757			1,585,148			1,231,670			277,829			1,509,499
2019		149,842		291,493			441,335			135,169			256,539			391,708
2020										473,817			200,308			674,125
2021										332,866			186,342			519,208
Thereafter		1,282,464		3,629,975			4,912,439			1,257,549			3,230,311			4,487,860
Total obligations		3,501,012		5,055,740			8,556,752			3,585,185			4,567,568			8,152,753
Less amount representing debt premium, net		15,718		—			15,718
Less amount representing interest (8.57%)		—		(2,406,514	)		(2,406,514	)
Less amount representing debt discount and deferred financing costs, net										(25,538	)		—			(25,538	)
Less amount representing interest (weighted average interest rate of 8.08%)										—			(2,082,048	)		(2,082,048	)
Total	$	3,516,730	$	2,649,226		$	6,165,956		$	3,559,647		$	2,485,520		$	6,045,167

104

Credit Facilities

On December 19, 2014, the Company entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation (which has since assigned its interest to Capital One Financial Corporation), as administrative agent, lender and swingline lender, and the other lenders from time to time parties thereto. The amended credit agreement amended and restated in its entirety the Company's previously existing Third Amended and Restated Credit Agreement dated as of September 20, 2013, which provided a total commitment amount of $250.0 million. The amended agreement provides for a total commitment amount of $500.0 million, comprised of a $100.0 million term loan drawn at closing and a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of credit and a $50.0 million swingline feature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. ~~In addition, the amended credit agreement extended the~~The maturity date ~~from March 31, 2018 to~~is January 3, 2020 and ~~decreased the interest rate payable on drawn~~ amounts ~~and the fee payable on the unused portion of the facility. Amounts~~ drawn under the facility ~~will continue to~~ bear interest at 90-day LIBOR plus an applicable ~~margin; however, the amended agreement reduces the applicable~~ margin from ~~a range of 3.25% to 4.25% to~~ a range of 2.50% to 3.50%. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less than or equal to 50%, and a 3.50% margin at utilization greater than 50%. The ~~amended agreement also eliminates~~quarterly commitment fee on the ~~minimum 0.5% LIBOR rate included in~~unused portion of the ~~prior agreement.~~

facility is 0.25% per annum when the outstanding amount of obligations (including revolving credit, swingline and term loans and letter of credit obligations) is greater than or equal to 50% of the total commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the total commitment amount. During the year ended December 31, 2016, the Company repaid the $100.0 million term loan balance, decreasing the total commitment amount to $400.0 million.

Amounts drawn on the facility may be used to finance acquisitions, fund working capital and capital expenditures and for other general corporate purposes.

The facility is secured by a first priority mortgage on certain of the Company's communities. In addition, the agreement permits the Company to pledge the equity interests in subsidiaries that own other communities (rather than mortgaging such communities), provided that loan availability from pledged assets cannot exceed 10% of loan availability from mortgaged assets. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance of the communities securing the facility.

The ~~amended credit~~ agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth. A violation of any of these covenants could result in a default under the credit agreement, which would result in termination of all commitments under the ~~credit~~ agreement and all amounts owing under the ~~amended credit~~ agreement ~~and certain other loan agreements~~ becoming immediately due and ~~payable.~~payable and could trigger cross default provisions in our other outstanding debt and lease agreements.

As of December 31, ~~2014, the~~2016, there was no outstanding balance under this credit facility ~~was $100.0 million. The~~and there were $32.4 million of letters of credit outstanding under this credit facility. In addition to the sublimit for letters of credit on this credit facility, the Company also had ~~secured and unsecured~~separate letter of credit facilities of up to ~~$98.7~~$64.5 million in the aggregate as of December 31, ~~2014.~~2016. Letters of credit totaling ~~$72.7~~$64.4 million had been issued under these separate facilities as of that date.

Convertible Debt Offering

In June 2011, the Company completed a registered offering of $316.3 million aggregate principal amount of 2.75% convertible senior notes due June 15, 2018 (the "Notes"). The Company received net proceeds of approximately $308.2 million after the deduction of underwriting commissions and offering expenses. The Company used a portion of the net proceeds to pay the Company's cost of the convertible note hedge transactions described below, taking into account the proceeds to the Company of the warrant transactions described below, and used the balance of the net proceeds to repay existing outstanding debt.

The Notes are senior unsecured obligations and rank equally in right of payment to all of the Company's other senior unsecured debt, if any. The Notes will be senior in right of payment to any of the Company's debt which is subordinated by its terms to the Notes (if any). The Notes are also structurally subordinated to all debt and other liabilities and commitments (including trade payables) of the Company's subsidiaries. The Notes are also effectively subordinated to the Company's secured debt to the extent of the assets securing the debt.

105

The Notes bear interest at 2.75% per annum, payable semi-annually in cash. The Notes are convertible at an initial conversion rate of 34.1006 shares of Company common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately ~~$29.33~~$29.325 per share), subject to adjustment. On and after March 15, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time. In addition, Holders may convert their Notes at their option under the following circumstances: (i) during any fiscal quarter if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on the last day of such preceding fiscal quarter; (ii) during the five business day period after any five consecutive trading day period (the "measurement period"), in which the trading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such day; or (iii) upon the occurrence of specified corporate ~~events.~~events. As of December 31, ~~2014,~~2016, the Notes are not convertible. Unconverted Notes mature at par inon June 15, 2018.

Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock at the Company's election. It is the Company's current intent and policy to settle the principal amount of the Notes (or, if less, the amount of the conversion obligation) in cash upon conversion.

In addition, following certain corporate transactions, the Company will increase the conversion rate for a holder who elects to convert in connection with such transaction by a number of additional shares of common stock as set forth in the supplemental indenture governing the Notes.

The Notes were issued in an offering registered under the Securities Act of 1933, as amended (Securities Act).

In accordance with FASB guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial settlement), the liability and equity components of the convertible debt are separated in a manner that will reflect the Company's non-convertible debt borrowing rate when interest expense is recognized in subsequent periods.

~~100~~

The Company is accreting the carrying value to the principal amount at maturity using an imputed interest rate of 7.5% (the estimated effective borrowing rate for nonconvertible debt at the time of issuance, Level 2) over its expected life of seven years.

As of December 31, ~~2014,~~2016, the "if converted" value of the Notes does not exceed their principal amount.

The interest expense associated with the Notes (excluding amortization of the associated deferred financing costs) was as follows (dollars in thousands):

	For the Years Ended December 31,								For the Years Ended December 31,
	2014			2013			2012		2016			2015			2014
Coupon interest		$	8,697		$	8,697	$	8,697		$	8,697		$	8,697	$	8,697
Amortization of discount			10,902			10,131		9,415			12,625			11,732		10,902
Interest expense related to convertible notes		$	19,599		$	18,828	$	18,112		$	21,322		$	20,429	$	19,599

In connection with the offering of the Notes, in June 2011, the Company entered into convertible note hedge transactions (the "Convertible Note Hedges") with certain financial institutions (the "Hedge Counterparties"). The Convertible Note Hedges cover, subject to customary anti-dilution adjustments, 10,784,315 shares of common stock. The Company also entered into warrant transactions with the Hedge Counterparties whereby the Company sold to the Hedge Counterparties warrants to acquire, subject to customary anti-dilution adjustments, up to 10,784,315 shares of common stock (the "Sold Warrant Transactions"). The warrants have a strike price of $40.25 per share, subject to customary anti-dilution adjustments.

The Convertible Note Hedges and Sold Warrant Transactions are separate transactions (in each case entered into by the Company and Hedge Counterparties), are not part of the terms of the Notes and will not affect the holders' rights under the Notes. Holders of the Notes do not have any rights with respect to the Convertible Note Hedges or the Sold Warrant Transactions.

106

These hedging transactions had a net cost of approximately $31.9 million, which was paid from the proceeds of the Notes and recorded as a reduction of additional paid-in capital. The Company has contractual rights, and, at execution of the related agreements, had the ability to settle its obligations under the conversion features of the Notes, the Convertible Note Hedges and Sold Warrant Transactions, with the Company's common stock. Accordingly, these transactions are accounted for as equity, with no subsequent adjustment for changes in the value of these obligations.

~~101~~

~~2014~~2016 Financings

~~On April 9, 2014,~~In March 2016, the Company obtained ~~$146.0~~a $100.0 million ~~in loans,~~supplemental loan, secured by first mortgages on 20 communities. The loans bear interest at a fixed rate of 4.77% and mature in May 2021. Proceeds of the loans were used to refinance $140.0 million of mortgage debt that was scheduled to mature in November 2014.

~~In October 2014, the Company obtained $89.7 million in supplemental loans, secured by the 21 underlying communities. The loans bear interest at a fixed rate of approximately 4.6%.~~

In the fourth quarter of 2014, the Company repaid $275.9 million of existing long-term debt with a weighted average interest rate of approximately 5.5%, including the $68 million loan from HCP used to fund the Company's initial capital contribution to the HCP 49 Venture. The Company financed the repayment of debt primarily with the proceeds from the public equity offering completed during the third quarter. See Note 4 for more information about the HCP 49 Venture and the public equity offering.

~~2013 Financings~~

On April 3, 2013, the Company obtained a $25.0 million first mortgage loan, secured by the underlying community. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 275 basis points and matures in April 2018. In connection with the transaction, the Company repaid $29.0 million of existing variable rate debt.

On April 12, 2013, the Company obtained $259.0 million in loans secured by first mortgages on 23 communities. The loans bear interest at a variable rate equal to 30-day LIBOR plus a margin of 246 basis points. Concurrent with the closing of the loans, the Company entered into a five-year interest rate cap agreement that caps the interest rate on the loans at 5.03%. The loans mature in May 2023 and require amortization of principal over a 30 year period. Proceeds of the loans, together with cash on hand, were used to refinance or repay a total of $275.2 million of mortgage debt which was scheduled to mature in May 2014 and July 2014 and variable rate tax-exempt bonds scheduled to mature in 2032.

On April 22, 2013, the Company obtained a $28.0 million first mortgage loan, secured by two communities. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 275 basis points and matures in April 2018. In connection with the transaction, the Company repaid $35.1 million of existing variable rate debt.

On May 30, 2013, the Company obtained an $84.1 million first mortgage loan, secured by eight of the Company's communities. The loan has a ten-year term and bears interest at a variable rate equal to 30-day LIBOR plus a margin of 289 basis points. Concurrent with the closing of the loan, the Company entered into a five-year interest rate cap agreement that caps the interest rate on the loan at 4.68%. Proceeds of the loan, together with cash on hand, were used to refinance or repay $100.9 million of mortgage debt that was scheduled to mature between 2013 and 2017.

On August 1, 2013, the Company obtained $172.1 million in loans, secured by first mortgages on four communities. The loans bear interest at a variable rate equal to 30-day LIBOR plus a margin ranging from 226 to 288 basis points. The loans mature in August 2020 ($75.0 million) and August 2023 ($97.1 million) and require amortization of principal over a 30 year period. Proceeds of the loans were used to refinance a total of $142.0 million of Series A notes payable which were scheduled to mature on August 1, 2013.

