UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2019~~2020



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

For the transition period from _____________ to _____________

Commission File Number: 001-32641

BROOKDALE SENIOR LIVING INC.

(Exact name of registrant as specified in its charter)



Delaware	20-3068069
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



111 Westwood Place,	Suite 400,	Brentwood,	Tennessee	37027
(Address of principal executive offices)				(Zip Code)

(Registrant's telephone number, including area code) (615) 221-2250

~~(Registrant's telephone number, including area code)~~

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	BKD	New York Stock Exchange

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

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

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

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

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

As of ~~November 1, 2019, 185,594,591~~August 6, 2020, 183,240,758 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding ~~unvested~~ restricted ~~shares)~~shares and restricted stock units).

TABLE OF CONTENTS

BROOKDALE SENIOR LIVING INC.

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2019~~2020



		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets -
	As of ~~September~~June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	4

	Condensed Consolidated Statements of Operations -
	Three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (Unaudited)	5

	Condensed Consolidated Statements of Equity -
	Three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows -
	~~Nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	98

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3129

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6364

Item 4.	Controls and Procedures	6364


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	6364

Item 1A.	Risk Factors	6364

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6467

Item 6.	Exhibits	6568

Signatures		6669

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except stock amounts)


	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets	(Unaudited)						(Unaudited)
Current assets
Cash and cash equivalents	$	241,391		$	398,267		$	452,441		$	240,227
Marketable securities	49,790			14,855			109,873			68,567
Restricted cash	33,305			27,683			28,397			26,856
Accounts receivable, net	140,661			133,905			120,503			133,613
Assets held for sale	60,404			93,117			37,397			42,671
Prepaid expenses and other current assets, net	102,949			106,189			89,416			84,241
Total current assets	628,500			774,016			838,027			596,175
Property, plant and equipment and leasehold intangibles, net	5,185,681			5,275,427			5,256,368			5,109,834
Operating lease right-of-use assets	1,221,578			—			1,030,505			1,159,738
Restricted cash	40,663			24,268			41,292			34,614
Investment in unconsolidated ventures	23,211			27,528			5,601			21,210
Goodwill	154,131			154,131			154,131			154,131
Other intangible assets, net	42,776			51,472
Other assets, net	77,663			160,418			98,619			118,731
Total assets	$	7,374,203		$	6,467,260		$	7,424,543		$	7,194,433
Liabilities and Equity
Current liabilities
Current portion of long-term debt	$	343,615		$	294,426		$	222,572		$	339,413
Current portion of financing lease obligations	62,839			23,135			44,667			63,146
Current portion of operating lease obligations	188,635			—			183,300			193,587
Trade accounts payable	106,109			95,049			61,780			104,721
Accrued expenses	275,828			298,227			259,499			266,703
Refundable fees and deferred revenue	81,034			62,494			158,608			79,402
Total current liabilities	1,058,060			773,331			930,426			1,046,972
Long-term debt, less current portion	3,228,606			3,345,754			3,469,793			3,215,710
Financing lease obligations, less current portion	795,198			851,341			558,307			771,434
Operating lease obligations, less current portion	1,319,758			—			1,226,242			1,277,178
Deferred liabilities	7,066			262,761
Line of credit							166,381			—
Deferred tax liability	16,834			18,371			144			15,397
Other liabilities	154,885			197,289			133,361			169,017
Total liabilities	6,580,407			5,448,847			6,484,654			6,495,708
Preferred stock, $0.01 par value, 50,000,000 shares authorized at September 30, 2019 and December 31, 2018; no shares issued and outstanding	—			—
Common stock, $0.01 par value, 400,000,000 shares authorized at September 30, 2019 and December 31, 2018; 199,743,898 and 196,815,254 shares issued and 193,073,421 and 192,356,051 shares outstanding (including 7,490,129 and 5,756,435 unvested restricted shares), respectively	1,997			1,968
Preferred stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2020 and December 31, 2019; no shares issued and outstanding							—			—
Common stock, $0.01 par value, 400,000,000 shares authorized at June 30, 2020 and December 31, 2019; 198,447,200 and 199,593,343 shares issued and 187,919,675 and 192,128,586 shares outstanding (including 4,733,385 and 7,252,459 unvested restricted shares), respectively							1,984			1,996
Additional paid-in-capital	4,167,146			4,151,147			4,180,436			4,172,099
Treasury stock, at cost; 6,670,477 and 4,459,203 shares at September 30, 2019 and December 31, 2018, respectively	(79,097		)	(64,940		)
Treasury stock, at cost; 10,527,525 and 7,464,757 shares at June 30, 2020 and December 31, 2019, respectively							(102,774		)	(84,651		)
Accumulated deficit	(3,301,680		)	(3,069,272		)	(3,142,089		)	(3,393,088		)
Total Brookdale Senior Living Inc. stockholders' equity	788,366			1,018,903			937,557			696,356
Noncontrolling interest	5,430			(490		)	2,332			2,369
Total equity	793,796			1,018,413			939,889			698,725
Total liabilities and equity	$	7,374,203		$	6,467,260		$	7,424,543		$	7,194,433

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Revenue
Revenue and other operating income
Resident fees	$	801,237		$	840,179		$	2,412,579		$	2,642,414		$	731,629		$	801,863		$	1,514,336		$	1,611,342
Management fees	13,564			18,528			44,756			54,280			6,076			15,449			114,791			31,192
Reimbursed costs incurred on behalf of managed communities	194,148			261,355			613,115			765,802			101,511			202,145			224,228			418,967
Total revenue	1,008,949			1,120,062			3,070,450			3,462,496
Other operating income													26,693			—			26,693			—
Total revenue and other operating income													865,909			1,019,457			1,880,048			2,061,501

Expense
Facility operating expense (excluding facility depreciation and amortization of $86,213, $101,527, $261,110, and $310,011, respectively)	615,717			607,076			1,792,057			1,866,477
General and administrative expense (including non-cash stock-based compensation expense of $5,929, $6,035, $18,315, and $20,710, respectively)	56,409			58,796			170,296			203,138
Facility operating expense (excluding facility depreciation and amortization of $86,971, $86,070, $171,272, and $174,897, respectively)													606,034			590,246			1,194,516			1,176,340
General and administrative expense (including non-cash stock-based compensation expense of $6,119, $6,030, $12,076, and $12,386, respectively)													52,518			57,576			107,113			113,887
Facility operating lease expense	67,253			70,392			203,610			232,752			62,379			67,689			126,860			136,357
Depreciation and amortization	93,550			110,980			284,462			341,351			93,154			94,024			183,892			190,912
Goodwill and asset impairment	2,094			5,500			6,254			451,966
Asset impairment													10,290			3,769			88,516			4,160
Loss (gain) on facility lease termination and modification, net	—			2,337			2,006			148,804			—			1,797			—			2,006
Costs incurred on behalf of managed communities	194,148			261,355			613,115			765,802			101,511			202,145			224,228			418,967
Total operating expense	1,029,171			1,116,436			3,071,800			4,010,290			925,886			1,017,246			1,925,125			2,042,629
Income (loss) from operations	(20,222		)	3,626			(1,350		)	(547,794		)	(59,977		)	2,211			(45,077		)	18,872

Interest income	2,162			1,654			8,059			7,578			2,243			2,813			3,698			5,897
Interest expense:
Debt	(44,344		)	(46,891		)	(135,180		)	(141,585		)	(38,974		)	(45,193		)	(80,737		)	(90,836		)
Financing lease obligations	(16,567		)	(20,896		)	(49,959		)	(66,216		)	(11,892		)	(16,649		)	(25,174		)	(33,392		)
Amortization of deferred financing costs and debt discount	(1,130		)	(829		)	(2,920		)	(7,113		)	(1,556		)	(986		)	(2,871		)	(1,965		)
Change in fair value of derivatives	(37		)	(10		)	(212		)	(153		)
Debt modification and extinguishment costs	(2,455		)	(33		)	(5,194		)	(77		)
Gain (loss) on debt modification and extinguishment, net													(157		)	(2,672		)	19,024			(2,739		)
Equity in earnings (loss) of unconsolidated ventures	(2,057		)	(1,340		)	(3,574		)	(6,907		)	438			(991		)	(570		)	(1,517		)
Gain (loss) on sale of assets, net	579			9,833			2,723			76,586			(1,029		)	2,846			371,810			2,144
Other non-operating income (loss)	3,763			(17		)	9,950			8,074			988			3,199			3,650			6,187
Income (loss) before income taxes	(80,308		)	(54,903		)	(177,657		)	(677,607		)	(109,916		)	(55,422		)	243,753			(97,349		)
Benefit (provision) for income taxes	1,800			17,763			488			17,724			(8,504		)	(633		)	7,324			(1,312		)
Net income (loss)	(78,508		)	(37,140		)	(177,169		)	(659,883		)	(118,420		)	(56,055		)	251,077			(98,661		)
Net (income) loss attributable to noncontrolling interest	50			19			646			86			19			585			37			596
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders	$	(78,458	)	$	(37,121	)	$	(176,523	)	$	(659,797	)	$	(118,401	)	$	(55,470	)	$	251,114		$	(98,065	)

Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders	$	(0.42	)	$	(0.20	)	$	(0.95	)	$	(3.52	)
Net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders:
Basic													$	(0.65	)	$	(0.30	)	$	1.37		$	(0.53	)
Diluted													$	(0.65	)	$	(0.30	)	$	1.37		$	(0.53	)

Weighted average shares used in computing basic and diluted net income (loss) per share	185,516			187,675			186,130			187,383
Weighted average common shares outstanding:
Basic													183,178			186,140			183,682			186,442
Diluted													183,178			186,140			183,862			186,442

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited, in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Total equity, balance at beginning of period	$	866,204		$	920,657		$	1,018,413		$	1,530,291		$	1,052,230		$	917,597		$	698,725		$	1,018,413

Common stock:
Balance at beginning of period	$	1,998		$	1,938		$	1,968		$	1,913		$	1,985		$	2,000		$	1,996		$	1,968
Issuance of common stock under Associate Stock Purchase Plan	—			—			2			1			—			1			1			2
Restricted stock, net	(1		)	1			31			29			(1		)	(3		)	(7		)	32
Shares withheld for employee taxes	—			—			(4		)	(4		)	—			—			(6		)	(4		)
Balance at end of period	$	1,997		$	1,939		$	1,997		$	1,939		$	1,984		$	1,998		$	1,984		$	1,998
Additional paid-in-capital:
Balance at beginning of period	$	4,161,045		$	4,139,353		$	4,151,147		$	4,126,549		$	4,174,356		$	4,154,790		$	4,172,099		$	4,151,147
Compensation expense related to restricted stock grants	5,929			6,035			18,315			20,710			6,119			6,030			12,076			12,386
Issuance of common stock under Associate Stock Purchase Plan	281			377			878			1,146			—			299			168			597
Restricted stock, net	1			(1		)	(31		)	(29		)	1			3			7			(32		)
Shares withheld for employee taxes	(137		)	(129		)	(3,238		)	(2,840		)	(59		)	(108		)	(3,951		)	(3,101		)
Other, net	27			48			75			147			19			31			37			48
Balance at end of period	$	4,167,146		$	4,145,683		$	4,167,146		$	4,145,683		$	4,180,436		$	4,161,045		$	4,180,436		$	4,161,045
Treasury stock:
Balance at beginning of period	$	(79,097	)	$	(56,440	)	$	(64,940	)	$	(56,440	)	$	(102,774	)	$	(70,940	)	$	(84,651	)	$	(64,940	)
Purchase of treasury stock	—			—			(14,157		)	—			—			(8,157		)	(18,123		)	(14,157		)
Balance at end of period	$	(79,097	)	$	(56,440	)	$	(79,097	)	$	(56,440	)	$	(102,774	)	$	(79,097	)	$	(102,774	)	$	(79,097	)
Accumulated deficit:
Balance at beginning of period	$	(3,223,222	)	$	(3,163,690	)	$	(3,069,272	)	$	(2,541,294	)	$	(3,023,688	)	$	(3,167,752	)	$	(3,393,088	)	$	(3,069,272	)
Cumulative effect of change in accounting principle (Note 2)	—			—			(55,885		)	—			—			—			(115		)	(55,885		)
Net income (loss)	(78,458		)	(37,121		)	(176,523		)	(659,797		)	(118,401		)	(55,470		)	251,114			(98,065		)
Other, net	—			—			—			280
Balance at end of period	$	(3,301,680	)	$	(3,200,811	)	$	(3,301,680	)	$	(3,200,811	)	$	(3,142,089	)	$	(3,223,222	)	$	(3,142,089	)	$	(3,223,222	)
Noncontrolling interest:
Balance at beginning of period	$	5,480		$	(504	)	$	(490	)	$	(437	)	$	2,351		$	(501	)	$	2,369		$	(490	)
Net income (loss) attributable to noncontrolling interest	(50		)	(19		)	(646		)	(86		)	(19		)	(585		)	(37		)	(596		)
Noncontrolling interest contribution	—			—			6,566			—			—			6,566			—			6,566
Balance at end of period	$	5,430		$	(523	)	$	5,430		$	(523	)	$	2,332		$	5,480		$	2,332		$	5,480
Total equity, balance at end of period	$	793,796		$	889,848		$	793,796		$	889,848		$	939,889		$	866,204		$	939,889		$	866,204