As discussed in Note 4, the Company financed a 2013 acquisition with $60.8 million of first mortgage debt, including the assumption of $52.7 million of existing debt and the issuance of $8.1 million of first mortgage financing, secured by one of the communities. The assumed $52.7 million first mortgage facility bears interest at a fixed rate of 5.75% and matures in May 2017. The $8.1 million mortgage loan used to partially finance the acquisition has a seven year term and bears interest at a fixed rate of 5.32%.

~~On December 18, 2013, the Company obtained a $14.0 million first mortgage loan, secured by two~~ten communities. The loan bears interest at a fixed rate of ~~4.5%~~4.20% and matures inon January 1, 2023. Proceeds from the loan were utilized to pay down a portion of the outstanding balance of the secured credit facility.

In December ~~2018. In connection with the transaction,~~2016, the Company ~~repaid $14.2~~entered into a $105.0 million ~~of existing variable rate debt.~~

~~102~~

~~On December 20, 2013, the Company obtained a $25.0 million first mortgage loan, secured by two communities. The loan~~note, which bears interest at a fixed rate of ~~4.35%~~4.65%, and ~~matures in~~a $69.6 million note, which bears interest at a variable rate of 1-month LIBOR plus a margin of 258 basis points. The notes are secured by first mortgages on six communities and mature on January ~~2019. In connection with~~1, 2027. Proceeds from the ~~transaction,~~loan were primarily utilized to repay $164.4 million of mortgage debt.

During the year ended December 31, 2016, the Company ~~repaid $30.3~~recorded $9.2 million of ~~existing variable rate debt.~~debt modification and extinguishment costs on the consolidated statement of operations for that period, primarily related to prepayment penalties for debt extinguishments.

As of December 31, ~~2014,~~2016, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.

2015 Financings

On March 31, 2015, the Company obtained a $63.0 million loan, secured by first mortgages on six communities. The loan bears interest at a variable rate equal to 90-day LIBOR plus a margin of 325 basis points and matures on April 1, 2020.

On April 30, 2015, the Company obtained a $65.3 million loan, secured by first mortgages on six communities. The loan bears interest at a fixed rate of 3.98% and matures on May 1, 2027.

On August 27, 2015, the Company obtained $226.4 million in loans secured by first mortgages on 21 communities. The mortgage facility has a ten year term and 75% of it bears interest at a variable rate of 30-day LIBOR plus a margin of 221 basis points and the remaining 25% bears interest at a fixed rate of 4.80%. Proceeds of the loans were used to refinance $209.9 million of fixed rate mortgage debt on 28 communities that was scheduled to mature in September 2017. In connection with the transaction, the Company paid a prepayment penalty of $17.9 million, of which $10.4 million was recorded against the existing debt premium, $6.3 million was recorded as a debt discount for the new loans, and $1.2 million was recorded as an extinguishment cost for the seven communities that became unencumbered.

On September 15, 2015, the Company obtained $140.4 million in loans secured by first mortgages on 18 communities. The mortgage facility has a seven year term and bears interest at a variable rate of one-month LIBOR plus a margin of 223 basis points. Proceeds of the loans were used to refinance $122.3 million of fixed rate mortgage debt that was scheduled to mature in May 2018. In connection with the transaction, the Company paid a prepayment penalty of $13.6 million, of which $7.6 million was recorded against the existing debt premium and $6.0 million was recorded as a debt discount for the new loans.

The financings that occurred during the three months ended September 30, 2015 were accounted for as debt modifications and $5.5 million of debt modification costs were recorded on the consolidated statement of operations for that period.

Interest Rate Caps

In the normal course of business, the Company has entered into certain interest rate protection agreements to effectively manage the risk above certain interest rates for a portion of the Company's variable rate debt. The following table summarizes the Company's interest rate cap instruments at December 31, ~~2014~~2016 (dollars in thousands):

Current notional balance	$	846,255		$	806,994
Weighted average fixed cap rate		4.31	%		4.66	%
Earliest maturity date		2016			2017
Latest maturity date		2018			2022
Estimated asset fair value (included in other assets, net at December 31, 2014)	$	763
Estimated asset fair value (included in other assets, net at December 31, 2013)	$	3,751
Estimated asset fair value (included in other assets, net at December 31, 2016)				$	127
Estimated asset fair value (included in other assets, net at December 31, 2015)				$	29

107

9. Accrued Expenses

Accrued expenses consist of the following components as of December 31, (in thousands):

	2014		2013		2016		2015
Salaries and wages	$	124,935	$	76,278	$	102,025	$	80,291
Insurance reserves		116,858		31,293		71,123		94,948
Vacation						42,411		44,421
Real estate taxes		43,155		25,763		34,002		37,206
Vacation		43,037		25,715
Interest		12,757		7,270		12,948		12,940
Lease payable						11,211		20,714
Accrued utilities		12,798		7,616		10,582		11,949
Lease payable		30,001		11,973
Taxes payable		2,679		1,477		2,818		3,265
Other		36,434		22,094		40,917		67,140
Total	$	422,654	$	209,479	$	328,037	$	372,874

10. Commitments and Contingencies

Facility Operating Leases

~~The~~As of December 31, 2016 the Company ~~has entered into sale leaseback~~operated 539 communities under long-term leases (315 operating leases and ~~lease agreements with certain real estate investment trusts ("REIT"s). Under these agreements communities are either sold to the REIT~~224 capital and leased back or a long-term lease agreement is entered into for the communities. The initial lease terms primarily vary from 10 to 20 years and generally include renewal options ranging from 5 to 30 years. The Company is responsible for all operating costs, including repairs, property taxes and insurance.financing leases). The substantial majority of the Company's lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees its performance and the lease payments under the master ~~lease~~lease.

The community leases contain customary terms, which may include assignment and ~~the lease may include~~change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial performance covenants, such as net worth ~~minimum capital expenditure requirements per community per annum~~ and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of ~~default.~~default and/or trigger cross-default provisions in the Company's outstanding debt and other lease documents. Further, an event of default related to an individual property or limited number of properties within a master lease portfolio would result in a default on the entire master lease portfolio and could trigger cross-default provisions in the Company's other outstanding debt and lease documents. Certain leases contain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is not met.

~~As of December 31, 2014~~The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or tied to changes in leased property revenue or the consumer price index. The Company ~~operated 583 communities under long-term leases (342~~is responsible for all operating ~~leases~~costs, including repairs, property taxes and ~~241 capital~~insurance. The initial lease terms primarily vary from 10 to 20 years and ~~financing leases). As of December 31, 2013 the Company operated 329 communities under long-term leases (275 operating leases and 54 capital and financing leases).~~generally include renewal options ranging from 5 to 30 years. The remaining base lease terms vary from less than one year to 1716 years and generally provide for renewal or extension options and in some instances, purchase options.

A summary of facility lease expense and the impact of straight-line adjustment and amortization of (above) below market rents and deferred gains are as follows (in thousands):

	For the Years Ended December 31,
	2016			2015			2014
Cash basis payment	$	384,104		$	372,148		$	330,207
Straight-line (income) expense		767			6,956			1,439
Amortization of (above) below market rents, net		(6,864	)		(7,158	)		(3,444	)
Amortization of deferred gain		(4,372	)		(4,372	)		(4,372	)
Facility lease expense	$	373,635		$	367,574		$	323,830

108

~~103~~

For the Years Ended
December 31,

2014 2013 2012
Cash basis payment $ 330,207 $ 278,504 $ 281,729
Straight-line expense 1,439 2,597 6,668
Amortization of (above) below market rents, net (3,444 ) — —
Amortization of deferred gain (4,372 ) (4,372 ) (4,372 )
Facility lease expense $ 323,830 $ 276,729 $ 284,025

The aggregate amounts of future minimum operating lease payments, including community and office leases, as of December 31, ~~2014,~~2016 (prior to giving effect to the transactions with HCP and Blackstone pending as of December 31, 2016), are as follows (dollars in thousands):

Year Ending December 31,	Operating Leases		Operating Leases
2015	$	395,990
2016		396,011
2017		381,722	$	387,521
2018		366,040		377,521
2019		348,111		359,282
2020				317,654
2021				279,040
Thereafter		1,239,651		1,222,392
Total	$	3,127,525	$	2,943,410

As of December 31, 2016, the Company is in compliance with the financial covenants of its long-term leases.

Other

The Company has employment or letter agreements with certain officers of the Company and has adopted policies to which certain officers of the Company are eligible to participate that grant these employees the right to receive a portion or multiple of their base salary, ~~and~~pro-rata bonus, bonus and/or continuation of certain benefits, for a defined period of time, in the event of certain terminations of the officers' employment, as described in those ~~agreements.~~agreements and policies.

11. Self-Insurance

The Company obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policy. Losses related to deductible amounts are accrued based on the Company's estimate of expected losses plus incurred but not reported claims. Emeritus provided professional liability coverage for approximately one-half of its operating locations through a wholly-owned captive insurance carrier, and the captive did not itself acquire excess professional liability coverage until October 1, 2013. Consequently, as a result of the Emeritus acquisition, the Company retains full exposure for professional liability claims incurred at those locations before October 1, 2013 and made prior to July 31, 2014.

As of December 31, ~~2014~~2016 and ~~2013,~~2015, the Company accrued reserves of ~~$301.6~~$184.0 million and ~~$76.6~~$248.4 million, respectively, for these programs of which ~~$184.7~~$112.9 million and ~~$45.3~~$153.5 million is classified as long-term liabilities as of December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. As of December 31, ~~2014~~2016 and ~~2013,~~2015, the Company accrued ~~$52.7~~$22.8 million and ~~$16.0~~$41.5 million, respectively, of estimated amounts receivable from the insurance companies under these insurance programs. During 2016, the Company recorded a $35.4 million decrease in insurance expense from changes in estimates, due to general liability and professional liability and workers compensation claims experience.

The Company has secured self-insured retention risk under workers' compensation ~~and general liability and professional liability~~ programs with cash deposits of ~~$19.6~~$12.4 million and ~~$18.6~~$15.6 million as of December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. Letters of credit securing the programs aggregated ~~$33.8~~$59.5 million and ~~$34.2~~$49.8 million as of December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. ~~Emeritus previously maintained workers' compensation insurance coverage through~~In addition, the Company also had deposits of $37.4 million as of December 31, 2016 to fund claims paid under a high deductible, collateralized insurance policy ~~with deposits of~~ ~~$51.9 million~~ ~~as of December 31, 2014.~~previously maintained by Emeritus.

12. Retirement Plans

The Company maintains a 401(k) Retirement Savings Plan for all employees that meet minimum employment criteria. The plan provides that the participants may defer eligible compensation on a pre-tax basis subject to certain Internal Revenue Code maximum amounts. The Company makes matching contributions in amounts equal to 25.0% of the employee's contribution to the plan, up to a maximum of 4.0% of contributed compensation. An additional matching contribution of 12.5%, subject to the same limit on contributed compensation, may be made at the discretion of the Company, based upon the Company's performance. For the years ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012,~~2014, the Company's expense to the plan was ~~$7.1~~$8.2 million, $6.6 million and ~~$4.8~~$7.1 million, respectively.

~~104~~109

13. ~~�� Related Party Transactions~~

Under the terms of the registration rights provisions of the Company's Stockholders Agreement, which was terminated in connection with the Merger, the Company was generally obligated to pay all fees and expenses incurred in connection with certain public offerings by affiliates of Fortress Investment Group LLC (other than underwriting discounts, commissions and transfer taxes). In connection with the Company's obligations thereunder, the Company incurred approximately $0.4 million of expenses in 2014 related to secondary public equity offerings of Company shares by Fortress affiliates.

~~14.~~ Stock-Based Compensation

The following table sets forth information about the Company's restricted stock awards (excluding restricted stock units) (share amounts in thousands):

	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Outstanding on January 1, 2012		4,222		$	14.93
Granted		1,592		$	19.20
Vested		(1,435	)	$	14.28
Cancelled/forfeited		(427	)	$	15.62
Outstanding on December 31, 2012		3,952		$	16.67
Granted		1,328		$	26.98
Vested		(1,455	)	$	15.08
Cancelled/forfeited		(452	)	$	18.87
Outstanding on December 31, 2013		3,373		$	21.12
Outstanding on January 1, 2014							3,373		$	21.12
Granted		1,662		$	29.79		1,662		$	29.79
Vested		(1,185	)	$	19.58		(1,185	)	$	19.58
Cancelled/forfeited		(298	)	$	21.02		(298	)	$	21.02
Outstanding on December 31, 2014		3,552		$	25.70		3,552		$	25.70
Granted							1,698		$	32.75
Vested							(1,275	)	$	23.55
Cancelled/forfeited							(521	)	$	18.68
Outstanding on December 31, 2015							3,454		$	28.80
Granted							3,141		$	14.56
Vested							(1,242	)	$	26.79
Cancelled/forfeited							(745	)	$	24.75
Outstanding on December 31, 2016							4,608		$	20.29

As of December 31, ~~2014,~~2016, there was ~~$59.1~~$58.2 million of total unrecognized compensation cost related to ~~nonvested~~outstanding, unvested share-based compensation ~~awards granted.~~awards. That cost is expected to be recognized over a weighted-average period of ~~2.3~~2.5 years and is based on grant date fair value, net of forfeiture estimates. The compensation cost reflects an initial estimated cumulative forfeiture rate from 0% to ~~15%~~20% over the requisite service period of the awards. That

~~105~~

estimate is revised if subsequent information indicates that the actual number of awards expected to vest is likely to differ from previous estimates.

During ~~2014,~~2016, grants of restricted shares under the Company's ~~Omnibus Stock Incentive Plan and~~ 2014 Omnibus Incentive Plan were as follows (amounts in thousands except for value per share):

Shares Granted Value Per Share Total Value
Three months ended March 31, 2014 1,028 $ 27.01 – $27.18 $ 27,774
Three months ended June 30, 2014 42 $ 31.06 − $33.84 $ 1,313
Three months ended September 30, 2014 560 $ 33.42 − $34.65 $ 19,356
Three months ended December 31, 2014 32 $ 33.76 $ 1,072

	Shares Granted		Value Per Share		Total Value
Three months ended March 31, 2016		2,855	$	14.50 - 18.46	$	41,399
Three months ended June 30, 2016		111	$	15.68 - 18.03	$	2,001
Three months ended September 30, 2016		54	$	15.90 - 17.46	$	918
Three months ended December 31, 2016		121	$	9.75 - 11.93	$	1,405

The Company has an employee stock purchase plan for all eligible employees. Under the plan, eligible employees of the Company can purchase shares of the Company's common stock on a quarterly basis at a discounted price through accumulated payroll deductions. Each eligible employee may elect to deduct up to 15% of his or her base pay each quarter. Subject to certain limitations specified in the plan, on the last trading date of each calendar quarter, the amount deducted from each participant's pay over the course of the quarter will be used to purchase whole shares of the Company's common stock at a purchase price equal to 90% of the closing market price on the New York Stock Exchange on that date. The Company reserved 1,800,000 shares of common stock for issuance under the plan. The impact on the Company's consolidated financial statements is not material.

110

~~15. Fair Value Measurements~~

The following table sets forth the Company's derivative assets, consisting primarily of interest rate caps that effectively manage the risk above certain interest rates for a portion of the Company's variable rate debt, carried at fair value as measured on a recurring basis as of December 31, 2014 (in thousands):

Total Carrying
Value at
December 31,
2014

Quoted prices
in active
markets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Derivative assets $ 763 $ — $ 763 $ —

~~16.~~14. Share Repurchase Program

On ~~August 11, 2011,~~November 1, 2016, the ~~Company's board~~Company announced that its Board of ~~directors~~Directors had approved a share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of the Company's common ~~stock.~~stock, which replaced the prior authorization approved by the Board in 2011 that had remaining availability of approximately $82.4 million at the time of termination. 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 these 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 program may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares.

NoPursuant to the new authorization, in 2016 the Company repurchased 750,000 shares ~~were purchased pursuant to this authorization during the years ended December 31, 2014, 2013 and 2012.~~at a weighted average price paid per share of $12.83, for an aggregate purchase price of approximately $9.6 million. As of December 31, ~~2014,~~2016, approximately ~~$82.4~~$90.4 million remains available under ~~this~~the new share repurchase authorization.

~~106~~

~~17.~~15. Income Taxes

The benefit (provision) for income taxes is comprised of the following (dollars in thousands):

	For the Years Ended December 31,									For the Years Ended December 31,
	2014			2013			2012			2016			2015			2014
Federal:
Current	$	1,367		$	(312	)	$	193		$	(12	)	$	49		$	1,367
Deferred		182,371			183			347			(3,248	)		95,259			182,371
Total Federal		183,738			(129	)		540			(3,260	)		95,308			183,738
State:
Current		(2,433	)		(1,627	)		(2,059	)		(2,118	)		(3,099	)		(2,433	)
Deferred (included in Federal above)		—			—			—			—			—			—
Total State		(2,433	)		(1,627	)		(2,059	)		(2,118	)		(3,099	)		(2,433	)
Total	$	181,305		$	(1,756	)	$	(1,519	)	$	(5,378	)	$	92,209		$	181,305

A reconciliation of the benefit (provision) for income taxes to the amount computed at the U.S. Federal statutory rate of 35% is as follows (dollars in thousands):

	For the Years Ended December 31,									For the Years Ended December 31,
	2014			2013			2012			2016			2015			2014
Tax benefit at U.S. statutory rate	$	115,756		$	640		$	22,945		$	139,657		$	192,390		$	115,603
State taxes, net of federal income tax											11,788			18,323			11,582
Tax credits											6,163			3,937			(2,222	)
Valuation allowance		64,155			(7,097	)		(24,138	)		(142,862	)		(111,797	)		64,155
State taxes, net of federal income tax		11,582			(985	)		1,258
Unrecognized tax benefits		822			(3	)		193
Goodwill impairment											(10,789	)		(7,856	)		—
Stock compensation											(5,716	)		—			—
Other, net											(1,831	)		(1,626	)		(713	)
Return to provision		716			(2,568	)		(225	)		(920	)		(72	)		716
Meals and entertainment											(868	)		(1,090	)		(946	)
Non-deductible transaction costs		(6,870	)		—			—			—			—			(6,870	)
Tax credits		(2,222	)		9,757			—
Meals and entertainment		(946	)		(496	)		(486	)
Tax rate changes		(718	)		—			—
Officers compensation		(751	)		(724	)		(922	)
Other, net		(118	)		(65	)		122
Lobbying and political		(101	)		(89	)		—
Expired charitable contribution		—			(126	)		—
Loss on acquisition		—			—			(266	)
Total	$	181,305		$	(1,756	)	$	(1,519	)	$	(5,378	)	$	92,209		$	181,305

111

Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows (dollars in thousands):

2014 2013
Deferred income tax assets:
Capital and financing lease obligations $ 945,000 $ 39,748
Operating loss carryforwards 227,956 150,755
Accrued expenses 146,536 54,400
Deferred lease liability 77,790 49,864
Tax credits 34,860 32,673
Intangible assets 17,785 —
Deferred gain on sale leaseback 7,073 8,673
Prepaid revenue 5,835 53,228
Total gross deferred income tax asset 1,462,835 389,341
Valuation allowance (9,213 ) (72,366 )
Net deferred income tax assets 1,453,622 316,975
Deferred income tax liabilities:
Property, plant and equipment (1,556,603 ) (374,431 )
Investment in unconsolidated ventures (54,113 ) —
Other (2,181 ) (6,200 )
Total gross deferred income tax liability (1,612,897 ) (380,631 )
Net deferred tax liability $ (159,275 ) $ (63,656 )

~~107~~

~~A reconciliation of the net deferred tax liability to the consolidated balance sheets at December 31 is as follows (dollars in thousands):~~

2014 2013
Deferred tax asset – current $ 84,199 $ 17,643
Deferred tax liability – noncurrent (243,474 ) (81,299 )
Net deferred tax liability $ (159,275 ) $ (63,656 )

	2016			2015
Deferred income tax assets:
Capital and financing lease obligations	$	862,038		$	872,002
Operating loss carryforwards		319,948			282,075
Accrued expenses		109,283			144,691
Deferred lease liability		93,358			94,105
Tax credits		49,550			40,974
Intangible assets		20,272			22,522
Deferred gain on sale leaseback		4,233			5,661
Prepaid revenue		2,626			2,415
Total gross deferred income tax asset		1,461,308			1,464,445
Valuation allowance		(264,305	)		(121,602	)
Net deferred income tax assets		1,197,003			1,342,843
Deferred income tax liabilities:
Property, plant and equipment		(1,209,595	)		(1,320,423	)
Investment in unconsolidated ventures		(66,678	)		(88,798	)
Other		(1,376	)		(2,673	)
Total gross deferred income tax liability		(1,277,649	)		(1,411,894	)
Net deferred tax liability	$	(80,646	)	$	(69,051	)

As of December 31, ~~2014~~2016 and ~~2013,~~2015, the Company had federal net operating loss carryforwards of approximately ~~$766.9 million~~$1.033 billion and ~~$427.4~~$930.4 million, respectively, which are available to offset future taxable income through ~~2034.~~ 2036. The Company determined that a valuation allowance was required due to the loss before income taxes in 2016, and in consideration of the Company's estimated future reversal of existing timing differences as of December 31, 2016. In 2016, the Company recorded a provision of approximately $142.9 million to reflect the necessary valuation allowance of $264.3 million as of December 31, 2016. The valuation allowance reflects that the Company's net operating losses will begin to expire in 2027. As described in Note 4 to the consolidated financial statements, it is expected that the transactions related to the Blackstone Venture may require the Company to record a significant increase to the Company's existing valuation allowance.

During 2015, the Company determined that a valuation allowance was required due to the loss before income taxes in 2015, combined with the Company's estimated reversal of future timing differences as of December 31, 2015. As a result, the Company has a valuation allowance of $121.6 million as of December 31, 2015. The valuation allowance reflects that our net operating losses will begin to expire in 2027, however, the Company would anticipate using tax planning strategies available to it in order to avoid a true expiration of those losses, should that issue arise. If the Company continues its trend of increasing losses before income taxes, the valuation allowance may be increased in future periods.