Common stock share activity
Outstanding shares of common stock:
Balance at beginning of period	193,111			193,798			192,356			191,276			188,012			194,573			192,129			192,356
Issuance of common stock under Associate Stock Purchase Plan	41			42			137			153			—			46			61			96
Restricted stock, net	(62		)	105			3,258			2,910
Restricted stock grants, net													(75		)	(214		)	(579		)	3,320
Shares withheld for employee taxes	(17		)	(16		)	(467		)	(410		)	(17		)	(16		)	(628		)	(450		)
Purchase of treasury stock	—			—			(2,211		)	—			—			(1,278		)	(3,063		)	(2,211		)
Balance at end of period	193,073			193,929			193,073			193,929			187,920			193,111			187,920			193,111

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Nine Months Ended
September 30,
2019 2018
Cash Flows from Operating Activities
Net income (loss) $ (177,169 ) $ (659,883 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Debt modification and extinguishment costs 5,194
77
Depreciation and amortization, net 287,382
348,464
Goodwill and asset impairment 6,254
451,966
Equity in (earnings) loss of unconsolidated ventures 3,574
6,907
Distributions from unconsolidated ventures from cumulative share of net earnings 2,388
2,159
Amortization of deferred gain —
(3,269 )
Amortization of entrance fees (1,172 ) (1,220 )
Proceeds from deferred entrance fee revenue 2,902
2,507
Deferred income tax (benefit) provision (1,216 ) (19,180 )
Operating lease expense adjustment (13,626 ) (14,656 )
Change in fair value of derivatives 212
153
Loss (gain) on sale of assets, net (2,723 ) (76,586 )
Loss (gain) on facility lease termination and modification, net 2,006
135,760
Non-cash stock-based compensation expense 18,315
20,710
Non-cash interest expense on financing lease obligations —
9,151
Non-cash management contract termination gain (640 ) (5,649 )
Other (7,173 ) (154 )
Changes in operating assets and liabilities:
Accounts receivable, net (6,756 ) (1,127 )
Prepaid expenses and other assets, net 50,387
28,118
Prepaid insurance premiums financed with notes payable (5,875 ) (6,244 )
Trade accounts payable and accrued expenses (21,970 ) (9,661 )
Refundable fees and deferred revenue (24,007 ) (4,239 )
Operating lease assets and liabilities for lessor capital expenditure reimbursements 12,043
—
Operating lease assets and liabilities for lease termination —
(33,596 )
Net cash provided by (used in) operating activities 128,330
170,508
Cash Flows from Investing Activities
Change in lease security deposits and lease acquisition deposits, net (430 ) (664 )
Purchase of marketable securities (137,786 ) —
Sale of marketable securities 104,000
293,273
Capital expenditures, net of related payables (206,385 ) (169,349 )
Acquisition of assets, net of related payables and cash received (453 ) (271,771 )
Investment in unconsolidated ventures (4,294 ) (8,946 )
Distributions received from unconsolidated ventures 7,454
10,782
Proceeds from sale of assets, net 53,430
131,912
Proceeds from notes receivable 34,109
1,580
Property insurance proceeds —
156
Net cash provided by (used in) investing activities (150,355 ) (13,027 )
Cash Flows from Financing Activities
Proceeds from debt 318,491
279,919

Repayment of debt and financing lease obligations (404,152 ) (501,946 )
Proceeds from line of credit —
200,000
Repayment of line of credit —
(200,000 )
Purchase of treasury stock, net of related payables (18,401 ) —
Payment of financing costs, net of related payables (6,357 ) (3,341 )
Proceeds from refundable entrance fees, net of refunds —
(316 )
Payments for lease termination —
(12,548 )
Payments of employee taxes for withheld shares (3,242 ) (2,844 )
Other 827
1,147
Net cash provided by (used in) financing activities (112,834 ) (239,929 )
Net increase (decrease) in cash, cash equivalents, and restricted cash (134,859 ) (82,448 )
Cash, cash equivalents, and restricted cash at beginning of period 450,218
282,546
Cash, cash equivalents, and restricted cash at end of period $ 315,359
$ 200,098



	Six Months Ended June 30,
	2020			2019
Cash Flows from Operating Activities
Net income (loss)	$	251,077		$	(98,661	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (gain) on debt modification and extinguishment, net	(19,024		)	2,739
Depreciation and amortization, net	186,763			192,877
Asset impairment	88,516			4,160
Equity in (earnings) loss of unconsolidated ventures	570			1,517
Distributions from unconsolidated ventures from cumulative share of net earnings	—			1,530
Amortization of entrance fees	(925		)	(772		)
Proceeds from deferred entrance fee revenue	85			1,739
Deferred income tax (benefit) provision	(15,253		)	470
Operating lease expense adjustment	(14,954		)	(8,812		)
Loss (gain) on sale of assets, net	(371,810		)	(2,144		)
Loss (gain) on facility lease termination and modification, net	—			2,006
Non-cash stock-based compensation expense	12,076			12,386
Non-cash management contract termination gain	—			(640		)
Other	(1,800		)	(4,401		)
Changes in operating assets and liabilities:
Accounts receivable, net	12,995			(3,997		)
Prepaid expenses and other assets, net	20,162			30,823
Prepaid insurance premiums financed with notes payable	(11,664		)	(12,090		)
Trade accounts payable and accrued expenses	(18,692		)	(43,385		)
Refundable fees and deferred revenue	80,688			(17,226		)
Operating lease assets and liabilities for lessor capital expenditure reimbursements	10,509			1,000
Net cash provided by (used in) operating activities	209,319			59,119
Cash Flows from Investing Activities
Change in lease security deposits and lease acquisition deposits, net	3,304			(83		)
Purchase of marketable securities	(149,236		)	(98,059		)
Sale and maturities of marketable securities	108,750			55,000
Capital expenditures, net of related payables	(112,863		)	(122,297		)
Acquisition of assets, net of related payables and cash received	(446,688		)	—
Investment in unconsolidated ventures	(356		)	(4,204		)
Distributions received from unconsolidated ventures	—			5,305
Proceeds from sale of assets, net	300,539			52,430
Proceeds from notes receivable	1,140			31,609
Net cash provided by (used in) investing activities	(295,410		)	(80,299		)
Cash Flows from Financing Activities
Proceeds from debt	473,460			158,231
Repayment of debt and financing lease obligations	(303,920		)	(238,036		)
Proceeds from line of credit	166,381			—
Purchase of treasury stock, net of related payables	(18,123		)	(18,401		)
Payment of financing costs, net of related payables	(7,469		)	(3,342		)
Payments of employee taxes for withheld shares	(3,951		)	(3,105		)
Other	146			574
Net cash provided by (used in) financing activities	306,524			(104,079		)
Net increase (decrease) in cash, cash equivalents, and restricted cash	220,433			(125,259		)
Cash, cash equivalents, and restricted cash at beginning of period	301,697			450,218
Cash, cash equivalents, and restricted cash at end of period	$	522,130		$	324,959

See accompanying notes to condensed consolidated financial statements.

BROOKDALE SENIOR LIVING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Brookdale Senior Living Inc. ("Brookdale" or the "Company") is an 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 quality service, care, and living accommodations for residents. The Company operates and manages independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). The Company also offers a range of home health, hospice, and outpatient therapy services to residents of many of its communities and to seniors living outside of its communities.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position, results of operations, and cash flows of the Company for all periods presented. Certain information and footnote disclosures included in annual financial statements have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on February ~~14, 2019.~~19, 2020. Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's condensed consolidated financial position or results of operations.

Except for the changes for the impact of the recently adopted accounting pronouncements discussed in this Note, the Company has consistently applied its accounting policies to all periods presented in these condensed consolidated financial statements.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Brookdale and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Investments in affiliated companies that the Company does not control, but has the ability to exercise significant influence over governance and operations, 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 condensed 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.

~~Revenue Recognition~~Use of Estimates

~~Resident Fees~~The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue and other operating income, asset impairments, self-insurance reserves, performance-based compensation, the allowance for credit losses, depreciation and amortization, leasing transactions, 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.

Resident fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from residents or third-party payors and include variable consideration for retroactive adjustments, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.

Under the Company's senior living residency agreements, which are generally for a contractual term of 30 days to one year, the Company provides senior living services to residents for a stated daily or monthly fee. The Company has elected the lessor practical expedient withinLease Accounting ~~Standards Codification ("ASC") 842,~~ ~~Leases~~ ("ASC 842") and recognizes, measures, presents, and discloses the revenue for services under the Company's senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company’s independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer. The Company recognizes revenue under ASC 606, ~~Revenue Recognition from Contracts with Customers~~ ~~("ASC 606") for its~~

independent living, assisted living, and memory care residency agreements for which it has estimated that the nonlease components of such residency agreements are the predominant component of the contract.

The Company, ~~enters into contracts~~as lessee, recognizes a right-of-use asset and a lease liability on the Company's condensed consolidated balance sheet for its community, office, and equipment leases. As of the commencement date of a lease, a lease liability and corresponding right-of-use asset is established on the Company's condensed consolidated balance sheet at the present value of future minimum lease payments. The Company's community leases generally contain fixed annual rent escalators or annual rent escalators based on an index, such as the consumer price index. The future minimum lease payments recognized on the condensed consolidated balance sheet include fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the index

or rate on the lease commencement date. The Company recognizes lease expense as incurred for additional variable payments. For the Company's leases that do not contain an implicit rate, the Company utilizes its estimated incremental borrowing rate to ~~provide home health, hospice,~~determine the present value of lease payments based on information available at commencement of the lease. The Company's estimated incremental borrowing rate reflects the fixed rate at which the Company could borrow a similar amount for the same term on a collateralized basis. The Company elected the short-term lease exception policy which permits leases with an initial term of 12 months or less to not be recorded on the Company's consolidated balance sheet and outpatient therapy services. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations. The performance obligations are satisfied and revenue isinstead to be recognized as ~~services are provided.~~lease expense as incurred.

The Company, ~~receives payment~~as lessee, makes a determination with respect to each of its community, office, and equipment leases as to whether each should be accounted for services under various third-party payor programs which include Medicare, Medicaid, and other third-party payors. Settlements with third-party payors for retroactive adjustments due to audits, reviews,as an operating lease or ~~investigations are included in the determination of the estimated transaction price for providing services.~~financing lease. The ~~Company estimates the transaction price~~classification criteria is based on ~~the terms of the contract with the payor, correspondence with the payor and historical payment trends, and retroactive adjustments that differ from the Company's~~ estimates ~~are recognized in~~regarding the ~~period when final settlements are determined.~~

~~Management Services~~

The Company manages certain communities under contracts which provide periodic management fee payments to the Company. Management fees are generally determined by an agreed upon percentage of gross revenues (as defined in the management agreement). Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. The Company recognizes revenue for community management services in accordance with the provisions of ASC 606. Although there are various management and operational activities performed by the Company under the contracts, the Company has determined that all community operations management activities are a single performance obligation, which is satisfied over time as the services are rendered. The Company estimates the amount of incentive fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided.The Company’s estimate of the transaction price for management services also includes the amount of reimbursement due from the owners of the communities for services provided and related costs incurred. Such revenue is included in "reimbursed costs incurred on behalf of managed communities" on the condensed consolidated statements of operations. The related costs are included in "costs incurred on behalf of managed communities" on the condensed consolidated statements of operations.

~~Gain (Loss) on Sale of Assets~~

The Company regularly enters into real estate transactions which may include the disposal of certain communities, including the associated real estate. The Company recognizes income from real estate sales under ASC 610-20, ~~Other Income - Gains and Losses from Derecognition of Nonfinancial Assets~~ ("ASC 610-20"). Under ASC 610-20, income is recognized when the transfer of control occurs and the Company applies the five-step model for recognition to determine the amount and timing of income to recognize for all real estate sales.

~~The Company accounts for the sale of equity method investments under ASC 860,~~ ~~Transfers and Servicing~~ ~~("ASC 860"). Under~~

~~ASC 860, income is recognized when the transfer of control of the equity interest occurs and the Company has no continuing involvement with the transferred financial assets.~~

~~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 basis 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.

~~Fair Value of Financial Instruments~~

~~ASC 820,~~ ~~Fair Value Measurement~~ 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 restricted cash are reflected in the accompanying condensed consolidated balance sheets at amounts considered by management to reasonably approximate fair value due to the short maturity.

~~Goodwill~~

The Company tests goodwill for impairment annually as of October 1 or whenever indicators of impairment arise. Factors the Company considers important in its analysis of whether an indicator of impairment exists include a significant decline in the Company's stock price or market capitalization for a sustained period since the last testing date, 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 quantitative goodwill impairment test. The quantitative goodwill impairment test is based upon a comparison of the estimated fair value of the ~~reporting unit to which~~leased asset, minimum lease payments, effective cost of funds, economic life of the goodwill has been assigned with the reporting unit's carrying value. The Company is not required to calculate the fair value of a reporting unit unless the Company determines, based on a qualitative assessment, that it is more likely than not that its fair value of a reporting unit is less than its carrying value. The fair values usedasset, and certain other terms in the quantitative goodwill impairment test are estimated using Level 3 inputs 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. The Company also considers market based measures such as earnings multiples in its analysis of estimated fair values of its reporting units. If the quantitative goodwill impairment test results in a reporting unit's carrying value exceeding its estimated fair value, an impairment charge will be recorded based on the difference. The impairment charge is limited to the amount of goodwill allocated to the reporting unit.lease agreements.