As a result of the acquisition of Emeritus on July 31, 2014, the Company recorded deferred tax liabilities in excess of deferred tax assets that reflect the difference between the fair market value of the acquired assets over the historical basis of the acquired assets. ~~The~~During the year ended December 31, 2014, the Company determined that it iswas more likely than not that ~~its'~~its federal net operating ~~losses, the~~loss carryforwards and a majority of its state net operating ~~losses,~~loss carryforwards, and the majority of ~~its'~~its tax credits will be utilized in the future, based on the future reversal of these deferred tax liabilities. As a result, during the year ended December 31, 2014 the Company recorded an aggregate deferred federal, state and local income tax benefit of $64.2 million from the release of the valuation allowance against certain deferred tax assets. Additionally, the Company recorded an aggregate deferred federal, state and local tax benefit of $94.1 million as a result of the operating loss for the year ended December 31, 2014.

The Company has recorded valuation allowances of ~~$7.5~~$218.1 million and ~~$7.0~~$89.5 million at December 31, ~~2014~~2016 and ~~2013,~~2015, respectively, against its federal and state net operating losses, as the Company anticipates these losses will not be utilized prior to expiration. The ~~carryforward period for some states is considerably shorter than the period which is allowed for federal purposes. The~~ Company also recorded a valuation allowance against federal and state credits of ~~$1.8~~$46.2 million and ~~$20.6~~$32.1 million as of December 31, ~~2014~~2016 and ~~2013,~~2015, respectively. As of December 31, ~~2014~~2016 and ~~2013,~~2015, the Company had ~~$112.6~~$126.7 million, ~~and $53.5 million, respectively,~~ included in its net operating loss carryforward relating to restricted stock grants. Under ASC 718-10, this loss will be recorded in additional paid-in capital in the period in which the loss is effectively used to reduce taxes payable.

112

The formation of the Company, the reorganization of a predecessor company and the acquisitions of several wholly-owned subsidiaries constituted ownership changes under Section 382 of the Internal Revenue Code, as amended. As a result, the Company's ability to utilize the net operating loss carryforward to offset future taxable income is subject to certain limitations and restrictions. Furthermore, the Company had an ownership change under Section 382 in May 2010 which resulted in an additional annual limitation to the utilization of the net operating loss in the amount of ~~$92.0~~$92.8 million. The acquisition of Emeritus on July 31, 2014 resulted in an ownership change for Emeritus resulting in an annual limitation of $53.9 million on net operating losses acquired by the Company from Emeritus. The Company expects the net operating ~~loss~~losses of the Company from prior to May 2010 and of Emeritus to be fully released before expiration and therefore does not anticipate a financial statement impact as a result of the ~~limitation.~~limitations.

At December 31, ~~2014,~~2016, the Company had gross tax affected unrecognized tax benefits of ~~$30.2~~$29.1 million, which, if recognized, would result in an income tax benefit in accordance with ASC 805. Interest and penalties related to these tax positions are classified as tax expense in the Company's consolidated financial statements. Total interest and penalties reserved is ~~$0.5~~$0.1 million at December 31, ~~2014.~~2016. Tax returns for years ~~2011~~2012 through ~~2013~~2015 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination. The Company does not expect that unrecognized tax benefits for tax positions taken with respect to ~~2014~~2016 and prior years will significantly change in ~~2015.~~2017.

A reconciliation of the unrecognized tax benefits for the ~~year 2014~~years ended December 31, 2016 and 2015 is as follows (dollars in thousands):

Balance at January 1, 2014	$	1,556
Additions for tax positions taken by Emeritus		29,664
				For the Years Ended December 31,
				2016			2015
Balance at January 1,				$	30,236		$	30,195
Additions for tax positions related to the current year		—			—			—
Additions for tax positions related to prior years		9			30			50
Reductions for tax positions related to prior years		(1,034	)		(1,106	)		(9	)
Balance at December 31, 2014	$	30,195
Balance at December 31,				$	29,160		$	30,236

On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property as well as dispositions of such property and are generally effective for tax years beginning on or after January 1, ~~2014.~~2015. The Company has evaluated these regulations and determined they will not have a material impact on the Company's consolidated results of operations, cash flows or financial position.

113

~~108~~

~~18.~~16. Supplemental Disclosure of Cash Flow Information

(dollars in thousands)	For the Years Ended December 31,									For the Years Ended December 31,
Supplemental Disclosure of Cash Flow Information:	2014			2013			2012			2016			2015			2014
Interest paid	$	226,594		$	123,036		$	130,009		$	349,535		$	360,960		$	226,594
Income taxes paid	$	2,746		$	2,283		$	2,658		$	2,047		$	2,952		$	2,746
Write-off of deferred financing costs	$	616		$	763		$	744
Additions to property, plant and equipment and leasehold improvements
Property, plant and equipment and leasehold intangibles, net										$	300,113		$	448,682		$	304,245
Accounts payable											33,534			(37,631	)		—
Net cash paid										$	333,647		$	411,051		$	304,245
Acquisitions of assets, net of related payables and cash received, net:
Cash and escrow deposits—restricted	$	—		$	466		$	2,169		$	—		$	—		$	—
Prepaid expenses and other current assets		(391	)		(1,265	)		(2,817	)
Prepaid expenses and other assets, net											—			(53,405	)		(3,138	)
Property, plant and equipment and leasehold intangibles, net		80,330			99,657			257,772			19,457			198,558			80,330
Other intangible assets, net		(23,978	)		3,517			9,575			(7,300	)		(7,294	)		(23,978	)
Other assets, net		(2,747	)		1,611			(7,327	)
Accrued expenses		—			(5,169	)		(573	)		—			—			—
Long-term debt											—			(101,558	)		7,795
Capital and financing lease obligations											—			155,230			—
Other liabilities		(20,568	)		—			3,601			—			(315	)		(20,568	)
Long-term debt		7,795			(64,131	)		10,123
Net cash paid	$	40,441		$	34,686		$	272,523		$	12,157		$	191,216		$	40,441
Proceeds from sale of assets, net:
Assets held for sale										$	(289,452	)	$	—		$	—
Prepaid expenses and other assets, net											(4,543	)		25,780			—
Property, plant and equipment and leasehold intangibles, net											—			(82,953	)		—
Capital and financing lease obligations											—			8,907			—
Other liabilities											3,281			(960	)		—
Gain on sale of assets											(7,218	)		—			—
Net cash received										$	(297,932	)	$	(49,226	)	$	—
Formation of CCRC Venture:
Property, plant and equipment and leasehold intangibles, net	$	(729,123	)	$	—		$	—		$	—		$	—		$	(729,123	)
Investment in unconsolidated ventures		194,485			—			—			—			—			194,485
Other intangible assets, net		(56,829	)		—			—			—			—			(56,829	)
Other assets, net		(9,137	)		—			—			—			—			(9,137	)
Long-term debt		170,416			—			—			—			—			170,416
Capital and financing lease obligations		27,085			—			—			—			—			27,085
Refundable entrance fees and deferred revenue		413,761			—			—			—			—			413,761
Other liabilities		1,514			—			—			—			—			1,514
Net cash paid	$	12,172		$	—		$	—		$	—		$	—		$	12,172
Formation of HCP 49 Venture:
Property, plant and equipment and leasehold intangibles, net		(525,446	)		—			—		$	—		$	—		$	(525,446	)
Investment in unconsolidated ventures		71,656			—			—			—			—			71,656
Long-term debt		(67,640	)		—			—			—			—			(67,640	)
Capital and financing lease obligations		538,355			—			—			—			—			538,355
Other liabilities		(9,034	)		—			—			—			—			(9,034	)
Net cash paid	$	7,891		$	—		$	—		$	—		$	—		$	7,891
Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
Capital and financing leases:
Property, plant and equipment and leasehold intangibles, net	$	27,100		$	—		$	13,852
Capital and financing lease obligations		(27,100	)		—			(13,852	)
Net	$	—		$	—		$	—
Master Lease amendment:
Property, plant and equipment and leasehold intangibles, net		385,696			—			—
Other intangible assets, net		(174,012	)		—			—
Capital and financing lease obligations		(217,022	)		—			—
Other liabilities		5,338			—			—
Net	$	—		$	—		$	—

~~109~~114

Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
Capital and financing leases:
Property, plant and equipment and leasehold intangibles, net	$	—		$	26,644		$	27,100
Other intangible assets, net		—			(5,202	)		—
Capital and financing lease obligations		—			(23,738	)		(27,100	)
Other liabilities		—			2,296			—
Net	$	—		$	—		$	—
Master Lease amendment:
Property, plant and equipment and leasehold intangibles, net	$	—		$	—		$	385,696
Other intangible assets, net		—			—			(174,012	)
Capital and financing lease obligations		—			—			(217,022	)
Other liabilities		—			—			5,338
Net	$	—		$	—		$	—
Assets designated as held for sale:
Property, plant and equipment and leasehold intangibles, net	$	(262,711	)	$	(113,592	)	$	—
Assets held for sale		278,675			110,620			—
Prepaid expenses and other current assets		(3,195	)		—			—
Goodwill		(28,568	)		(12,200	)		—
Asset impairment		15,799			15,172			—
Net	$	—		$	—		$	—
Contribution to CCRC venture:
Property, plant and equipment	$	—		$	(25,717	)	$	—
Investment in unconsolidated ventures		—			7,422			—
Long-term debt		—			18,295			—
Net	$	—		$	—		$	—

~~19.~~

17. Litigation

The Company has been and is currently involved in litigation and claims incidental to the conduct of its business which are comparable to other companies in the senior living industry. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. Similarly, the senior living industry is continuously subject to scrutiny by governmental regulators, which could result in litigation related to regulatory compliance matters. As a result, the Company maintains general liability and professional liability insurance policies in amounts and with coverage and deductibles the Company believes are adequate, based on the nature and risks of its business, historical experience and industry standards. The Company's current policies provide for deductibles for each claim. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts.

115

~~Stockholder Litigation~~

In connection with the acquisition of Emeritus described in Note 4, three purported class action lawsuits relating to the Merger Agreement, by and among the Company, Emeritus and Merger Sub, were filed on behalf of Emeritus shareholders in the Superior Court of King County, Washington against Emeritus, members of the Emeritus board of directors, the Company and Merger Sub (the "Defendants"), which lawsuits were subsequently consolidated into a single action captioned In re Emeritus Corp. Shareholder Litigation, No. 14-2-06385-7 SEA (the "Washington Action"). On June 26, 2014, the Defendants entered into a memorandum of understanding (the "Memorandum of Understanding") with respect to a proposed settlement of the Washington Action, pursuant to which the parties agreed, among other things, that the Company and Emeritus would make certain supplemental disclosures related to the proposed merger, which supplemental disclosures were made by the Company in a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 27, 2014 and incorporated by reference into the Company's Registration Statement on Form S-4 and the joint proxy statement/prospectus of the Company and Emeritus included therein. The parties have agreed to use their collective best efforts to obtain final approval of the settlement and the dismissal of the Washington Action with prejudice. The parties have finalized a stipulation of settlement, which is subject to customary conditions, including final court approval following notice to Emeritus' shareholders. As explained in the Memorandum of Understanding, if the settlement is finally approved by the Washington court, the parties anticipate that it will resolve and release all claims in all actions pursuant to terms that will be disclosed to former Emeritus shareholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiffs' counsel in the Washington Action will file a petition in the Washington court for an award of attorneys' fees and expenses to be paid by the Company. The Company will pay or cause to be paid any attorneys' fees and expenses awarded by the Washington court. There can be no assurance that the Washington court will approve the settlement. In such event, the proposed settlement as contemplated by the Memorandum of Understanding may be terminated.