~~Long-lived Asset Impairment~~

~~Long-lived~~Lease right-of-use assets ~~(including right-of-use assets)~~ 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~~right-of-use 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, 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,~~amount, 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~~lease coverage ratios (Level 3).

~~Self-Insurance Liability Accruals~~Operating Leases

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 becomes available.

~~Lease Accounting~~

~~The following is the Company's lease accounting policy under ASC 842 subsequent to the adoption. Refer to Recently Adopted Accounting Pronouncements in this Note 2for significant changes that resulted from the adoption effective January 1, 2019. The Company, as lessee,~~ recognizes a right-of-use asset and a lease liability on the Company’s condensed consolidated balance sheet for its community, office, and equipment leases. As of the commencement date of a lease, a lease liability and corresponding right-of-use asset is established on the Company’s condensed consolidated balance sheet at the present value of future minimum lease payments. The Company's community leases generally contain fixed annual rent escalators or annual rent escalators based on an index, such as the consumer price index. The future minimum lease payments recognized on the condensed consolidated balance sheet include fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the index or rate on the lease commencement date. The Company recognizes lease expense as incurred for additional variable payments. For the Company’s leases that do not contain an implicit rate, the Company utilizes its estimated incremental borrowing rate in determining the present value of lease payments based on information available at commencement of the lease, which reflects the fixed rate

at which the Company could borrow a similar amount for the same term on a collateralized basis. Leases with an initial term of 12 months or less are not recorded on the Company’s condensed consolidated balance sheet and instead are recognized as lease expense as incurred.

The Company, as lessee, makes a determination with respect to each of its community, office, and equipment leases as to whether each should be accounted for as an operating lease or financing lease in accordance with the provisions of ASC 842. The classification criteria is based on estimates regarding the fair value of the leased asset, minimum lease payments, effective cost of funds, the economic life of the asset, and certain other terms in the lease agreements.

~~For operating leases, payments made under operating lease arrangements are accounted for in the Company's condensed consolidated statements of operations as~~ operating lease expense for actual rent paid, generally plus or minus a straight-line adjustment for estimated minimum lease escalators if applicable. The right-of-use asset is generally reduced each period by an amount equal to the difference between the operating lease expense and the amount of expense on the lease liability utilizing the effective interest method. Subsequent to the impairment of an operating lease right-of-use asset, the Company recognizes operating lease expense consisting of the reduction of the right-of-use asset on a straight-line basis over the remaining lease term and the amount of expense on the lease liability utilizing the effective interest method.

~~For financing leases,~~Financing Leases

Financing lease right-of-use assets are recognized within property, plant and equipment and leasehold intangibles, net on the Company's consolidated balance sheets. The Company recognizes interest expense on the financing lease ~~liability~~liabilities utilizing the effective interest method. ~~Additionally, the~~The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term unless the lease contains an option to purchase the underlying asset that the Company is reasonably certain to exercise. If the Company is reasonably certain to exercise ~~in which case~~the purchase option, the asset is ~~depreciated~~amortized over the useful ~~life of the underlying asset.~~life.

Sale-Leaseback Transactions

For transactions in which an owned community is sold and leased back from the buyer (sale-leaseback transactions), the Company recognizes an asset sale and lease accounting is applied if the Company has transferred control of the community. For such transactions, the Company removes the transferred assets from the ~~condensed~~ consolidated balance sheet and a gain or loss on the sale is recognized for the difference between the carrying ~~value~~amount of the asset and the transaction price for the sale transaction.

For sale‑leaseback transactions in which the Company has not transferred control of the underlying asset, the Company does not recognize an asset sale or derecognize the underlying asset until control is transferred. For such transactions, the Company continues to recognize the assets within property, plant and equipment and leasehold intangibles, net and continues to depreciate the asset over its useful life. Additionally, the Company accounts for any amounts received as a financing lease liability and the Company recognizes interest expense on the financing lease liability utilizing the effective interest method with the interest expense limited to an amount that is not greater than the cash payments on the financing lease liability over the term of the lease.

~~Refer~~Gain (Loss) on Sale of Assets

The Company regularly enters into real estate transactions which may include the disposition of certain communities, including the associated real estate. The Company recognizes gain or loss from real estate sales when the transfer of control is complete.

The Company recognizes gain or loss from the sale of equity method investments when the transfer of control is complete and the Company has no continuing involvement with the transferred financial assets.

Property, Plant and Equipment and Leasehold Intangibles, Net

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset group may not be recoverable. Recoverability of an asset group is assessed by comparing its carrying amount to the ~~Company’s revenue recognition policy for discussion~~estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that the carrying amount of an asset group is not recoverable, the Company is required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the ~~accounting policy~~asset exceeds its estimated fair 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 (Level 3).

Goodwill

The Company tests goodwill for ~~residency agreements,~~impairment annually during the fourth quarter or more frequently if indicators of impairment arise. Factors the Company considers important in its analysis of whether an indicator of impairment exists include a significant decline in the Company's stock price or market capitalization for a sustained period since the last testing date, 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 if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If so, the Company performs a quantitative goodwill impairment test based upon a comparison of the estimated fair value of the reporting unit to which ~~include~~ the ~~lease~~goodwill has been assigned with the reporting unit's carrying amount. The fair values used in the quantitative goodwill impairment test are estimated using Level 3 inputs 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. The Company also considers market-based measures such as earnings multiples in its analysis of estimated fair values of its reporting units. If the quantitative goodwill impairment test results in a reporting unit's carrying amount exceeding its estimated fair value, an ~~asset.~~impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit.

Recently Adopted Accounting Pronouncements

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 condensed consolidated balance sheet for most leases. Additionally, ASU 2016-02 makes targeted changes to lessor accounting, including changes to align certain aspects with the revenue recognition model, and requires enhanced disclosure of lease arrangements. In July 2018, the FASB issued ASU 2018-11, ~~Leases, Targeted Improvements~~ ("ASU 2018-11"). ASU 2018-11 provides entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, ASU 2018-11 provides entities with a practical expedient allowing lessors to not separate nonlease components from the associated lease components when certain criteria are met. The Company adopted these lease accounting standards effective January 1, 2019 and utilized the modified retrospective transition method with no adjustments to comparative periods presented. Additionally, the Company elected the package of practical expedients within ASU 2016-02 that allows an entity to not reassess, as of January 1, 2019, its prior conclusions on whether an existing contract contains a lease, lease classification for existing leases, and whether costs incurred for existing leases qualify as initial direct costs.

The Company's adoption of ASU 2016-02 resulted in the recognition of operating lease liabilities of $1.6 billion and right-of-use assets of $1.3 billion on the condensed consolidated balance sheet for its existing community, office, and equipment operating leases based on the remaining present value of the minimum lease payments as of January 1, 2019. The future minimum rental payments recognized on the condensed consolidated balance sheet included fixed payments (including in-substance fixed payments) and variable payments estimated utilizing the index or rate as of January 1, 2019. Such right-of-use asset amounts were recognized based upon the amount of the recognized lease liabilities, adjusted for accrued lease payments, intangible assets, and the recognition of right-of-use asset impairments. As of December 31, 2018, the Company had a net liability of $231.4 million

recognized on its condensed consolidated balance sheet for accrued lease payments and intangible assets for operating leases. Additionally, $58.1 million of previously unrecognized right-of-use asset impairments were recognized as a cumulative effect adjustment to beginning accumulated deficit as of January 1, 2019. As a result of the Company’s election of the package of practical expedients within ASU 2016-02, there were no changes to the classification of the Company’s existing operating, capital and financing leases as of January 1, 2019 and there were no changes to the amounts recognized on its condensed consolidated balance sheet for its existing capital and financing leases as of January 1, 2019.

Subsequent to the adoption of ASU 2016-02, lessors are required to separately recognize and measure the lease component of a contract with a customer utilizing the provisions of ASC 842 and the nonlease components utilizing the provisions of ASC 606. To separately account for the components, the transaction price is allocated among the components based upon the estimated stand alone selling prices of the components. Additionally, certain components of a contract which were previously included within the lease element recognized in accordance with ASC 840, ~~Leases~~ ("ASC 840") prior to the adoption of ASU 2016-02 (such as common area maintenance services, other basic services, and executory costs) are recognized as nonlease components subject to the provisions of ASC 606 subsequent to the adoption of ASU 2016-02. However, entities are permitted to elect the practical expedient under ASU 2018-11 allowing lessors to not separate nonlease components from the associated lease components when certain criteria are met. Entities that elect to utilize the lease/nonlease component combination practical expedient under ASU 2018-11 upon initial application of ASC 842 are required to apply the practical expedient to all new and existing transactions within a class of underlying assets that qualify for the expedient as of the initial application date.

For the year ended December 31, 2018, the Company recognized revenue for housing services under independent living, assisted living, and memory care residency agreements in accordance with the provisions of the former lease accounting standard, ASC 840, and the Company recognized revenue for assistance with activities of daily living, memory care services, healthcare, and personalized health services under independent living, assisted living, and memory care residency agreements in accordance with the provisions of ASC 606.

Upon adoption of ASU 2016-02 and ASU 2018-11, the Company elected the lessor practical expedient within ASU 2018-11 and recognizes, measures, presents, and discloses the revenue for housing services under the Company's senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts rather than allocating the consideration and separately accounting for it under ASC 842 and ASC 606.

The Company has concluded that the nonlease components of the Company’s independent living, assisted living, and memory care residency agreements are the predominant component of the contract for the Company’s existing agreements as of January 1, 2019. As a result of the Company's election of the package of practical expedients within ASU 2016-02, the Company continued to recognize revenue for existing contracts as of December 31, 2018 over the lease term. In addition, ASU 2016-02 has changed the definition of initial direct costs of a lease, with the initial direct costs that are initially deferred and recognized over the term of the lease limited to costs that are both incremental and direct. The Company concluded that the contract origination costs recognized on the condensed consolidated balance sheet as of December 31, 2018 were in excess of the initial direct costs that would have been deferred under the provisions of ASU 2016-02. As a result of the Company’s election of the package of practical expedients, the contract origination costs recognized on the condensed consolidated balance sheet as of December 31, 2018 continued to be amortized during 2019 over the lease term. Additionally, the Company concluded that certain costs previously deferred upon new contract origination are recognized within facility operating expense in 2019 as incurred.

In addition to the previously unrecognized right-of-use asset impairment of $58.1 million, the Company recognized cumulative effect adjustments to beginning accumulated deficit as of January 1, 2019 for the impact of the adoption of accounting standards by its equity method investees and the deferred tax impact of these adjustments. The recognition of the right-of-use assets and corresponding liabilities and the removal of the deferred tax position related to these leases as of December 31, 2018 had a $0.3 million impact on the Company's net deferred tax position. A deferred tax asset of $14.1 million and an increase to the valuation allowance of $13.8 million was recorded against accumulated deficit reflecting the tax impact of the previously unrecognized right-of-use asset impairments.

~~The adoption of the new accounting standards resulted in the following adjustments to the Company's condensed consolidated balance sheet as of January 1, 2019:~~

(in millions)
Assets
Prepaid expenses and other current assets, net $ 67
Property, plant and equipment and leasehold intangibles, net (11 )
Operating lease right-of-use assets 1,329
Investment in unconsolidated ventures (2 )
Other intangible assets, net (5 )
Other assets, net (73 )
Total assets $ 1,305
Liabilities and Equity
Refundable fees and deferred revenue $ 43
Operating lease obligations 1,618
Deferred liabilities (257 )
Other liabilities (43 )
Total liabilities 1,361
Total equity (56 )
Total liabilities and equity $ 1,305

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

In June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("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. The Company will be required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments. 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 plans to adopt ASU 2016-13adopted this standard effective January 1, 2020 and ~~will recognize any~~recognized the cumulative effect of the adoption as an immaterial adjustment to beginning ~~retained earnings with no adjustments to comparative periods presented.~~accumulated deficit as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13.

In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"), which amends the former accounting principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. The Company ~~does not expect~~adopted these lease accounting standards effective January 1, 2019 and recognized the ~~impact~~cumulative effect of the adoption as a $55.9 million adjustment to beginning accumulated deficit as of ~~ASU 2016-13 to have a material effect to its consolidated financial statements and disclosures.~~January 1, 2019. See Footnote 2, Summary of Significant Accounting Policies, in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for more details regarding the adoption of this accounting pronouncement.

3. COVID-19 Pandemic

The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, the nation’s economy, the senior living industry, and the Company’s business. Although a significant portion of the Company’s corporate support associates began working from home in March 2020, the Company continues to serve and care for seniors through the pandemic. Due to the average age and prevalence of chronic medical conditions among the Company’s residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19.

Due to the pandemic, in March 2020 the Company began restricting visitors at all its communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and

requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. Upon confirmation of positive COVID-19 exposure at a community, the Company follows government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents. These restrictions were in place across the Company’s portfolio for the three months ended June 30, 2020.

The pandemic and response efforts of senior living communities have significantly disrupted demand for senior living communities and the sales process. The Company cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees the Company is able to collect from its residents.