~~20.~~18. Segment Information

As of December, 31, ~~2014~~2016 the Company has five reportable segments: Retirement Centers; Assisted Living; CCRCs – Rental; Brookdale Ancillary Services; and Management Services. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

Prior to August 29, 2014, the Company had an additional reportable segment, CCRCs - Entry Fee. On August 29, 2014, the Company contributed all but two of ~~its~~the legacy Brookdale entry fee CCRCs to the CCRC Venture, at which time the contributed CCRCs were deconsolidated. The results of the entry fee CCRCs contributed to the CCRC Venture are reported in the CCRCs - Entry Fee segment for the time periods prior to being contributed to the CCRC Venture. The results of the two legacy Brookdale CCRCs that were not contributed to the CCRC Venture are included in the CCRCs - Entry Fee segment for the six month period ended June 30, 2014 and the CCRCs - Rental segment for ~~the six month period ended December 31,~~periods subsequent to June 30, 2014, based on how operating results are being reviewed by the chief operating decision maker following the creation of the CCRC Venture. The CCRC Venture is accounted for under the equity method of accounting. See Note 4 for more information about the Company's entry into the CCRC Venture.

~~110~~

During 2014, two communities were moved from the Retirement Centers segment to the Assisted Living segment and one community was moved from the Retirement Centers segment to the CCRCs – Rental segment to more accurately reflect the underlying product offering of the communities. The movement did not change the Company's reportable segments, but it did impact the revenues and expenses reported within the Retirement Centers, Assisted Living and CCRCs - Rental segments. Revenue and expenses for the year ended December 31, 2013 have not been recast.

Retirement Centers. The Company's Retirement Centers segment includes owned or leased communities that are primarily designed for middle to upper income seniors generally age 75 and older who desire an upscale residential environment providing the highest quality of service. The majority of the Company's retirement center communities consist of both independent living and assisted living units in a single community, which allows residents to "age-in-place" by providing them with a continuum of senior independent and assisted living services.

Assisted Living. The Company's Assisted Living segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily life to mid-acuity frail and elderly residents. Assisted living communities include both freestanding, multi-story communities and freestanding single story communities. The Company also operates memory care communities, which are freestanding assisted living communities specially designed for residents with Alzheimer's disease and other dementias.

CCRCs - Rental. The Company's CCRCs - Rental segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health. Most of the Company's CCRCs have independent living, assisted living and skilled nursing available on one campus or within the immediate market, and some also include memory care/Alzheimer's units. As of December 31, 2016, 2015 and 2014 the CCRCs - Rental segment also includes three entry fee CCRCs.

CCRCs - Entry Fee. Prior to August 29, 2014, the Company had an additional reportable segment, CCRCs - Entry Fee. The communities in the Company's former CCRCs - Entry Fee segment are similar to rental CCRCs but allow for residents in the independent living apartment units to pay a one-time upfront entrance fee, which is partially refundable in certain circumstances. The amount of the entrance fee varies depending upon the type and size of the dwelling unit, the type of contract plan selected, whether the contract contains a lifecare benefit for the resident, the amount and timing of refund, and other variables. In addition to the initial entrance fee, residents under all entrance fee agreements also pay a monthly service fee, which entitles them to the use of certain amenities and services. ~~Since entrance fees are received upon initial occupancy, the monthly fees are generally less than fees at a comparable rental community.~~

Brookdale Ancillary Services. The Company's Brookdale Ancillary Services segment includes the outpatient therapy, home health and hospice services, as well as education and wellness programs, provided to residents of many of the Company's communities ~~to other senior living communities that the Company does not own or operate~~ and to seniors living outside of the Company's communities. The Brookdale Ancillary Services segment does not include the inpatient therapy services provided in the Company's skilled nursing units, which are included in the Company's CCRCs - Rental and CCRCs - Entry Fee segments.

Management Services. The Company's Management Services segment includes communities operated by the Company pursuant to management agreements. In some of the cases, the controlling financial interest in the community is held by third parties and, in other cases, the community is owned in a venture structure in which the Company has an ownership interest. Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement of expenses it incurs on behalf of the owners.

The accounting policies of the Company's reportable segments are the same as those described in the summary of significant accounting policies in Note 2.

116

The following table sets forth selected segment financial and operating data (dollars in thousands):

~~111~~

	For the Years Ended December 31,
	2016			2015			2014
Revenue:
Retirement Centers⁽¹⁾	$	679,503		$	657,940		$	582,312
Assisted Living⁽¹⁾		2,419,459			2,445,457			1,685,563
CCRCs - Rental⁽¹⁾		592,826			604,572			493,173
CCRCs - Entry Fee⁽¹⁾		—			—			202,414
Brookdale Ancillary Services⁽¹⁾		476,833			469,158			337,835
Management Services⁽²⁾		808,359			783,481			530,409
	$	4,976,980		$	4,960,608		$	3,831,706
Segment Operating Income⁽³⁾:
Retirement Centers	$	294,530		$	285,257		$	248,883
Assisted Living		876,817			877,303			608,489
CCRCs - Rental		133,409			150,495			121,661
CCRCs - Entry Fee		—			—			48,433
Brookdale Ancillary Services		64,463			75,210			63,463
Management Services		70,762			60,183			42,239
		1,439,981			1,448,448			1,133,168
General and administrative (including non-cash stock-based compensation expense)		313,409			370,579			280,267
Transaction costs		3,990			8,252			66,949
Facility lease expense:
Retirement Centers		120,272			114,738			98,321
Assisted Living		193,670			197,452			162,575
CCRCs - Rental		51,727			47,937			51,523
CCRCs - Entry Fee		—			—			4,362
Brookdale Ancillary Services		—			—			890
Corporate and Management Services		7,966			7,447			6,159
Depreciation and amortization:
Retirement Centers		94,049			104,063			86,188
Assisted Living		308,639			489,933			317,918
CCRCs - Rental		66,431			87,754			60,175
CCRCs - Entry Fee		—			—			37,524
Brookdale Ancillary Services		4,075			7,451			4,764
Corporate and Management Services		47,208			43,964			30,466
Asset impairment		248,515			57,941			9,992
Loss on facility lease termination		11,113			76,143			—
Income (loss) income from operations	$	(31,083	)	$	(165,206	)	$	(84,905	)

Total interest expense:
Retirement Centers	$	56,827		$	58,397		$	41,906
Assisted Living		249,449			250,116			140,001
CCRCs - Rental		39,824			39,502			28,418
CCRCs - Entry Fee		—			—			7,530
Brookdale Ancillary Services		1,461			1,354			823
Corporate and Management Services		38,056			39,395			29,510
	$	385,617		$	388,764		$	248,188

Total capital expenditures for property, plant and equipment, and leasehold intangibles:
Retirement Centers	$	59,978		$	161,986		$	76,285
Assisted Living		156,732			220,893			107,037
CCRCs - Rental		37,800			54,864			42,412
CCRCs - Entry Fee		—			—			36,575
Brookdale Ancillary Services		1,576			4,061			1,805
Corporate and Management Services		44,027			6,878			40,131
	$	300,113		$	448,682		$	304,245

For the Years Ended December 31,
2014 2013 2012
Revenue:
Retirement Centers⁽¹⁾
$ 582,312 $ 526,284 $ 503,902
Assisted Living⁽¹⁾
1,685,563 1,051,868 1,013,337
CCRCs - Rental⁽¹⁾
493,173 396,975 385,479
CCRCs - Entry Fee⁽¹⁾
202,414 297,756 285,701
Brookdale Ancillary Services⁽¹⁾
337,835 242,150 224,517
Management Services⁽²⁾
530,409 376,933 355,802
$ 3,831,706 $ 2,891,966 $ 2,768,738
Segment Operating Income⁽³⁾:

Retirement Centers $ 248,883 $ 222,282 $ 205,585
Assisted Living 608,489 389,678 361,184
CCRCs - Rental 121,661 109,026 106,063
CCRCs - Entry Fee 48,433 76,393 61,405
Brookdale Ancillary Services 63,463 45,709 47,780
Management Services 42,239 31,125 30,786
1,133,168 874,213 812,803
General and administrative (including non-cash stock-based compensation expense) 280,267 180,627 178,829
Transaction costs 66,949 3,921 —
Facility lease expense:
Retirement Centers 98,321 91,258 102,273
Assisted Living 162,575 123,980 123,128
CCRCs - Rental 51,523 48,809 47,238
CCRCs - Entry Fee 4,362 7,470 7,214
Brookdale Ancillary Services 890 — —
Corporate and Management Services 6,159 5,212 4,172
Depreciation and amortization:
Retirement Centers 86,188 64,353 61,060
Assisted Living 317,918 85,337 81,801
CCRCs - Rental 60,175 30,957 31,205
CCRCs - Entry Fee 37,524 55,842 52,840
Brookdale Ancillary Services 4,764 3,023 2,220

~~112~~117

Corporate and Management Services 30,466 29,245 23,155
Asset impairment 9,992 12,891 27,677
Loss on acquisition — — 636
Gain on facility lease termination — — (11,584 )
(Loss) income from operations $ (84,905 ) $ 131,288 $ 80,939

Total interest expense:
Retirement Centers $ 41,906 $ 31,286 $ 29,025
Assisted Living 140,001 51,410 57,634
CCRCs - Rental 28,418 17,512 17,336
CCRCs - Entry Fee 7,530 11,911 13,792
Brookdale Ancillary Services 823 — —
Corporate and Management Services 29,510 25,280 28,996
$ 248,188 $ 137,399 $ 146,783

Total expenditures for property, plant and equipment, and leasehold intangibles:
Retirement Centers $ 76,285 $ 63,519 $ 58,876
Assisted Living 107,037 95,829 68,675
CCRCs - Rental 42,412 27,134 21,916
CCRCs - Entry Fee 36,575 43,019 24,890
Brookdale Ancillary Services 1,805 1,855 6,037
Corporate and Management Services 40,131 26,171 28,018
$ 304,245 $ 257,527 $ 208,412

	As of December 31,				As of December 31,
	2014		2013		2016		2015
Total assets:
Retirement Centers	$	1,603,704	$	1,258,294	$	1,452,546	$	1,556,169
Assisted Living		6,513,376		1,514,385		5,831,434		6,354,415
CCRCs - Rental		1,065,116		499,873		935,389		1,037,384
CCRCs - Entry Fee		—		960,708
Brookdale Ancillary Services		224,229		94,986		280,530		292,540
Corporate and Management Services		1,114,938		409,511		717,788		808,056
	$	10,521,363	$	4,737,757	$	9,217,687	$	10,048,564

(1)

All revenue is earned from external third parties in the United States.

(2)

Management services segment revenue includes reimbursements for which the Company is the primary obligor of costs incurred on behalf of managed communities.

(3)

Segment operating income is defined as segment revenues less segment facility operating expenses (excluding depreciation and amortization).

~~21.~~19. Quarterly Results of Operations (Unaudited)

The following is a summary of quarterly results of operations for each of the fiscal quarters in ~~2014~~2016 and ~~2013~~2015 (in thousands, except per share amounts):

	For the Quarters Ended
	March 31, 2016			June 30, 2016			September 30, 2016			December 31, 2016
Revenues	$	1,263,156		$	1,258,830		$	1,246,126		$	1,208,868
Asset impairment		3,375			4,152			19,111			221,877
Income (loss) from operations		41,354			58,287			47,645			(178,369	)
Income (loss) before income taxes		(47,152	)		(35,368	)		(47,569	)		(269,169	)
Net income (loss)		(48,817	)		(35,491	)		(51,728	)		(268,600	)
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders		(48,775	)		(35,450	)		(51,685	)		(268,487	)
Weighted average basic and diluted income (loss) per share	$	(0.26	)	$	(0.19	)	$	(0.28	)	$	(1.45	)

	For the Quarters Ended
	March 31, 2015			June 30, 2015			September 30, 2015			December 31, 2015
Revenues	$	1,247,881		$	1,238,184		$	1,238,841		$	1,235,702
Asset impairment		—			—			—			57,941
Income (loss) from operations		(116,873	)		(43,123	)		3,663			(8,873	)
Income (loss) before income taxes		(208,997	)		(137,400	)		(99,132	)		(104,835	)
Net income (loss)		(130,709	)		(84,807	)		(68,336	)		(174,303	)
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders		(130,451	)		(84,547	)		(68,220	)		(174,259	)
Weighted average basic and diluted income (loss) per share	$	(0.71	)	$	(0.46	)	$	(0.37	)	$	(0.94	)

~~113~~118

For the Quarters Ended

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

Revenues $ 747,275 $ 748,393 $ 1,083,935 $ 1,252,103
Asset impairment — — — 9,992
Income (loss) from operations 32,148 30,657 (73,197 ) (74,513 )
Loss before income taxes (1,293 ) (2,333 ) (153,109 ) (173,996 )
Net loss (2,299 ) (3,295 ) (37,036 ) (106,796 )
Net loss attributable to Brookdale Senior Living Inc. common stockholders (2,299 ) (3,295 ) (36,862 ) (106,534 )
Weighted average basic and diluted loss per share $ (0.02 ) $ (0.03 ) $ (0.23 ) $ (0.58 )

For the Quarters Ended

March 31,
2013

June 30,
2013

September 30,
2013

December 31,
2013

Revenues $ 712,266 $ 716,468 $ 728,999 $ 734,233
Asset impairment — 2,154 504 10,233
Income from operations 38,687 28,435 33,983 30,183
Income (loss) before income taxes 4,706 (4,036 ) (7 ) (2,491 )
Net income (loss) 3,558 (5,200 ) (967 ) (975 )
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders 3,558 (5,200 ) (967 ) (975 )
Weighted average basic and diluted earnings (loss) per share $ 0.03 $ (0.04 ) $ (0.01 ) $ (0.01 )

~~22. Subsequent Events~~

On December 29, 2014, the Company exercised its purchase option under the Master Lease with HCP. See Note 4 for more information about the Master Lease. As a result, the Company agreed to purchase the fee simple of nine communities leased to the Company under the Master Lease for an aggregate purchase price of $60.0 million. On December 31, 2014, the Company paid the full purchase price of $51.4 million of cash as a deposit for the purchase of eight of the nine communities, and the Company took title to these eight communities at the closing on January 1, 2015. At such time, the Master Lease terminated with respect to these eight communities and the annual rent for 2015 under the Master Lease was reduced by approximately $4.2 million. At December 31, 2014, this acquisition deposit was included in prepaid expenses and other current assets, net on the Company's consolidated balance sheet. These eight communities are located throughout the United States and operations under the previous lease terms are recorded within the Company's Assisted Living segment within the consolidated financial statements for the fiscal year ended December 31, 2014. The acquisition of the ninth community is subject to the satisfaction of certain closing conditions and contingencies, including the receipt of various third-party and regulatory approvals and consents. The acquisition of the ninth community is expected to close in 2015.

In February 2015, the Company acquired the underlying real estate associated with 15 communities that were previously leased for an aggregate purchase price of approximately $275 million. The results of operations of these communities are reported in the Retirement Centers, Assisted Living, and CCRCs – Rental segments. The Company financed the transaction with cash on hand, amounts drawn on the secured credit facility and $20.0 million of seller financing. The $20.0 million note has a five year term and bears interest at a fixed rate of 8.0%.

~~114~~

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

December 31, ~~2014~~2016

(In thousands)

					Additions															Additions
Description	Balance at beginning of period		Acquisition of Emeritus		Charged to costs and expenses			Charged to other accounts			Deductions			Balance at end of period		Balance at beginning of period		Acquisition of Emeritus		Charged to costs and expenses			Charged to other accounts			Deductions			Balance at end of period
Allowance for Doubtful Accounts:
Year ended December 31, 2012	$	16,972	$	—	$	15,683		$	660		$	(18,053	)	$	15,262
Year ended December 31, 2013	$	15,262	$	—	$	21,048		$	444		$	(19,026	)	$	17,728
Year ended December 31, 2014	$	17,728	$	11,087	$	20,509		$	771		$	(23,594	)	$	26,501	$	17,728	$	11,087	$	20,509		$	771		$	(23,594	)	$	26,501
Year ended December 31, 2015																$	26,501	$	—	$	25,132		$	2,135		$	(27,298	)	$	26,470
Year ended December 31, 2016																$	26,470	$	—	$	30,632		$	2,680		$	(32,738	)	$	27,044

Deferred Tax Valuation Allowance:
Year ended December 31, 2012	$	40,820	$	—	$	26,989	⁽¹⁾	$	(2,540	)⁽²⁾	$	—		$	65,269
Year ended December 31, 2013	$	65,269	$	—	$	7,272	⁽³⁾	$	(175	)⁽⁴⁾	$	—		$	72,366
Year ended December 31, 2014	$	72,366	$	1,002	$	—		$	—		$	(64,155	)⁽⁵⁾	$	9,213	$	72,366	$	1,002	$	—		$	—		$	(64,155	)⁽¹⁾	$	9,213
Year ended December 31, 2015																$	9,213	$	—	$	111,797	⁽²⁾	$	592	⁽²⁾	$	—		$	121,602
Year ended December 31, 2016																$	121,602	$	—	$	142,862	⁽³⁾	$	—		$	(159	)⁽⁴⁾	$	264,305

~~(1)~~

~~Adjustment to valuation allowance for federal net operating losses and federal credits of $26,589 and $400, respectively.~~

(1) Adjustment to reverse valuation allowance for federal and state net operating losses of $(64,155).

~~(2)~~

~~Adjustment to valuation allowance for state net operating losses of $(2,540).~~

(2) Adjustment to valuation allowance for federal and state net operating losses and federal credits of $81,968 and $30,421, respectively.

~~(3)~~

~~Adjustment to valuation allowance for federal net operating losses and federal credits of $(4,851) and $12,123, respectively.~~

(3) Adjustment to valuation allowance for federal and state net operating losses and federal credits of $128,931 and $13,931,

~~(4)~~

~~Adjustment to valuation allowance for state net operating losses of $(175).~~

respectively.

~~(5)~~

~~Adjustment to reverse valuation allowance for federal and state net operating losses of $(64,155).~~

(4) Prior year adjustment related to state valuation allowance.

~~115~~119

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of December 31, 2016, our disclosure controls and procedures were effective.

Management's Assessment of Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). ~~Management~~Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.

Based on ~~this~~the Company's evaluation, management concluded that our internal control over financial reporting was effective as of December 31, ~~2014.~~2016. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, ~~2014~~2016 has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K and incorporated herein by reference.

We acquired Emeritus on July 31, 2014, and management excluded it from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2014. Emeritus' internal control over financial reporting is associated with total assets of $6.2 billion, liabilities of $4.4 billion and total revenues of $785.5 million included in the consolidated financial statements of the Company and its subsidiaries as of and for the year ended December 31, 2014.

~~Disclosure Controls and Procedures~~

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of December 31, 2014, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There has not been any change in our 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 fiscal quarter ended December 31, ~~2014~~2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

None.

~~116~~

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference from the discussions under the headings "Proposal Number ~~One -~~ One—Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our Definitive Proxy Statement for the ~~2015~~2017 Annual Meeting of Stockholders. Pursuant to General Instruction G(3), certain information concerning our executive officers is contained in the discussion entitled "Executive Officers of the Registrant" appearing after Item 1 of Part I of this Annual Report on Form 10-K.

~~We have~~Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including our principal executive officer, our principal financial officer, our principal accounting officer or controller, or persons performing similar functions, as well as a Code of Ethics for Chief Executive and Senior Financial Officers, which applies to our President and Chief Executive Officer, ~~President,~~ Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, both of which are available on our website at www.brookdale.com. Any amendment to, or waiver from, a provision of such codes of ethics granted to a principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions, or to any executive officer or director, will be posted on our website.

120

~~117~~

Item 11.

Executive Compensation.

The information required by this item is incorporated by reference from the discussions under the headings "Compensation of Directors" and "Compensation of Executive Officers" in our Definitive Proxy Statement for the ~~2015~~2017 Annual Meeting of Stockholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference from the discussion under the heading "Security Ownership of Certain Beneficial Owners and Management" in our Definitive Proxy Statement for the ~~2015~~2017 Annual Meeting of Stockholders.

The following table provides certain information as of December 31, ~~2014~~2016 with respect to our equity compensation plans (after giving effect to shares issued and/or vesting on such date):

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)⁽¹⁾		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)⁽²⁾
Equity compensation plans approved by security holders		—		—		~~8,446,056~~4,556,638
Equity compensation plans not approved by security holders⁽³⁾		—		—		~~83,066~~70,521
Total		—		—		~~8,529,122~~4,627,159

(1)

As of December 31, ~~2014,~~2016, an aggregate of ~~557,963~~3,945,855 shares of unvested restricted stock and 10,348 vested restricted stock units were outstanding under our 2014 Omnibus Incentive Plan, and an aggregate of ~~2,994,180~~662,332 shares of unvested restricted stock and 6,850 vested restricted stock units were outstanding under our Omnibus Stock Incentive Plan. Such shares of restricted stock and restricted stock units are not reflected in the table above. Our 2014 Omnibus Incentive Plan allows awards to be made in the form of stock options, ~~warrants,~~stock appreciation rights, ~~shares of~~ restricted ~~stock,~~shares, restricted stock units, unrestricted shares, performance awards and other ~~forms of equity-based compensation.~~stock-based awards.

(2)

The number of shares remaining available for future issuance under equity compensation plans approved by security holders consists of ~~7,127,892~~3,532,466 shares remaining available for future issuance under our 2014 Omnibus Incentive Plan and ~~1,318,164~~1,024,172 shares remaining available for future issuance under our Associate Stock Purchase Plan.