The pandemic and the Company’s response efforts began to adversely impact the Company’s occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. Further deterioration of the Company's resident fee revenue will result from lower move-in activity and the resident attrition inherent in its business, which may increase due to the impacts of COVID-19. The Company’s home health average daily census also began to decrease in March 2020 due to lower occupancy in its communities and fewer elective medical procedures and hospital discharges.

Facility operating expense for the three and six months ended June 30, 2020 includes $60.6 million and $70.6 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation costs, increased labor expense, increased workers compensation and health plan expense, increased insurance premiums and retentions, consulting and professional services costs, and costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. The Company is not able to reasonably predict the total amount of costs it will incur related to the pandemic, and such costs are likely to be substantial. As described further in Note 6, the Company also recorded non-cash impairment charges in its operating results of $10.3 million and $87.0 million for the three and six months ended June 30, 2020, respectively, for its operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities for which assets were impaired.

The Company has taken, and continues to take, actions to enhance and preserve its liquidity in response to the pandemic. The Company drew $166.4 million on its revolving credit facility in March 2020, and suspended repurchases under the Company’s existing share repurchase program. During the three months ended June 30, 2020, the Company accepted $33.5 million of cash for grants under the Public Health and Social Services Emergency Fund (the “Emergency Fund”) and $85.0 million of accelerated/advanced Medicare payments, and the Company deferred $26.5 million of the employer portion of social security payroll taxes. Each of these programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below. The Company also has delayed or canceled a number of elective capital expenditure projects resulting in an approximate $50 million reduction to its pre-pandemic full-year 2020 capital expenditure plans. On July 26, 2020, the Company entered into definitive agreements with Ventas, Inc. ("Ventas") to restructure its 120 community triple-net master lease arrangements as further described in Note 17. Pursuant to the multi-part transaction, among other things, the Company paid a $119.2 million one-time cash payment to Ventas, reduced its initial annual minimum rent under the amended and restated master lease to $100 million effective July 1, 2020, and removed the prior requirements that the Company satisfy financial covenants and that the Company maintain a security deposit with Ventas. The annual minimum rent under the amended and restated master lease reflects a reduction of approximately $86 million over the next twelve months.

As of June 30, 2020, the Company’s total liquidity was $600.2 million, consisting of $452.4 million of unrestricted cash and cash equivalents, $109.9 million of marketable securities, and $37.9 million of additional availability on its revolving credit facility. As of June 30, 2020, $166.4 million of borrowings were outstanding on the revolving credit facility. The Company continues to seek opportunities to enhance and preserve its liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate its financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic.

During March 2020, the Company completed its financing plans in the regular course of business, including closing 3 non-recourse mortgage debt financing transactions totaling $208.5 million with the proceeds used to refinance the majority of the Company’s 2020 maturities and to partially fund the Company’s acquisitions of 26 communities completed during the three months ended March 31, 2020. As of June 30, 2020, the Company’s remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million and $254.1 million, respectively, which are primarily non-recourse mortgage debt maturities.

As described further in Note 10, availability under the Company’s revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the Company's consolidated fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, the Company would be required to repay the difference to restore the outstanding balance to the new borrowing base. Due primarily to the impacts of the COVID-19 pandemic, and based upon the Company’s current estimate of cash flows, the Company has determined that it is probable that it will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on the Company’s part. Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and the Company being required to repay the $166.4 million of borrowings outstanding on the revolving credit facility.

Based upon the Company’s current liquidity and estimated cash flows, the Company has estimated that it would be unable to repay a portion of the 2021 maturities and the borrowings outstanding on the revolving credit facility as they become due without refinancing these maturities or obtaining additional financing proceeds. The Company has continued efforts on its plan to refinance the assets currently securing the credit facility and to refinance the substantial majority of the remaining 2020 and 2021 maturities with non-recourse mortgage debt. The Company currently anticipates that it is probable that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on its revolving credit facility and terminate the facility without payment of a premium or penalty and to pay the Company’s contractual obligations as they come due over the next twelve months. However, there is no assurance that debt financing will continue to be available on terms consistent with the Company’s expectations or at all, in which case the Company would expect to take other mitigating actions prior to the maturity dates.

In response to the pandemic, on March 27, 2020, the President signed the CARES Act into law, which was amended and expanded by the Paycheck Protection Program and Health Care Enhancement Act signed into law on April 24, 2020. The legislation provides liquidity and financial relief to certain businesses, among other things. The impacts to the Company of certain provisions of the CARES Act are summarized below.

During the three months ended June 30, 2020, the Company accepted $33.5 million of cash for grants from the Emergency Fund, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. Approximately $28.8 million of the grants were made available pursuant to the Emergency Fund's general distribution, with grant amounts based primarily on the Company's relative share of aggregate 2019 Medicare fee-for-service reimbursements and generally related to home health, hospice, outpatient therapy, and skilled nursing care provided through the Company's Health Care Services and CCRCs segments. Approximately $4.7 million of the grants were made available pursuant to the Emergency Fund's targeted allocation for certified skilled nursing facilities, with amounts determined using a per-facility and per-bed model. During July 2020, the Company applied for additional grants pursuant to the Emergency Fund's Medicaid and CHIP allocation. The amount of such grants are expected to be based on 2% of a portion of the Company's 2018 gross revenues from patient care.

The grants are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19. During the three months ended June 30, 2020, the Company recognized $26.4 million of the grants as other operating income based upon the Company’s estimates of its satisfaction of the conditions of the grants during such period. As of June 30, 2020, $7.1 million of unrecognized grants were included in refundable fees and deferred revenue within the Company's condensed consolidated balance sheets. The $33.5 million of grants accepted from the Emergency Fund during the six months ended June 30, 2020 has been presented within net cash provided by (used in) operating activities within the Company’s condensed consolidated statement of cash flows.

During three months ended June 30, 2020, the Company received $85.0 million under the Accelerated and Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act. Under the program, the Company requested acceleration/advancement of 100% of its Medicare payment amount for a three-month period. Recoupment of accelerated/advanced payments are required to begin 120 days after their issuance through offsets of new Medicare claims, and all accelerated/advanced payments are due 210 days following their issuance. Such amount has been presented within net cash provided by operating activities within the Company’s condensed consolidated statement of cash flows.

Under the CARES Act, the Company has elected to defer payment of the employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. As of June 30, 2020, the Company has deferred payment of $26.5 million of payroll taxes and presented such amount within other liabilities within the Company's condensed consolidated balance sheets.

The CARES Act temporarily suspended the 2% Medicare sequestration for the period May 1, 2020 to December 31, 2020, which primarily benefits the Company’s Health Care Services segment.

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

4. Earnings Per Share

Basic earnings per share ("EPS") is calculated by dividing net income (loss) 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. 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 ~~unvested~~ and ~~vested~~ restricted stock ~~units, and convertible debt instruments and warrants.~~units.

~~During~~The following table summarizes the computation of basic and diluted earnings (loss) per share amounts presented in the condensed consolidated statements of operations:



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020		2019
Income attributable to common shareholders:
Net income (loss)	$	(118,401	)	$	(55,470	)	$	251,114	$	(98,065	)

Weighted average shares outstanding - basic	183,178			186,140			183,682		186,442
Effect of dilutive securities - Unvested restricted stock and restricted stock units	—			—			180		—
Weighted average shares outstanding - diluted	183,178			186,140			183,862		186,442

Basic earnings (loss) per common share:
Net income (loss) per share attributable to common shareholders	$	(0.65	)	$	(0.30	)	$	1.37	$	(0.53	)

Diluted earnings (loss) per common share:
Net income (loss) per share attributable to common shareholders	$	(0.65	)	$	(0.30	)	$	1.37	$	(0.53	)

For the three ~~and nine~~ months ended ~~September~~June 30, ~~2019 and 2018,~~2020, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock and restricted stock units ~~and convertible debt instruments and warrants~~ were antidilutive for ~~each~~the period and were not included in the computation of diluted weighted average shares. The weighted average restricted stock and restricted stock units excluded from the ~~calculations~~calculation of diluted net loss per share ~~were 7.6 million and 6.2~~was 9.1 million for the three months ended ~~September~~June 30, ~~2019 and 2018, respectively, and 7.6 million and 6.5 million for~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2018, respectively.~~2020, the calculation

of diluted weighted average shares excludes 7.1 million of non-performance-based restricted stock and restricted stock units, as the inclusion of such award would have been antidilutive. Performance-based equity awards are included in the diluted earnings per share calculation based on the attainment of the applicable performance metrics to date. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2020, the calculation of diluted weighted average shares excludes 1.8 million of performance-based restricted stock and restricted stock units. During the ~~impact of conversion~~three and six months ended June 30, 2019, the Company reported a consolidated net loss. As a result of the ~~principal amount~~net loss, unvested restricted stock and restricted stock units were antidilutive for the periods and were not included in the computation of ~~$316.3 million of the Company's 2.75% convertible senior notes which were repaid in cash at their maturity on June 15, 2018. In addition,~~diluted weighted average shares. The weighted average restricted stock and restricted stock units excluded from the calculation of diluted ~~weighted average shares excludes the impact of the exercise of warrants to acquire the Company's common stock. As of September 30, 2018, the number of shares issuable upon exercise of the warrants~~net loss per share was ~~approximately 9.2 million. During~~7.8 million and 7.5 million for the three and six months ended ~~March 31,~~June 30, 2019, ~~the option to exercise the remaining outstanding warrants expired unexercised.~~

respectively.

4.5. Acquisitions, Dispositions and Other ~~Significant~~ Transactions

During the period from January 1, ~~2018~~2019 through ~~September~~June 30, ~~2019,~~2020, the Company acquired 26 communities that the Company formerly leased, disposed of 3015 owned ~~communities. The Company also entered into agreements~~communities, and sold its ownership interest in its unconsolidated entry fee CCRC Venture (the "CCRC Venture") with ~~Ventas, Inc. ("Ventas") and Welltower Inc. ("Welltower") and continued to execute on the transactions with HCP, Inc. (now known as~~ Healthpeak Properties, Inc. ("Healthpeak") ("HCP") announced in 2017, which together restructured a significant portion of the Company's triple-net lease obligations with the Company's largest lessors. As a result of such transactions, as well as other lease expirations, and ~~terminations,~~ the Company's triple-net lease obligations on 9712 communities were ~~terminated~~terminated. The acquisitions of formerly leased communities include the 18 communities acquired from Healthpeak described below and 8 communities acquired pursuant to the exercise of a purchase option for a purchase price of $39.3 million, all of which occurred during the period from January 1, 2018 to September 30, 2019. During this period, the Company also sold its ownership interests in 5 unconsolidated ventures and acquired 6 communities that the Company previously leased or managed. As of September 30, 2019, the Company owned 336 communities, leased 335 communities, managed 17 communities on behalf of unconsolidated ventures, and managed 106 communities on behalf of third parties.

The following table sets forth, for the periods indicated, the amounts included within the Company's condensed consolidated financial statements for the 127 communities that it disposed through sales and lease terminations during the period from January 1, 2018 to September 30, 2019 through the respective disposition dates (of which 77 communities were disposed through sales and lease terminations during the period from July 1, 2018 to September 30, 2019):

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2019 2018 2019 2018
Resident fees
Independent Living $ —
$ 14,099
$ —
$ 74,970
Assisted Living and Memory Care 103
45,496
12,385
223,763
CCRCs —
4,401
—
15,106
Senior housing resident fees $ 103
$ 63,996
$ 12,385
$ 313,839
Facility operating expense
Independent Living $ —
$ 8,588
$ —
$ 44,256
Assisted Living and Memory Care 103
35,182
10,204
160,606
CCRCs —
3,785
—
13,701
Senior housing facility operating expense $ 103
$ 47,555
$ 10,204
$ 218,563
Cash facility lease payments $ —
$ 13,111
$ 1,451
$ 80,046

~~2019 Completed and Planned Dispositions of Owned Communities~~

~~During the nine~~three months ended September 30, 2019, the Company completed the sale of 8 owned communities for cash proceeds of $44.1 million, net of transaction costs, and recognized a net gain on sale of assets of $0.9 million for the nine months ended September 30, 2019.March 31, 2020.

As of ~~September~~June 30, ~~2019, 6~~2020, the Company owned 355 communities, leased 305 communities, managed 77 communities, and 2 unencumbered communities in the CCRCs segment were classified as held for sale, resulting in ~~$60.4~~$37.4 million being recorded as assets held for ~~sale and $30.8 million of mortgage debt being included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to such communities.~~sale. The closings of the various pending and expected transactions described within this note are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. ~~There~~However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

~~2018 Completed~~ Dispositions of Owned Communities

During the ~~year~~six months ended ~~December 31, 2018,~~June 30, 2020, the Company completed the sale of 221 owned ~~communities~~community for cash proceeds of ~~$380.7~~$5.5 million, net of transaction costs, and recognized a net gain on sale of assets of ~~$188.6~~$0.2 million.

During the year ended December 31, 2019, the Company completed the sale of 14 owned communities for cash proceeds of $85.4 million, net of transaction costs, and recognized a net gain on sale of assets of $5.5 million. The Company utilized a portion of the cash proceeds from the asset sales to repay approximately ~~$174.0~~$5.1 million of associated mortgage debt and debt prepayment penalties. These dispositions included the sale of 38 communities during the ~~three~~six months ended ~~March 31, 2018~~June 30, 2019 for which the Company received cash proceeds of ~~$12.8~~$44.1 million, net of transaction ~~costs, and recognized a net gain on sale of assets of $1.9 million.~~costs.