(3)

Represents shares remaining available for future issuance under our Director Stock Purchase Plan. Under the existing compensation program for the members of our Board of Directors, each ~~non-affiliated~~non-employee/non-consultant director has the opportunity to elect to receive either immediately vested shares or restricted stock units in lieu of up to 50% of his or her quarterly cash compensation. Any immediately vested shares that are elected to be received will be issued pursuant to the Director Stock Purchase Plan. Under the director compensation program, all cash amounts are payable quarterly in arrears, with payments to be made on April 1, July 1, October 1 and January 1. Any immediately vested shares that a director elects to receive under the Director Stock Purchase Plan will be issued at the same time that cash payments are made. The number of shares to be issued will be based on the closing price of our common stock on the date of issuance (i.e., April 1, July 1, October 1 and January 1), or if such date is not a trading date, on the previous trading day's closing price. Fractional amounts will be paid in cash. The Board of Directors initially reserved 100,000 shares of our common stock for issuance under the Director Stock Purchase Plan.

~~118~~

121

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference from the discussions under the headings "Certain Relationships and Related Transactions" and "Director Independence" in our Definitive Proxy Statement for the ~~2015~~2017 Annual Meeting of Stockholders.

Item 14.

Principal Accounting Fees and Services.

The information required by this item is incorporated by reference from the discussion under the heading "Proposal Number ~~Two –~~ Two—Ratification of Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm" in our Definitive Proxy Statement for the ~~2015~~2017 Annual Meeting of Stockholders.

~~119~~

PART IV

Item 15.

Exhibits, ~~and~~ Financial Statement Schedules.

The following documents are filed as part of this report:

Our Audited Consolidated Financial Statements

Report of the Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, ~~2014~~2016 and ~~2013~~2015

Consolidated Statements of Operations for the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014

~~Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012~~

Consolidated Statements of Equity for the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2014, 2013~~2016, 2015 and ~~2012~~2014

Notes to Consolidated Financial Statements

Schedule II – Valuation and Qualifying Accounts

Exhibits – See Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.

~~120~~122

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BROOKDALE SENIOR LIVING INC.

	By:	/s/ T. Andrew Smith
	Name:	T. Andrew Smith
	Title:	President and Chief Executive Officer
	Date:	February ~~24, 2015~~14, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ ~~Jeffrey R. Leeds~~Daniel A. Decker	~~Non-Executive~~Executive Chairman of the Board	February ~~24, 2015~~14, 2017
~~Jeffrey R. Leeds~~Daniel A. Decker

/s/ T. Andrew Smith	President, Chief Executive Officer and Director	February ~~24, 2015~~14, 2017
T. Andrew Smith	(Principal Executive Officer)

/s/ ~~Mark W. Ohlendorf~~Lucinda M. Baier	~~President and~~ Chief Financial Officer	February ~~24, 2015~~14, 2017
~~Mark W. Ohlendorf~~Lucinda M. Baier	(Principal Financial Officer)

/s/ ~~Kristin A. Ferge~~Dawn L. Kussow	~~Executive~~Senior Vice President and Chief Accounting Officer ~~and Treasurer~~	February ~~24, 2015~~14, 2017
~~Kristin A. Ferge~~Dawn L. Kussow	(Principal Accounting Officer)

/s/ Frank M. Bumstead	Director	February ~~24, 2015~~14, 2017
Frank M. Bumstead

/s/ Jackie M. Clegg	Director	February ~~24, 2015~~14, 2017
Jackie M. Clegg

/s/ ~~Granger Cobb~~Jeffrey R. Leeds	Director	February ~~24, 2015~~14, 2017
~~Granger Cobb~~Jeffrey R. Leeds

/s/ Mark J. Parrell	Director	February 14, 2017
Mark J. Parrell

/s/ William G. Petty, Jr.	Director	February ~~24, 2015~~14, 2017
William G. Petty, Jr.

~~/s/ Mark J. Schulte~~	~~Director~~	~~February 24, 2015~~
~~Mark J. Schulte~~

/s/ James R. Seward	Director	February ~~24, 2015~~14, 2017
James R. Seward

/s/ ~~Samuel Waxman~~Lee S. Wielansky	Director	February ~~24, 2015~~14, 2017
~~Samuel Waxman~~Lee S. Wielansky

~~121~~123

EXHIBIT INDEX

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of February 20, 2014, by and among Brookdale Senior Living Inc. (the "Company"), Emeritus Corporation and Broadway Merger Sub Corporation (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 21, 2014 (File No. 001-32641)).
2.2		Master Contribution and Transactions Agreement, dated as of April 23, 2014, by and between the Company and HCP, Inc. (incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q filed on August 11, 2014 (File No. 001-32641)).
3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed on February 26, 2010 (File No. 001-32641)).
3.2		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated July 30, 2014 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 5, 2014 (File No. 001-32641)).
3.3		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on July 3, 2012 (File No. 001-32641)).
4.1		Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Amendment No. 3) filed on November 7, 2005 (File No. 333-127372)).
4.2		Indenture, dated as of June 14, 2011, between the Company and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 14, 2011 (File No. 001-32641)).
4.3		Supplemental Indenture, dated as of June 14, 2011, between the Company and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on June 14, 2011 (File No. 001-32641)).
4.4		Form of 2.75% Convertible Senior Note due 2018 (included as part of Exhibit 4.3).
10.1.1		Amended and Restated Master Lease and Security Agreement, dated as of August 29, 2014, by and between HCP, Inc. and the other lessors named therein, and Emeritus Corporation and the other lessees named therein (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-32641)).^†

~~122~~

~~Exhibit No.~~	~~Description~~
10.1.2		First Amendment to Amended and Restated Master Lease and Security Agreement and Option Exercise Notice, dated as of December 29, 2014, by and between HCP, Inc. and the ~~Company.~~Company (incorporated by reference to Exhibit 10.1.2 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).^††
10.1.3		Second Amendment to Amended and Restated Master Lease and Security Agreement, dated as of January 1, 2015, by and among HCP, Inc. and the other lessors named therein, Emeritus Corporation and the other lessees named therein, and the Company as ~~guarantor.~~guarantor (incorporated by reference to Exhibit 10.1.3 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).^††
~~10.2.1~~10.1.4		Third Amendment to Amended and Restated ~~Credit~~Master Lease and Security Agreement, dated as of ~~September 20, 2013,~~May 1, 2015, by and among ~~certain subsidiaries of the Company, General Electric Capital Corporation, as administrative agent, lender and swingline lender,~~HCP, Inc. and the other ~~lenders from time to time parties thereto~~lessors named therein, Emeritus Corporation and the other lessees named therein, and the Company as guarantor (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on ~~November 8, 2013~~August 7, 2015 (File No. 001-32641)).
~~10.2.2~~10.1.5		Fourth Amendment to Amended and Restated Master Lease and Security Agreement and Amendment to Guaranty, dated as of November 18, 2016, by and among HCP, Inc. and the other lessors named therein, Emeritus Corporation and the other lessees named therein, and the Company as guarantor. ^††
10.1.6		Fifth Amendment to Amended and Restated Master Lease and Security Agreement and Amendment to Guaranty, dated as of November 18, 2016, by and among HCP, Inc. and the other lessors named therein, Emeritus Corporation and the other lessees named therein, and the Company as guarantor.^††
10.1.7		Sixth Amendment to Amended and Restated Master Lease and Security Agreement, dated as of November 18, 2016, by and among HCP, Inc. and the other lessors named therein and Emeritus Corporation and the other lessees named therein and reaffirmed and consented to by the Company as guarantor.
10.2		Fourth Amended and Restated Credit Agreement, dated as of December 19, 2014, among certain subsidiaries of the Company, General Electric Capital Corporation, as administrative agent, lender and swingline lender, and the other lenders from time to time parties thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 23, 2014 (File No. 001-32641)).
10.3		Master Credit Facility Agreement, dated as of July 29, 2011, by and among various subsidiaries of the Company and Oak Grove Commercial Mortgage, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 4, 2011 (File No. 001-32641)).
10.4		Convertible Bond Hedge Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 8, 2011 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).

124

10.5		Issuer Warrant Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 8, 2011 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.6		Convertible Bond Hedge Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 8, 2011 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.7		Issuer Warrant Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 8, 2011 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.8		Convertible Bond Hedge Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 8, 2011 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.9		Issuer Warrant Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 8, 2011 (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.10		Additional Convertible Bond Hedge Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 15, 2011 (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.11		Additional Issuer Warrant Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 15, 2011 (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.12		Additional Convertible Bond Hedge Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 15, 2011 (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.13		Additional Issuer Warrant Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 15, 2011 (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.14		Additional Convertible Bond Hedge Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 15, 2011 (incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).
10.15		Additional Issuer Warrant Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 15, 2011 (incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).

~~123~~

~~Exhibit No.~~	~~Description~~
10.16.1		Brookdale Senior Living Inc. Omnibus Stock Incentive Plan, as amended and restated effective June 23, 2009 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 23, 2009 (File No. 001-32641)) (the "Omnibus Stock Incentive Plan").*
10.16.2		First Amendment to the Omnibus Stock Incentive Plan effective as of October 30, 2009 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 4, 2009 (File No. 001-32641)).*
10.17		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (Time-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*
10.18		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (Time-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*

125

10.19		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2011 Performance-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*
10.20		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2011 Performance-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*
10.21		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Time-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*
10.22		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Time-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*
10.23		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Performance-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*
10.24		Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Performance-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*
10.25		Brookdale Senior Living Inc. 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 8, 2014 (File No. 001-32641)) (the "Omnibus Incentive Plan").*
10.26		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*
10.27		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*
10.28		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Performance-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*
10.29		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Performance-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*
~~10.30.1~~10.30		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 10, 2016 (File No. 001-32641)).*
10.31		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 10, 2016 (File No. 001-32641)).*
10.32		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Performance-Vesting Form for Executive Committee Members) (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on May 10, 2016 (File No. 001-32641)).*
10.33		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Performance-Vesting Form for Executive Vice Presidents) (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on May 10, 2016 (File No. 001-32641)).*

126

10.34		Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for New Directors) (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2015 (File No. 001-32641)).*
10.35		Restricted Share Agreement under the Omnibus Incentive Plan, dated as of October 1, 2015, by and between the Company and Daniel A. Decker (Time-Vesting) (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K filed on February 12, 2016 (File No. 001-32641)).*
10.36		Restricted Share Agreement under the Omnibus Incentive Plan, dated as of November 7, 2016, by and between the Company and Daniel A. Decker (Time-Vesting).*
10.37		Restricted Share Agreement under the Omnibus Incentive Plan, dated as of November 7, 2016, by and between the Company and Daniel A. Decker (Performance-Vesting).*
10.38		Form of Outside Director Restricted Stock Unit Agreement under the Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2012 (File No. 001-32641)).*
10.39		Form of Outside Director Restricted Stock Unit Agreement under the Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2016 (File No. 001-32641)).*
10.40.1		Brookdale Senior Living Inc. Associate Stock Purchase Plan ~~(incorporated~~(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 11, 2008 (File No. 001-32641)) (the "Associate Stock Purchase Plan").*
~~10.30.2~~10.40.2		First Amendment to Associate Stock Purchase Plan, effective as of December 12, 2013 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 18, 2013 (File No. 001-32641)).*
~~10.31~~10.41.1		Form of Severance Letter and Brookdale Senior Living Inc. Severance Pay Policy, Tier I (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 6, 2010 (File No. 001-32641)).*