Healthpeak CCRC Venture and Master Lease Transactions

~~2018 Welltower Lease and RIDEA Venture Restructuring~~

~~In June 2018,~~On October 1, 2019, the Company entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with ~~Welltower~~Healthpeak. The parties subsequently amended the agreements to terminate its triple-net lease obligations on 37 communities and to sell the Company's 20% equity interest in its Welltower RIDEA venture to Welltower. During the three months ended June 30, 2018, the Company paid Welltower an aggregate lease terminationinclude 1 additional entry fee CCRC community as part of ~~$58.0 million, recognized a $22.6 million loss on lease termination, received net proceeds of $33.5 million for~~ the sale of ~~equity~~the Company's interest in the CCRC Venture (rather than removing the community from the CCRC Venture for joint marketing and ~~recognized a $14.7 million gain on sale~~sale). The components of the RIDEA venture. The Company also elected not to renew 2 master leases with Welltower which matured on September 30, 2018 (11 communities). In addition, the parties separately agreed to allow the Company to terminate leases with respect to, and to remove from the remaining Welltower leased portfolio, a number of communities with annual aggregate base rent up to $5.0 million upon Welltower's sale of such communities, and the Company would receive a corresponding 6.25% rent credit on Welltower's disposition proceeds.multi-part transaction include:

•

CCRC Venture Transaction. Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired the Company's 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs, for a purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). The $289.2 million of cash received from Healthpeak is presented within net cash used in investing activities for the six months ended June 30, 2020. The Company recognized a $369.8 million gain on sale of assets for the six months ended June 30, 2020, and the Company derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the Company's existing management agreements with the 14 entry fee CCRCs, Healthpeak paid the Company a $100.0 million management agreement termination fee, and the Company transitioned operations of the entry fee CCRCs to a new operator. The Company recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities expected to occur in 2021. Subsequent to these transactions, the Company will have exited substantially all of its entry fee CCRC operations.

~~2018 Ventas Lease Portfolio Restructuring~~

In April 2018, the Company and Ventas entered into a Master Lease and Security Agreement (the "Ventas Master Lease") in connection with the restructuring of a portfolio of 128 communities that it leased from Ventas. The Company estimated the fair value of each of the elements of the restructuring transactions. The fair value of the future lease payments was based upon historical and forecasted community cash flows and market data, including an implied management fee rate of 5% of revenue and a market supported lease coverage ratio (Level 3 inputs). The Company recognized a $125.7 million non-cash loss on lease modification during the three months ended June 30, 2018, primarily for the extensions of the triple-net lease obligations for communities with lease terms that were unfavorable to the Company given current market conditions on the amendment date in exchange for modifications to the change of control provisions and financial covenant provisions of the community leases.

Pursuant to the Ventas Master Lease, the Company has exercised its right to direct Ventas to market for sale 28 communities. Ventas is obligated to use commercially reasonable, diligent efforts to sell such communities on or before December 31, 2020 (subject to extension for regulatory purposes); provided, that Ventas' obligation to sell any such community is subject to Ventas' receiving a purchase price in excess of a mutually agreed upon minimum sale price and to certain other customary closing conditions. Upon any such sale, such communities will be removed from the Ventas Master Lease, and the annual minimum rent under the Ventas Master Lease will be reduced by the amount of the net sale proceeds received by Ventas multiplied by 6.25%. During the three months ended June 30, 2019, 5 of such communities were sold by Ventas and removed from the Ventas Master Lease, and the annual minimum rent under the Ventas Master Lease was prospectively reduced by $1.5 million.

~~2017 HCP Master Lease Transaction and RIDEA Ventures Restructuring~~

Pursuant to transactions the Company entered into with HCP in November 2017, during the three months ended June 30, 2018, the Company acquired 5 communities from HCP, 2 of which the Company formerly leased, for an aggregate purchase price of $242.8 million, and during the three months ended March 31, 2018, the Company acquired 1 community for an aggregate purchase price of $32.1 million.

During the year ended December 31, 2018, leases with respect to 33 communities were terminated, and such communities were removed from the Company's master lease with HCP. NaN of such community leases were terminated in the nine months ended September 30, 2018. During the three and nine months ended September 30, 2018, the Company derecognized $60.9 million and $147.8 million, respectively, of the carrying value of the assets under financing leases and $67.3 million and $160.8 million, respectively, carrying value of financing lease obligations and recognized a $6.1 million and $12.6 million, respectively, non-cash gain on sale of assets for 6 communities which were previously subject to sale-leaseback transactions. Additionally, the Company recognized a $0.1 million non-cash loss and a $1.8 million non-cash gain on lease termination for 7 communities under operating and capital leases during the three and nine months ended September 30, 2018, respectively.

~~During the three months ended March 31, 2018, HCP acquired the Company's 10% ownership interest in a RIDEA venture with HCP for $62.3 million, and the Company recognized a $41.7 million gain on sale.~~

Management agreements for 35 communities with former unconsolidated ventures with HCP have been terminated by HCP since November of 2017. The Company has recognized a $9.3 million non-cash management contract termination gain, of which $0.6 million was recognized during the three months ended September 30, 2018 and $0.8 million and $5.6 million were recognized during the nine months ended September 30, 2019 and 2018, respectively.

•

Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated the existing master lease pursuant to which the Company continues to lease 25 communities from Healthpeak, and the Company acquired 18 formerly leased communities from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, the Company paid $405.5 million to acquire such communities and to reduce its annual rent under the amended and restated master lease. The $405.5 million of cash paid to Healthpeak and $1.7 million of direct acquisition costs are presented within net cash used in investing activities for the six months ended June 30, 2020. The Company funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak has agreed to terminate the lease for 1 leased community. With respect to the continuing 24 communities, the Company's amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to 2 extension options at the Company's election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak has agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition transaction, the Company recognized a $19.7 million gain on debt extinguishment and derecognized the $105.1 million carrying amount of financing lease obligations for 8 communities which were previously subject to sale-leaseback transactions in which the Company was deemed to have continuing involvement.

5.6. Fair Value Measurements

Marketable Securities

As of ~~September~~June 30, ~~2019,~~2020, marketable securities of ~~$49.8~~$109.9 million are stated at fair value based on valuation provided by third-party pricing services and are classified within Level 2 of the valuation hierarchy.

Debt

The Company had outstanding long-term debt obligations, including $166.4 million of borrowings outstanding on the revolving credit facility as of June 30, 2020, with a carrying value of ~~approximately~~$3.9 billion and $3.6 billion as of ~~both September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. Fair value of the long-term debt approximates carrying value in all periods presented. The Company's fair value of long-term debt disclosure is classified within Level 2 of the valuation hierarchy.

~~Goodwill and~~ Asset Impairment Expense

The following is a summary of ~~goodwill and~~ asset impairment expense.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018		2020		2019		2020		2019
Goodwill	$	—	$	—	$	—	$	351.7
Property, plant and equipment and leasehold intangibles, net	0.8		2.5		2.0		50.2		$	3.7	$	1.2	$	14.7	$	1.2
Operating lease right-of-use assets									6.6		—		72.3		—
Investment in unconsolidated ventures	—		—		—		33.4		—		—		1.5		—
Other intangible assets, net	—		—		2.6		1.7		—		2.6		—		2.6
Assets held for sale	1.3		3.0		1.3		15.0
Other assets, net	$	—	—		$	0.4	—		—		—		—		0.4
Goodwill and asset impairment	$	2.1	$	5.5	$	6.3	$	452.0
Asset impairment									$	10.3	$	3.8	$	88.5	$	4.2

~~Goodwill~~Although the Company cannot predict with reasonable certainty the ultimate impacts of the COVID-19 pandemic, the Company concluded that the impacts of the pandemic have adversely affected the Company’s projections of revenue, expense, and cash flow for its senior housing community long-lived assets and constitute an indicator of potential impairment. Accordingly, the Company assessed its long-lived assets for recoverability. Refer to Note 3 for additional information on the COVID-19 pandemic.

~~During~~In estimating the ~~three~~recoverability of asset groups for purposes of the Company’s long-lived asset impairment testing during the six months ended ~~March 31, 2018,~~June 30, 2020, the Company ~~identified qualitative indicators~~utilized future cash flow projections that are generally developed internally. Any estimates of ~~impairment, including a~~future cash flow projections necessarily involve predicting unknown future circumstances and events and require significant ~~decline in~~management judgments and estimates. In arriving at the ~~Company's stock price and market capitalization for a sustained period during the three months ended March 31, 2018. Based upon the Company's qualitative assessment,~~cash flow projections, the Company ~~performed a quantitative goodwill impairment test as~~considers its estimates of the impacts of the pandemic, historic operating results, approved budgets and business plans, future demographic factors, expected growth rates, estimated asset holding periods, and other factors.

As of March 31, ~~2018, which included~~2020 and June 30, 2020, there was a ~~comparison~~wide range of possible outcomes as a result of the ~~estimated fair value~~pandemic, as there was a high degree of ~~each reporting unit to which the goodwill has been assigned with the reporting unit's carrying value. Based on the results~~uncertainty about its ultimate impacts. Management’s estimates of the ~~Company's quantitative goodwill impairment test,~~impacts of the ~~Company recorded~~pandemic are highly dependent on variables that are difficult to predict, as further described in Note 3. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in future impairments.

Operating Lease Right-of-Use Assets

As a ~~non-cash impairment charge~~result of ~~$351.7 million to goodwill and asset impairment within~~ the ~~Assisted Living and Memory Care operating segment for~~COVID-19 pandemic during the ~~three~~six months ended ~~March 31, 2018. See Note 2 for more information regarding the Company's policy for goodwill.~~

~~Property, Plant and Equipment and Leasehold Intangibles~~

~~During the three and nine months ended September~~June 30, ~~2018,~~2020, the Company evaluated ~~property, plant and equipment and leasehold intangibles~~operating lease right-of-use assets for impairment and identified ~~properties~~communities with a carrying ~~value~~amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the ~~assets primarily due to an expectation that certain communities will be disposed of prior to their previously intended holding periods. As a result of this change in intent, the~~assets. The Company compared the estimated fair value of the assets to their carrying ~~value~~amount for these identified ~~properties~~communities and recorded an impairment charge for the excess of carrying ~~value~~amount over ~~estimated~~ fair value. The estimates of fair values of the property, plant and equipment of these communities were determined based on valuations provided by third-party pricing services and are classified within Level 3 of the valuation hierarchy. The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $2.5 million and $50.2 million for the three and nine months ended September 30, 2018, respectively, primarily within the Assisted Living and Memory Care segment.

~~Investment in Unconsolidated Ventures~~

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 the three months ended March 31, 2018, the Company

recorded non-cash impairment charges related to investments in unconsolidated ventures of $33.4 million. The impairment charges reflect the amount by which the carrying values of the investments exceeded their estimated fair value (using Level 3 inputs).

~~Right-of-Use Assets~~

~~The Company's adoption of ASU 2016-02 resulted in the recognition of~~recognized the right-of-use assets for the operating leases for 2535 communities ~~to be recognized~~ on the condensed consolidated balance ~~sheet~~sheets as of ~~January 1, 2019~~March 31, 2020 at the estimated fair value of ~~$56.6 million and $58.1 million of previously unrecognized right-of-use asset impairments were recognized as a cumulative effect adjustment to accumulated deficit as~~$106.7 million. Additionally, during the three months ended June 30, 2020, the Company ~~determined that~~recognized the ~~long-lived~~right-of-use assets ~~of such~~for the operating leases for 9 communities ~~were not recoverable as of such date. The~~on the condensed consolidated balance sheets at the estimated fair value of $10.3 million. As a result, the Company recorded non-cash impairment charges for the operating lease right-of-use assets ~~was~~of $6.6 million and $72.3 million for the three and six months ended June 30, 2020, respectively.

The fair values of the operating lease right-of-use assets of these communities were estimated utilizing a discounted cash flow approach based upon historical and projected community cash flows and market data, including management fees and a market supported lease coverage ratio, ~~(Level~~all of which are considered Level 3 ~~inputs). The Company corroborated~~inputs within the ~~estimated management fee rates and lease coverage ratios used in these estimates with lease coverage ratios observable from recent market transactions.~~valuation hierarchy. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. ~~See Note 2 for more information regarding the recognition~~The range of ~~right-of-use assets for operating leases~~discount rates utilized was 11.2% to 12.3%, depending upon the ~~adoption~~property type, geographical location, and the quality of ~~ASU 2016-02.~~the respective community. These impairment charges are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

Property, Plant and Equipment and Leasehold Intangibles, Net

During the six months ended June 30, 2020, the Company evaluated property, plant and equipment and leasehold intangibles for impairment and identified communities with a carrying amount of the assets in excess of the estimated future undiscounted net cash flows expected to be generated by the assets. The Company compared the estimated fair value of the assets to their carrying amount for these identified communities and recorded an impairment charge for the excess of carrying amount over fair value. The Company recorded property, plant and equipment and leasehold intangibles non-cash impairment charges in its operating results of $3.7 million and $14.7 million for the three and six months ended June 30, 2020, respectively. The fair values of the property, plant and equipment of these communities were primarily determined utilizing a discounted cash flow approach considering stabilized facility operating income and market capitalization rates. These fair value measurements are considered Level 3 measurements within the valuation hierarchy. These impairment charges are primarily due to the COVID-19 pandemic and lower than expected operating performance at these communities and reflect the amount by which the carrying amounts of the assets exceeded their estimated fair value.

6.7. Stock-Based Compensation

Grants of restricted ~~shares~~stock units and stock awards under the Company's 2014 Omnibus Incentive Plan were as follows:

(in thousands, except for per share amounts) Shares Granted Weighted Average Grant Date Fair Value Total Value
Three months ended March 31, 2019 4,047
$ 7.87
$ 31,857
Three months ended June 30, 2019 142
$ 6.51
$ 922
Three months ended September 30, 2019 136
$ 7.55
$ 1,028



(in thousands, except for per share and unit amounts)	Restricted Stock Units and Stock Awards Granted	Weighted Average Grant Date Fair Value		Total Grant Date Fair Value
Three months ended March 31, 2020	4,438	$	7.06	$	31,341
Three months ended June 30, 2020	78	$	3.91	$	303

7.8. Goodwill ~~and Other Intangible Assets, Net~~

The Company's Independent Living and Health Care Services segments had a carrying value of goodwill of $27.3 million and $126.8 million, respectively, as of both ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~Goodwill is tested for impairment annually with a test date of October 1 and sooner if~~

During the six months ended June 30, 2020, the Company identified indicators of impairment ~~are present. The Company determined no impairment was necessary for~~of goodwill, including the ~~three~~COVID-19 pandemic and nine months ended September 30, 2019. 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 and market capitalization 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.period. Refer to Note 53 for additional information on ~~impairment expense for goodwill in 2018.~~the COVID-19 pandemic.

~~Other intangible assets~~As a result of the COVID-19 pandemic, the Company performed an interim quantitative goodwill impairment test as of ~~September~~March 31, 2020. The Company’s quantitative goodwill impairment test as of March 31, 2020 included reduced estimates of projected future cash flows as a result of changes to significant assumptions using information known or knowable about the COVID-19 pandemic, including current industry and economic trends, changes in business plans, and changes in expected revenue and facility operating expense growth rates. Additionally, the Company considered the additional risk within the future cash flow estimates when selecting risk-adjusted discount rates. The Company determined 0 impairment of goodwill was necessary for the six months ended June 30, ~~2019~~2020.

Determining the fair value of the Company’s reporting units involves the use of significant estimates and ~~December 31, 2018~~assumptions that are ~~summarized~~unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. 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 differences in the ~~following tables:~~

September 30, 2019
(in thousands) Gross
Carrying
Amount Accumulated
Amortization Net
Health care licenses $ 42,776
$ —
$ 42,776
Trade names 27,800
(27,800 ) —
Total $ 70,576
$ (27,800 ) $ 42,776

December 31, 2018
(in thousands) Gross
Carrying
Amount Accumulated
Amortization Net
Community purchase options $ 4,738
$ —
$ 4,738
Health care licenses 42,323
—
42,323
Trade names 27,800
(26,295 ) 1,505
Management contracts 9,610
(6,704 ) 2,906
Total $ 84,471
$ (32,999 ) $ 51,472

~~Amortization expense related~~projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, changes in reimbursement rates from Medicare for healthcare services, and changes in healthcare reform. Significant adverse changes in the Company’s 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 ~~definite-lived intangible assets~~increased competition, changes in reimbursement rates from Medicare for healthcare services, and changing economic or market conditions, including market control premiums, could result in changes in fair value and the three months ended September 30, 2019 and 2018 was $0.2 million and $0.6 million, respectively, and for the nine months ended September 30, 2019 and 2018 was $1.8 million and $2.3 million, respectively. The Company recognized $2.6 million of non-cash impairment charges on management contract intangible assets during the nine months ended September 30, 2019 for the termination of management contracts.determination that goodwill is impaired.

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

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, net property, plant and equipment and leasehold intangibles, which include assets under financing leases, consisted of the following:


(in thousands)	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Land	$	454,790		$	455,623		$	507,336		$	450,894
Buildings and improvements	4,812,422			4,749,877			5,257,530			4,790,769
Furniture and equipment	849,573			805,190			935,755			859,849
Resident and leasehold operating intangibles	319,049			477,827			316,704			317,111
Construction in progress	80,788			57,636			60,653			80,729
Assets under financing leases and leasehold improvements	1,832,524			1,776,649			1,548,305			1,847,493
Property, plant and equipment and leasehold intangibles	8,349,146			8,322,802			8,626,283			8,346,845
Accumulated depreciation and amortization	(3,163,465		)	(3,047,375		)	(3,369,915		)	(3,237,011		)
Property, plant and equipment and leasehold intangibles, net	$	5,185,681		$	5,275,427		$	5,256,368		$	5,109,834

Assets under financing leases and leasehold improvements includes ~~$0.6~~$0.4 billion and ~~$0.7~~$0.6 billion of financing lease right-of-use assets, net of accumulated amortization, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Refer to Note 1011 for further information on the ~~Company’s~~Company's financing leases.

The Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of ~~$93.3~~$93.2 million ~~and $110.4 million~~ for both the three months ended ~~September~~June 30, 2020 and 2019, and ~~2018, respectively, and $282.6~~$183.9 million and ~~$339.0~~$189.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise. Refer to Note 56 for additional information on impairment expense for property, plant and equipment and leasehold intangibles.

9.10. Debt

Long-term debt as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 consists of the following:


(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Mortgage notes payable due 2020 through 2047; weighted average interest rate of 4.77% for the nine months ended September 30, 2019, less debt discount and deferred financing costs of $17.7 million and $18.6 million as of September 30, 2019 and December 31, 2018, respectively (weighted average interest rate of 4.75% in 2018)	$	3,513,386	$	3,579,931
Other notes payable, weighted average interest rate of 5.79% for the nine months ended September 30, 2019 (weighted average interest rate of 5.85% in 2018) and maturity dates ranging from 2020 to 2021	58,835		60,249
Mortgage notes payable due 2020 through 2047; weighted average interest rate of 4.08% for the six months ended June 30, 2020, less debt discount and deferred financing costs of $21.8 million and $17.0 million as of June 30, 2020 and December 31, 2019, respectively (weighted average interest rate of 4.72% in 2019)					$	3,681,795	$	3,496,735
Other notes payable, weighted average interest rate of 4.56% for the six months ended June 30, 2020 (weighted average interest rate of 5.77% in 2019) and maturity dates ranging from 2020 to 2021					10,570		58,388
Total long-term debt	3,572,221		3,640,180		3,692,365		3,555,123
Current portion	343,615		294,426		222,572		339,413
Total long-term debt, less current portion	$	3,228,606	$	3,345,754	$	3,469,793	$	3,215,710

AsThe $166.4 million of ~~September~~borrowings outstanding on the revolving credit facility as of June 30, 2019 and December 31, 2018, the current portion of long-term debt within the Company's condensed consolidated financial statements includes $30.8 million and $31.2 million, respectively, of mortgage notes payable secured by assets held for sale. This debt is expected to be repaid with the proceeds2020 are excluded from the ~~sales. Refer to Note 4 for more information about the Company's assets held for sale.~~table above and are further described below.

Credit Facilities

~~On December 5, 2018, the Company entered into a~~The Company's Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender and swingline lender and the other lenders from time to time parties thereto (the ~~"Amended~~"Credit Agreement")~~. The Amended Agreement amended and restated in its entirety the Company's Fourth Amended and Restated Credit Agreement dated as of December 19, 2014 (the "Original Agreement"). The Amended Agreement~~, provides commitments for a $250 million revolving credit facility with a $60 million sublimit for letters of credit and a $50 million swingline feature. The Company has a one-time right under the ~~Amended~~Credit Agreement to increase commitments on the revolving credit facility by an additional $100 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The ~~Amended~~Credit Agreement provides the Company a one-time right to reduce the amount of the revolving credit commitments, and the Company may terminate the revolving credit facility at any time, in each case without payment of a premium or penalty. The ~~Amended~~Credit Agreement ~~extended the maturity date of the Original Agreement from~~matures on January 3, ~~2020 to January 3, 2024 and decreased the interest rate payable on drawn amounts.~~2024. Amounts drawn under the facility ~~will continue to~~ bear interest at 90-day LIBOR plus an applicable ~~margin; however, the Amended Agreement reduced the applicable margin from a range of 2.50% to 3.50% to a range of 2.25% to 3.25%.~~margin. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.25% margin at utilization equal to or lower than 35%, a 2.75% margin at utilization greater than 35% but less than or equal to 50%, and a 3.25% margin at utilization greater than 50%. A quarterly commitment fee ~~continues to be~~is payable on the unused portion of the facility at 0.25% per annum when the outstanding amount of obligations (including revolving credit and swingline loans and letter of credit obligations) is greater than or equal to 50% of the revolving credit commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the revolving credit commitment amount.

The credit facility is secured by first priority mortgages on certain of the Company's communities. In addition, the ~~Amended~~Credit Agreement permits the Company to pledge the equity interests in subsidiaries that own other communities and grant negative pledges in connection therewith (rather than mortgaging such communities), provided that not more than 10% of the borrowing base may result from communities subject to negative pledges. Availability under the revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the ~~Company’s~~Company's consolidated fixed charge coverage ratio. ~~During~~To the ~~third quarter of 2019,~~extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, the Company ~~added 3 communities~~would be required to repay the difference to restore the outstanding balance to the new borrowing ~~base and~~base.

During 2019, parties entered into an amendment to the ~~Amended~~Credit Agreement that provides for availability calculations to be made at additional consolidated fixed charge coverage ratio thresholds.

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. Amounts drawn on the credit facility may be used for general corporate purposes.

As of ~~September~~June 30, ~~2019, 0~~2020, $166.4 million of borrowings were outstanding on the revolving credit facility, ~~$41.2~~$45.5 million of letters of credit were outstanding, and the revolving credit facility had ~~$164.2~~$37.9 million of availability. The Company also had a separate unsecured letter

of credit facility of up to ~~$47.5~~$50.0 million of letters of credit as of ~~September~~June 30, ~~2019. Letters of credit totaling $47.5~~2020 under which $48.2 million had been issued ~~under the separate facility~~ as of that date.

~~2019~~

Financings

During March 2020, the Company completed its financing plans in the regular course of business, including closing three non-recourse mortgage debt financing transactions totaling $208.5 million as described below. Refer to Note 3 for more information regarding the Company's planned financing activities.

On ~~May 7, 2019,~~January 31, 2020, the Company obtained ~~$111.1~~$238.2 million of debt secured by the non-recourse first mortgages on 14 ~~communities.~~communities, including $192.6 million of non-recourse first mortgage financing on 13 communities acquired from Healthpeak on such date. NaN percent of the principal amount bears interest at a fixed rate of ~~4.52%~~3.62%, and the remaining 4030 percent of the principal amount bears interest at a variable rate equal to 30-day LIBOR plus a margin of 209 basis points. The debt matures in February 2030. The proceeds from the financing were utilized to fund the acquisition of communities from Healthpeak and repay $33.1 million of outstanding mortgage debt maturing in 2020. Refer to Note 5 for more information about the Company's acquisition of communities from Healthpeak.

On March 19, 2020, the Company obtained $29.2 million of debt secured by the non-recourse first mortgages on 7 communities, primarily communities acquired during the three months ended March 31, 2020. The loan bears interest at a variable rate equal to the 30-day LIBOR plus a margin of ~~223~~225 basis ~~points. The debt~~points and matures in ~~June 2029. The $111.1 million of proceeds from the financing along with cash on hand were utilized to repay $155.5 million of outstanding mortgage debt maturing in 2019.~~April 2030.

On ~~August 29, 2019,~~March 20, 2020, the Company obtained ~~$160.3~~$30.0 million of debt secured by the non-recourse first ~~mortgages~~mortgage on ~~5 communities. Seventy-five percent of the principal amount bears interest at a fixed rate of 3.35%, and the remaining twenty-five percent of the principal amount~~1 community acquired from Healthpeak on January 31, 2020. The loan bears interest at a variable rate equal to the 30-day LIBOR plus a margin of ~~217~~250 basis points and matures in March 2022.

On March 31, 2020, the Company obtained $149.3 million of debt secured by the non-recourse first mortgages on 18 communities. Of the total principal, $73.1 million bears interest at a fixed rate of 3.55%, and the remaining $76.2 million bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 210 basis points. The debt matures in ~~September 2029.~~April 2030. The ~~$160.3~~$149.3 million of proceeds from the financing were primarily utilized to repay ~~$139.2~~$136.3 million of outstanding mortgage debt maturing in ~~2020 and 2023.~~2020.

Financial Covenants

Certain of the ~~Company’s~~Company's debt documents contain restrictions and financial covenants, such as those requiring the Company to maintain prescribed minimum net worth and ~~stockholders’~~stockholders' equity levels and debt service ratios, and requiring the Company not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. In addition, the ~~Company’s~~Company's debt documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements.

The ~~Company’s~~Company's failure to comply with applicable covenants could constitute an event of default under the applicable debt documents. Many of the ~~Company’s~~Company's debt documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, the ~~Company’s~~Company's debt is secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of ~~September~~June 30, ~~2019,~~2020, the Company is in compliance with the financial covenants of its debt agreements.