~~124~~

10.41.2	Amendment No. 1 to Severance Pay Policy, Tier I, adopted by the Company on April 23, 2015 (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 27, 2015 (File No.	~~Description~~ 001-32641)).*
~~10.32~~10.41.3	Amendment No. 2 to Severance Pay Policy, Tier I, adopted by the Company on August 3, 2015 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2015 (File No. 001-32641)).*
10.42.1	Employment Agreement, dated as of February 11, 2013, by and between the Company and T. Andrew Smith (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 12, 2013 (File No. 001-32641)).*
~~10.33~~10.42.2	Amendment No. 1 to Employment Agreement dated as of April 23, 2015 by and between the Company and T. Andrew Smith (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 27, 2015 (File No. 001-32641)).*
10.43	Restricted Share Agreement (Time-Vesting) under the Omnibus Stock Incentive Plan, dated as of February 11, 2013, by and between the Company and T. Andrew Smith (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 12, 2013 (File No. 001-32641)).*

127

~~10.34~~10.44		Restricted Share Agreement (Performance-Vesting) under the Omnibus Stock Incentive Plan, dated as of February 11, 2013, by and between the Company and T. Andrew Smith (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on February 12, 2013 (File No. 001-32641)).*
~~10.35~~10.45		Restricted Share Agreement under the Omnibus Incentive Plan, dated as of February 5, 2015, by and between the Company and T. Andrew Smith (2-Year Performance-Vesting) (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2015 (File No. 001-32641)).*
10.46		Restricted Share Agreement under the Omnibus Incentive Plan, dated as of February 5, 2015, by and between the Company and T. Andrew Smith (3-Year Cliff Vesting) (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2015 (File No. 001-32641)).*
10.47.1		Offer Letter Agreement by and between the Company and Labeed Diab (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K filed on February 12, 2016 (File no. 001-32641)).*
10.47.2		Addendum to Offer Letter dated April 6, 2016 between the Company and Labeed S. Diab (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 12, 2016 (File No. 001-32641)).*
10.48.1		Offer Letter Agreement by and between the Company and Lucinda Baier (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K filed on February 12, 2016 (File No. 001-32641)).*
10.48.2		Addendum to Offer Letter dated April 6, 2016 between the Company and Lucinda M. Baier (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on April 12, 2016 (File No. 001-32641)).*
10.49.1		Severance Letter Agreement dated November 16, 2015, by and between the Company and Mary Sue Patchett (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K filed on February 12, 2016 (File No. 001-32641)).*
10.49.2		Severance Letter Agreement dated December 20, 2016 by and between the Company and Mary Sue Patchett.*
10.50		Letter Agreement dated as of November 7, 2016 by and between the Company and Daniel A. Decker.*
10.51		Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K filed on February 28, 2011 (File No. 001-32641)).*
~~10.36~~10.52		Summary of Brookdale Senior Living Inc. Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 filed on June 30, 2009 (File No. 333-160354)).*
~~10.37~~10.53	Form of Outside Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2012 (File No. 001-32641)).*
~~10.38~~	~~Letter~~ Agreement dated as of ~~May 22, 2014,~~April 23, 2015, by and ~~between~~among the Company and ~~Granger Cobb (incorporated by reference to Exhibit 10.3 to~~Sandell Asset Management Corp. and the ~~Company's Quarterly Report~~other entities listed on Form 10-Q filed on November 10, 2014 (File No. 001-32641)).*
~~10.39~~	Restricted Share Agreement under the Omnibus Incentive Plan, dated as of July 31, 2014, by and between the Company and Granger Cobb (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-32641)).*
~~10.40~~	~~Separation Agreement and General Release, dated February 7, 2008, between the Company and Mark J. Schulte~~Schedule A thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on ~~February 11, 2008~~April 27, 2015 (File No. 001-32641)).*
21		Subsidiaries of the Registrant.
23		Consent of Ernst & Young LLP.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

*	Management Contract or Compensatory Plan

†	Portions of this exhibit have been omitted pursuant to a request for confidential treatment, which has been granted by the SEC.

††	Portions of this exhibit have been omitted pursuant to a request for confidential treatment with the SEC.

128

~~125~~

Large accelerated filer [X]		Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company [ ]

Name	Age	Position
Daniel A. Decker	64	Executive Chairman of the Board
T. Andrew Smith	5456	President, Chief Executive Officer and Director
~~Mark W. Ohlendorf~~Labeed S. Diab	5447	~~President and~~ Chief ~~Financial~~Operating Officer
~~Gregory B. Richard~~Lucinda M. Baier	6052	~~Executive Vice President and~~ Chief ~~Operating~~Financial Officer
Bryan D. Richardson	5658	Executive Vice President and Chief Administrative Officer
~~Glenn O. Maul~~Cedric T. Coco	6049	Executive Vice President and Chief People Officer
~~Tricia A. Conahan~~Mary Sue Patchett	57	~~Executive Vice President and Chief Marketing Officer~~
~~Kristin A. Ferge~~	41	~~Executive Vice President, Chief Accounting Officer and Treasurer~~
~~George T. Hicks~~	5754	Executive Vice President – ~~Finance~~Community and Field Operations
H. Todd Kaestner	61	Executive Vice President – Corporate Development
George T. Hicks	59	Executive Vice President – ~~Corporate Development~~Finance and Treasurer

		PAGE

PART I

Item 1	Business	5
	Executive Officers of the Registrant	18
Item 1A	Risk Factors	21
Item 1A	~~Risk Factors~~	23
~~Item~~ 1B	Unresolved Staff Comments	3835
Item 2	Properties	3936
Item 3	Legal Proceedings	4037
Item 4	Mine Safety Disclosures	4037

PART II

Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6	Selected Financial Data	41
Item 6	~~Selected Financial Data~~	42
~~Item~~ 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	4342
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	7374
Item 8	Financial Statements and Supplementary Data	7475
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~116~~120
Item 9A	Controls and Procedures	~~116~~120
Item 9B	Other Information	~~116~~120

PART III

Item 10	Directors, Executive Officers and Corporate Governance	~~117~~120
Item 11	Executive Compensation	~~118~~121
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~118~~121
Item 13	Certain Relationships and Related Transactions, and Director Independence	~~119~~122
Item 14	Principal Accounting Fees and Services	~~119~~122

PART IV

Item 15	Exhibits, ~~and~~ Financial Statement Schedules	~~120~~122

	Actual 2014		Anticipated 2015 Range
Recurring⁽¹⁾	$	50.8	$	75.0 - 77.0
EBITDA-enhancing / Major Projects⁽²⁾		109.2		210.0 - 215.0
Program Max⁽²⁾		94.4		125.0 - 175.0
Corporate, integration and other		49.8		108.0 - 117.0
Total capital expenditures	$	304.2	$	518.0 - 584.0

	Years Ended December 31,
	2014			2013			2012
Net loss	$	(149,426	)	$	(3,584	)	$	(66,467	)
(Benefit) provision for income taxes		(181,305	)		1,756			1,519
Other non-operating income		(7,235	)		(2,725	)		(593	)
Equity in (earnings) loss of unconsolidated ventures		(171	)		(1,484	)		3,488
Debt modification and extinguishment costs		6,387			1,265			221
Interest expense:
Debt		128,002			96,131			98,183
Capital and financing lease obligations		109,998			25,194			30,155
Amortization of deferred financing costs and debt (premium) discount		7,477			17,054			18,081
Change in fair value of derivatives		2,711			(980	)		364
Interest income		(1,343	)		(1,339	)		(4,012	)
(Loss) income from operations		(84,905	)		131,288			80,939
Gain on facility lease termination		—			—			(11,584	)
Depreciation and amortization		537,035			268,757			252,281
Asset impairment		9,992			12,891			27,677
Loss on acquisition		—			—			636
Facility lease expense		323,830			276,729			284,025
General and administrative (including non-cash stock-based compensation expense)		280,267			180,627			178,829
Transaction costs		66,949			3,921			—
Change in future service obligation		670			(1,917	)		2,188
Amortization of entrance fees		(21,220	)		(29,009	)		(25,362	)
Management fees		(42,239	)		(31,125	)		(30,786	)
Facility Operating Income	$	1,070,379		$	812,162		$	758,843

	Total Carrying Value at December 31, 2014				Quoted prices in active markets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Derivative assets		$	763			$	—			$	763			$	—

	2014			2013
Deferred tax asset – current	$	84,199		$	17,643
Deferred tax liability – noncurrent		(243,474	)		(81,299	)
Net deferred tax liability	$	(159,275	)	$	(63,656	)

Corporate and Management Services		30,466			29,245		23,155
Asset impairment		9,992			12,891		27,677
Loss on acquisition		—			—		636
Gain on facility lease termination		—			—		(11,584	)
(Loss) income from operations	$	(84,905	)	$	131,288	$	80,939

Total interest expense:
Retirement Centers	$	41,906		$	31,286	$	29,025
Assisted Living		140,001			51,410		57,634
CCRCs - Rental		28,418			17,512		17,336
CCRCs - Entry Fee		7,530			11,911		13,792
Brookdale Ancillary Services		823			—		—
Corporate and Management Services		29,510			25,280		28,996
	$	248,188		$	137,399	$	146,783

Total expenditures for property, plant and equipment, and leasehold intangibles:
Retirement Centers	$	76,285		$	63,519	$	58,876
Assisted Living		107,037			95,829		68,675
CCRCs - Rental		42,412			27,134		21,916
CCRCs - Entry Fee		36,575			43,019		24,890
Brookdale Ancillary Services		1,805			1,855		6,037
Corporate and Management Services		40,131			26,171		28,018
	$	304,245		$	257,527	$	208,412

	For the Quarters Ended
	March 31, 2014			June 30, 2014			September 30, 2014			December 31, 2014
Revenues	$	747,275		$	748,393		$	1,083,935		$	1,252,103
Asset impairment		—			—			—			9,992
Income (loss) from operations		32,148			30,657			(73,197	)		(74,513	)
Loss before income taxes		(1,293	)		(2,333	)		(153,109	)		(173,996	)
Net loss		(2,299	)		(3,295	)		(37,036	)		(106,796	)
Net loss attributable to Brookdale Senior Living Inc. common stockholders		(2,299	)		(3,295	)		(36,862	)		(106,534	)
Weighted average basic and diluted loss per share	$	(0.02	)	$	(0.03	)	$	(0.23	)	$	(0.58	)

	For the Quarters Ended
	March 31, 2013		June 30, 2013			September 30, 2013			December 31, 2013
Revenues	$	712,266	$	716,468		$	728,999		$	734,233
Asset impairment		—		2,154			504			10,233
Income from operations		38,687		28,435			33,983			30,183
Income (loss) before income taxes		4,706		(4,036	)		(7	)		(2,491	)
Net income (loss)		3,558		(5,200	)		(967	)		(975	)
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders		3,558		(5,200	)		(967	)		(975	)
Weighted average basic and diluted earnings (loss) per share	$	0.03	$	(0.04	)	$	(0.01	)	$	(0.01	)