~~10.~~11. Leases

As of ~~September~~June 30, ~~2019,~~2020, the Company operated ~~335~~305 communities under long-term leases ~~(244~~(237 operating leases and 9168 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 the performance and lease payment obligations of its subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of such leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, anAn event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or the leased property revenue. The Company is responsible for all operating costs, including repairs, property taxes, and insurance. ~~As of September 30, 2019, the weighted-average remaining lease term of the Company’s operating and financing leases was 7.1 years and 8.5 years, respectively.~~ The leases generally provide for renewal or extension options from 5 to 20 years and in some instances, purchase options.

consolidated, portfolio-wide, multi-community, single-community and/or entity basis. In addition, the ~~Company’s~~Company's lease documents generally contain non-financial covenants, such as those requiring the Company to comply with Medicare or Medicaid provider requirements.

The ~~Company’s~~Company's failure to comply with applicable covenants could constitute an event of default under the applicable lease documents. Many of the ~~Company’s~~Company's debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).

Certain leases contain cure provisions, which generally allow the Company to post an additional lease security deposit if the required covenant is not met. Furthermore, the ~~Company’s~~Company's leases are secured by its communities and, in certain cases, a guaranty by the Company and/or one or more of its subsidiaries.

As of ~~September~~June 30, ~~2019,~~2020, the Company is in compliance with the financial covenants of its long-term leases.

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


							Three Months Ended June 30,						Six Months Ended June 30,
Operating Leases (in thousands)	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019			2020			2019			2020			2019
Facility operating expense	$	4,532		$	13,761		$	4,935		$	4,604		$	9,785		$	9,229
Facility lease expense	67,253			203,610			62,379			67,689			126,860			136,357
Operating lease expense	71,785			217,371			67,314			72,293			136,645			145,586
Operating lease expense adjustment	4,814			13,626
Operating lease expense adjustment⁽¹⁾							8,221			4,429			14,954			8,812
Changes in operating lease assets and liabilities for lessor capital expenditure reimbursements	(11,043		)	(12,043		)	(6,421		)	(1,000		)	(10,509		)	(1,000		)
Operating cash flows from operating leases	$	65,556		$	218,954		$	69,114		$	75,722		$	141,090		$	153,398

Non-cash recognition of right-of-use assets obtained in exchange for new operating lease obligations	$	22,375		$	26,356


(1)	Represents the difference between cash paid and expense recognized.


					Three Months Ended June 30,					Six Months Ended June 30,
Financing Leases (in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		2020			2019		2020			2019
Depreciation and amortization	$	11,675	$	35,030	$	8,037		$	11,677	$	17,181		$	23,355
Interest expense: financing lease obligations	16,567		49,959		11,892			16,649		25,174			33,392
Financing lease expense	$	28,242	$	84,989	$	19,929		$	28,326	$	42,355		$	56,747

Operating cash flows from financing leases	$	16,567	$	49,959	$	11,892		$	16,649	$	25,174		$	33,392
Financing cash flows from financing leases	5,549		16,502		4,677			5,500		9,764			10,953
Changes in financing lease assets and liabilities for lessor capital expenditure reimbursement					(1,675		)	—		(3,414		)	—
Total cash flows from financing leases	$	22,116	$	66,461	$	14,894		$	22,149	$	31,524		$	44,345

As of September 30, 2019, the weighted-average discount rate of the Company’s operating and financing leases was 8.6% and 7.8%, respectively. As the Company's community leases do not contain an implicit rate, the Company utilized its incremental borrowing rate based on information available on January 1, 2019 to determine the present value of lease payments for operating leases that commenced prior to that date.

The aggregate amounts of future minimum lease payments, including community, office, and equipment leases recognized on the condensed consolidated balance sheet as of ~~September~~June 30, ~~2019~~2020 are as follows (in thousands):

Year Ending December 31, Operating Leases Financing Leases
2019 (three months) $ 77,495
$ 22,052
2020 312,861
89,090
2021 298,025
90,330
2022 294,696
91,719
2023 290,698
93,190
Thereafter 806,856
429,663
Total lease payments 2,080,631
816,044
Purchase option liability and non-cash gain on future sale of property —
575,791
Imputed interest and variable lease payments (572,238 ) (533,798 )
Total lease obligations $ 1,508,393
$ 858,037

The aggregate amounts of future minimum operating lease payments, including community, office, and equipment leases not recognized on the condensed consolidated balance sheet under ASC 840 as of December 31, 2018 are as follows (in thousands):


Year Ending December 31,	Operating Leases		Operating Leases			Financing Leases
2019	$	310,340
2020	307,493
2020 (six months)			$	149,099		$	33,263
2021	290,661		287,241			66,168
2022	291,114		286,171			66,808
2023	285,723		288,435			67,571
2024			289,829			68,814
Thereafter	786,647		578,012			168,527
Total lease payments	$	2,271,978	1,878,787			471,151
Purchase option liability and non-cash gain on future sale of property			—			437,356
Imputed interest and variable lease payments			(469,245		)	(305,533		)
Total lease obligations			$	1,409,542		$	602,974

~~11.~~12. Litigation

The Company has been and is currently involved in litigation and claims ~~including putative class action claims from time to time,~~ incidental to the conduct of its business, which it believes are generally comparable to other companies in the senior living and healthcare ~~industries.~~industries, including, but not limited to, putative class action claims from time to time regarding staffing at the Company’s communities and compliance with consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, the Company maintains general liability, ~~and~~ professional liability, and other insurance policies in amounts and with coverage and deductibles the Company believes are ~~adequate,~~appropriate, based on the nature and risks of its business, historical experience, availability, and industry standards. The Company's current policies provide for deductibles for each ~~claim.~~claim and contain various exclusions from coverage. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such ~~policies.~~policies and/or exceed the policy limits.

Similarly, the senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in reviews, audits, investigations, enforcement activities or litigation related to regulatory compliance matters. In addition, as a result of the Company's participation in the Medicare and Medicaid programs, the Company is subject to various governmental reviews, audits and investigations, including but not limited to audits under various government programs, such as the Recovery Audit Contractors (RAC), Zone Program Integrity Contractors (ZPIC), and Unified Program Integrity Contractors (UPIC) programs. The costs to respond to and defend such reviews, audits, and investigations may be significant, and an adverse determination could result in citations, sanctions and other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, termination of participation in Medicare and Medicaid programs, and/or damage to the Company's business reputation.

In June 2020, the Company and several current and former executive officers were named as defendants in a putative class action lawsuit alleging violations of the federal securities laws filed in the federal court for the Middle District of Tennessee. The lawsuit asserts that the defendants made material misstatements and omissions concerning the Company's business, operational and compliance policies that caused the Company's stock price to be artificially inflated between August 2016 and April 2020. While the Company cannot predict with certainty the result of this or any other legal proceedings, the Company believes the allegations in the suit are without merit and does not expect this matter to have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

~~12.~~13. Supplemental Disclosure of Cash Flow Information


	Nine Months Ended September 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2020			2019
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	185,722		$	198,133		$	107,854		$	124,647
Income taxes paid, net of refunds	1,909			1,542			1,388			1,916

Capital expenditures, net of related payables
Capital expenditures, net of related payables:
Capital expenditures - non-development, net	$	180,187		$	130,692		$	82,077		$	121,066
Capital expenditures - development, net	18,677			20,084			6,823			10,623
Capital expenditures - non-development - reimbursable	12,043			1,764			13,923			1,000
Capital expenditures - development - reimbursable	—			1,709
Trade accounts payable	(4,522		)	15,100			10,040			(10,392		)
Net cash paid	$	206,385		$	169,349		$	112,863		$	122,297
Acquisition of assets, net of related payables and cash received:
Acquisition of communities from Healthpeak:
Property, plant and equipment and leasehold intangibles, net	$	—		$	237,563		$	286,734		$	—
Other intangible assets, net	453			(4,345		)
Operating lease right-of-use assets							(63,285		)	—
Financing lease obligations	—			36,120			129,196			—
Operating lease obligations							74,335			—
Loss (gain) on debt modification and extinguishment, net							(19,731		)	—
Net cash paid							$	407,249		$	—
Acquisition of other assets, net of related payables and cash received:
Property, plant and equipment and leasehold intangibles, net							$	179		$	—
Financing lease obligations							39,260			—
Net cash paid							$	39,439		$	—
Proceeds from sale of CCRC Venture, net:
Investments in unconsolidated ventures							$	(14,848	)	$	—
Current portion of long-term debt							34,706			—
Other liabilities	—			2,433			60,748			—
Net cash paid	$	453		$	271,771
Proceeds from sale of assets, net:
Loss (gain) on sale of assets, net							(369,831		)	—
Net cash received							$	(289,225	)	$	—
Proceeds from sale of other assets, net:
Prepaid expenses and other assets, net	$	(5,298	)	$	(3,006	)	$	(1,261	)	$	(5,798	)
Assets held for sale	(41,882		)	(18,758		)	(5,274		)	(41,882		)
Property, plant and equipment and leasehold intangibles, net	(647		)	(91,778		)	(938		)	(688		)
Investments in unconsolidated ventures	(156		)	(58,179		)	—			(156		)
Financing lease obligations	—			93,514
Refundable fees and deferred revenue	—			8,345
Other liabilities	(2,724		)	2,690			(1,862		)	(1,762		)
Loss (gain) on sale of assets, net	(2,723		)	(64,740		)	(1,979		)	(2,144		)
Net cash received	$	(53,430	)	$	(131,912	)	$	(11,314	)	$	(52,430	)
Lease termination and modification, net:
Prepaid expenses and other assets, net	$	—		$	(2,040	)
Property, plant and equipment and leasehold intangibles, net	—			(81,320		)
Financing lease obligations	—			58,099
Deferred liabilities	—			67,950
Loss (gain) on sale of assets, net	—			(5,761		)
Loss (gain) on facility lease termination and modification, net	—			22,260
Net cash paid ⁽¹⁾	$	—		$	59,188

Supplemental Schedule of Non-cash Operating, Investing and Financing Activities:
Supplemental Schedule of Non-cash Operating, Investing, and Financing Activities:
Assets designated as held for sale:
Prepaid expenses and other assets, net	$	(5	)	$	(281	)	$	—		$	(5	)
Assets held for sale	9,169			162,157			—			(4,928		)
Property, plant and equipment and leasehold intangibles, net	(9,164		)	(161,876		)	—			4,933
Net	$	—		$	—		$	—		$	—


Lease termination and modification, net:
Healthpeak master lease modification:
Property, plant and equipment and leasehold intangibles, net							$	(57,462	)	$	—
Operating lease right-of-use assets							88,044			—
Financing lease obligations							70,874			—
Operating lease obligations							(101,456		)	—
Net							$	—		$	—
Other lease termination and modification, net:
Prepaid expenses and other assets, net	$	(648	)	$	(4,783	)	$	—		$	(648	)
Property, plant and equipment and leasehold intangibles, net	(1,666		)	(106,264		)	13,548			(1,666		)
Operating lease right-of-use assets							1,350			(5,009		)
Financing lease obligations	—			112,267			(15,483		)	—
Operating lease right-of-use assets	(8,644		)	—
Operating lease obligations	9,289			—			606			5,654
Deferred liabilities	—			(122,304		)
Other liabilities	(337		)	625			(21		)	(337		)
Loss (gain) on sale of assets, net	—			(6,085		)
Loss (gain) on facility lease termination and modification, net	2,006			126,544			—			2,006
Net	$	—		$	—		$	—		$	—

~~(1)~~

The net cash paid to terminate community leases is presented within the condensed consolidated statement of cash flows based upon the lease classification of the terminated leases. Net cash paid of $46.6 million for the termination of operating leases is presented within net cash provided by (used in) operating activities and net cash paid of $12.5 million for the termination of capital leases is presented within net cash provided by (used in) financing activities for the nine months ended September 30, 2018.

During the three months ended June 30, 2019, the Company and its joint venture partner contributed cash in an aggregate amount of $13.3 million to a consolidated joint venture which ~~owns~~owned 3 senior housing communities. The Company obtained a $6.6 million promissory note receivable from its joint venture partner secured by a 50% equity interest in the joint venture in a non-cash exchange for the Company funding the $13.3 million aggregate contribution in cash.

Nine Months Ended
September 30,
(in thousands) 2019 2018
Notes receivable:
Other assets, net $ 6,566
$ —
Noncontrolling interest (6,566 ) —
Net $ —
$ —

Refer to Note 2 for a schedule of the non-cash adjustments to the Company's condensed consolidated balance sheet as of January 1, 2019 as a result of the adoption of new accounting standards and Note 10 for a schedule of the non-cash recognition of right-of-use assets obtained in exchange for new operating lease obligations.

Restricted cash consists principally of escrow deposits for real estate taxes, property insurance, and capital expenditures required by certain lenders under mortgage debt agreements and deposits as security for self-insured retention risk under workers' compensation programs and property insurance programs. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sums to the total of the same such amounts shown in the condensed consolidated statements of cash flows.


(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	241,391	$	398,267	$	452,441	$	240,227
Restricted cash	33,305		27,683		28,397		26,856
Long-term restricted cash	40,663		24,268		41,292		34,614
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	315,359	$	450,218
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows					$	522,130	$	301,697

~~13.~~14. Income Taxes

The difference between the Company's effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019 was primarily due to the ~~non-deductible impairment~~tax impact of ~~goodwill~~the multi-part transaction with Healthpeak that occurred in the three months ended March 31, ~~2018~~

~~and~~2020. The impact represented the tax expense recorded on the gain of the sale of the Company's interest in the CCRC Venture offset by a decrease in the valuation allowance that was a direct result of the multi-part transaction with Healthpeak. This was slightly offset by the adjustment ~~from~~for stock-based compensation, which was greater in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

The Company recorded an aggregate deferred federal, state, and local tax benefit of ~~$19.4~~$26.7 million for the three months ended June 30, 2020 and an aggregate deferred federal, state, and local tax expense of $64.2 million for the six months ended June 30, 2020. The expense includes $93.1 million as a result of the gain on the sale of the Company's interest in the CCRC Venture offset by a benefit of $28.9 million as a result of the operating losses (exclusive of the CCRC Venture sale) for the six months ended June 30, 2020. The benefit for the three months ended June 30, 2020 is offset by additional valuation allowance of $33.2 million. The tax expense for the six months ended June 30, 2020 is offset by a reduction in valuation allowance of $79.5 million. The Company recorded an aggregate deferred federal, state, and local tax benefit of $13.0 million and ~~$39.0~~$19.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2019. The benefit includes ~~$19.4~~$13.0 million and ~~$40.7~~$21.2 million as a result of the operating losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively.~~2019. The benefit was reduced by a $1.7 million reduction in the deferred tax asset related to employee stock compensation for the ~~nine~~six months ended ~~September~~June 30, 2019. The benefit for the three and nine months ended September 30, 2019 is offset by increases in the valuation allowance of $17.8 million and $37.7 million, respectively. The change in the valuation allowance for the three and nine months ended September 30, 2019 is the result of the anticipated reversal of future tax liabilities offset by future tax deductions. The Company recorded an aggregate deferred federal, state, and local tax benefit of $15.4 million and $71.3 million as a result of the operating loss for the three and nine months ended September 30, 2018, respectively. The benefit for the three months ended September 30, 2018 includes a benefit from a decrease in the valuation allowance of $2.7 million. The benefit for the nine months ended September 30, 2018 was offset by an increase in the valuation allowance of $52.2 million.

The Company evaluates its 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. The Company's valuation allowance as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$387.9~~$329.5 million and ~~$336.4~~$408.9 million, respectively.

The change in the valuation allowance for the six months ended June 30, 2020 is primarily the result of a reduction in the Company’s valuation allowance of $117.6 million as a result of the Healthpeak transaction offset by the anticipated reversal of future tax liabilities offset by future tax deductions. The increase in the valuation allowance during the ~~nine~~six months ended ~~September~~June 30, 2019 iswas comprised of multiple components. The increase ~~includes~~included $13.8 million resulting from the adoption of Accounting Standards Codification ("ASC") 842, Leases ("ASC ~~842~~842") recorded to equity, and the related addition of future timing differences recorded in the three months ended March 31, 2019. An additional ~~$39.4~~$21.7 million of allowance was established against the current operating loss incurred during the ~~nine~~six months ended ~~September~~June 30, 2019. Offsetting the increases was a decrease of $1.7 million of allowance as a result of removal of future timing differences related to employee stock compensation recorded in the three months ended March 31, 2019.

On December 22, 2017, the President signed the Tax Cuts and Jobs Act ("Tax Act") into law. The Tax Act limits the annual deductibility of a corporation's net interest expense unless it elects to be exempt from such deductibility limitation under the real property trade or business exception. The Company elected the real property trade or business exception with the 2018 tax return. As such, the Company is required to apply the alternative depreciation system ("ADS") to all current and future residential real property and qualified improvement property assets. This change impacts the current and future tax depreciation deductions and impacted the Company's valuation allowance accordingly. Additional information that may affect the Company's provisional amounts would include further clarification and guidance on how the Internal Revenue Service will implement tax reform and further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company's state and local income tax returns, state and local net operating losses, and corresponding valuation allowances.

The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 which are included in income tax expense or benefit for the period. As of ~~September~~June 30, ~~2019,~~2020, tax returns for years ~~2014~~2015 through 2018 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

~~14.~~15. Revenue

Disaggregation of Revenue

The Company disaggregates its revenue from contracts with customers by payor ~~source, as the~~source. The Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors. See details on a reportable segment basis in the tables below.


	Three Months Ended September 30, 2019										Three Months Ended June 30, 2020
(in thousands)	Independent Living		Assisted Living and Memory Care		CCRCs		Health Care Services		Total		Independent Living		Assisted Living and Memory Care		CCRCs		Health Care Services		Total
Private pay	$	136,274	$	435,367	$	70,353	$	171	$	642,165	$	129,678	$	414,276	$	59,980	$	258	$	604,192
Government reimbursement	600		17,107		19,931		89,157		126,795		600		17,880		13,744		70,566		102,790
Other third-party payor programs	—		—		9,820		22,457		32,277		—		—		5,301		19,346		24,647
Total resident fee revenue	$	136,874	$	452,474	$	100,104	$	111,785	$	801,237	$	130,278	$	432,156	$	79,025	$	90,170	$	731,629

											Three Months Ended June 30, 2019
(in thousands)											Independent Living		Assisted Living and Memory Care		CCRCs		Health Care Services		Total
Private pay											$	135,348	$	433,589	$	71,092	$	193	$	640,222
Government reimbursement											603		16,636		20,196		91,614		129,049
Other third-party payor programs											—		—		9,965		22,627		32,592
Total resident fee revenue											$	135,951	$	450,225	$	101,253	$	114,434	$	801,863

											Six Months Ended June 30, 2020
(in thousands)											Independent Living		Assisted Living and Memory Care		CCRCs		Health Care Services		Total
Private pay											$	264,968	$	854,889	$	124,683	$	428	$	1,244,968
Government reimbursement											1,172		34,746		33,149		144,255		213,322
Other third-party payor programs											—		—		15,740		40,306		56,046
Total resident fee revenue											$	266,140	$	889,635	$	173,572	$	184,989	$	1,514,336

Three Months Ended September 30, 2018
(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total
Private pay $ 143,963
$ 464,719
$ 73,567
$ 159
$ 682,408
Government reimbursement 668
18,406
20,901
89,100
129,075
Other third-party payor programs —
—
9,679
19,017
28,696
Total resident fee revenue $ 144,631
$ 483,125
$ 104,147
$ 108,276
$ 840,179

Nine Months Ended September 30, 2019
(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total
Private pay $ 406,667
$ 1,310,867
$ 212,978
$ 554
$ 1,931,066
Government reimbursement 1,852
50,358
61,614
269,428
383,252
Other third-party payor programs —
—
30,492
67,769
98,261
Total resident fee revenue $ 408,519
$ 1,361,225
$ 305,084
$ 337,751
$ 2,412,579

Nine Months Ended September 30, 2018
(in thousands) Independent Living Assisted Living and Memory Care CCRCs Health Care Services Total
Private pay $ 459,875
$ 1,482,789
$ 217,680
$ 585
$ 2,160,929
Government reimbursement 2,446
54,643
65,986
272,332
395,407
Other third-party payor programs —
—
30,346
55,732
86,078
Total resident fee revenue $ 462,321
$ 1,537,432
$ 314,012
$ 328,649
$ 2,642,414

The Company has not further disaggregated management fee revenues and revenue for reimbursed costs incurred on behalf of managed communities as the economic factors affecting the nature, timing, amount, and uncertainty of revenue and cash flows do not significantly vary within each respective revenue category.



	Six Months Ended June 30, 2019
(in thousands)	Independent Living		Assisted Living and Memory Care		CCRCs		Health Care Services		Total
Private pay	$	270,393	$	875,500	$	142,625	$	383	$	1,288,901
Government reimbursement	1,252		33,251		41,683		180,271		256,457
Other third-party payor programs	—		—		20,672		45,312		65,984
Total resident fee revenue	$	271,645	$	908,751	$	204,980	$	225,966	$	1,611,342

Contract Balances

The payment terms and conditions within the Company's revenue-generating contracts vary by contract type and payor source, although terms generally include payment to be made within 30 days.

Resident fee revenue for recurring and routine monthly services is generally billed monthly in advance under the Company's independent living, assisted living, and memory care residency agreements. Resident fee revenue for standalone or certain ~~health care~~healthcare services is generally billed monthly in arrears. A portion of the Company's reimbursement from Medicare for certain healthcare services is billed near the start of each period of care, and cash is generally received before all services are rendered. The amount of revenue recognized for periods of care which are incomplete at period end is based on the Company's historical average percentage of days complete on each period of care and any unearned amounts are deferred and recognized when the service is performed. Additionally, non-refundable community fees are generally billed and collected in advance or upon move-in of a resident under the Company's independent living, assisted living, and memory care residency agreements. Amounts of revenue that are collected from residents in advance are recognized as deferred revenue until the performance obligations are satisfied. The Company had total deferred revenue (included within refundable fees and deferred revenue ~~deferred liabilities,~~ and other liabilities within the condensed consolidated balance sheets) of ~~$75.8~~$154.7 million and ~~$106.4~~$72.5 million, including ~~$31.6~~$34.7 million and ~~$50.6~~$38.9 million of monthly resident fees billed and received in advance, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Such amount of total deferred revenue as of June 30, 2020 also included $85.0 million received in April 2020 under a temporary expansion of the Accelerated and Advance Payment Program administered by the Centers for Medicare & Medicaid Services ("CMS"). Such amount of advance receipts is anticipated to either be recognized as revenue and retained by the Company during the recoupment period from August to November 2020 as services are provided or refunded by the Company at the conclusion of such period. Refer to Note 3 for additional information on such program. For the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized ~~$83.7~~$55.2 million and ~~$76.2~~$72.7 million, respectively, of revenue that was included in the deferred revenue balance as of January 1, ~~2019~~2020 and ~~2018.~~2019. The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose amounts for remaining performance obligations that have original expected durations of one year or less.

For both the three months ended June 30, 2020 and 2019, the Company recognized $3.6 million and for both the six months ended June 30, 2020 and 2019, the Company recognized $7.6 million and $7.1 million, respectively, of charges within facility operating expense within the condensed consolidated statements of operations for additions to the allowance for credit losses.

~~15.~~16. Segment Information

The Company has 5 reportable segments: Independent Living; Assisted Living and Memory Care; CCRCs; Health Care 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.

Independent Living. The Company's Independent Living segment includes owned or leased communities that are primarily designed for middle to upper income seniors who desire an upscale residential environment providing the highest quality of service. The majority of the Company's independent living communities consist of both independent 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 and Memory Care.The Company's Assisted Living and Memory Care 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 and memory care communities include both freestanding, multi-story communities and freestanding, single story

communities. The Company also provides memory care services at freestanding memory care communities that are specially designed for residents with Alzheimer's disease and other dementias.

CCRCs.The Company's CCRCs 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 ~~and Alzheimer's~~ services.

Health Care Services. The Company's Health Care Services segment includes the home health, hospice, and outpatient therapy services, as well as education and wellness programs, provided to residents of many of the Company's communities and to seniors living outside of the Company's communities. The Health Care Services segment does not include the skilled nursing and inpatient healthcare services provided in the Company's skilled nursing units, which are included in the Company's CCRCs segment.

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.~~

~~The~~ following table sets forth selected segment financial and operating data:


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2019			2018		2019			2018			2020			2019		2020			2019
Revenue:
Revenue and other operating income:
Independent Living ⁽¹⁾	$	136,874		$	144,631	$	408,519		$	462,321		$	130,278		$	135,951	$	266,140		$	271,645
Assisted Living and Memory Care ⁽¹⁾	452,474			483,125		1,361,225			1,537,432			432,308			450,225		889,787			908,751
CCRCs ⁽¹⁾⁽²⁾	100,104			104,147		305,084			314,012			88,571			101,253		183,118			204,980
Health Care Services ⁽¹⁾⁽²⁾	111,785			108,276		337,751			328,649			107,165			114,434		201,984			225,966
Management Services ⁽²⁾⁽³⁾	207,712			279,883		657,871			820,082			107,587			217,594		339,019			450,159
Total revenue	$	1,008,949		$	1,120,062	$	3,070,450		$	3,462,496
Total revenue and other operating income												$	865,909		$	1,019,457	$	1,880,048		$	2,061,501
Segment operating income: ⁽³⁾⁽⁴⁾
Independent Living	$	49,414		$	57,106	$	153,749		$	186,662		$	41,038		$	51,459	$	92,452		$	104,335
Assisted Living and Memory Care	116,856			144,701		390,699			490,976			87,708			133,144		219,709			273,843
CCRCs	14,472			21,809		53,956			70,291			13,850			17,847		33,781			39,484
Health Care Services	4,778			9,487		22,118			28,008			9,692			9,167		571			17,340
Management Services	13,564			18,528		44,756			54,280			6,076			15,449		114,791			31,192
Total segment operating income	199,084			251,631		665,278			830,217			158,364			227,066		461,304			466,194
General and administrative expense (including non-cash stock-based compensation expense)	56,409			58,796		170,296			203,138			52,518			57,576		107,113			113,887
Facility operating lease expense	67,253			70,392		203,610			232,752			62,379			67,689		126,860			136,357
Depreciation and amortization	93,550			110,980		284,462			341,351			93,154			94,024		183,892			190,912
Goodwill and asset impairment	2,094			5,500		6,254			451,966
Asset impairment:
Independent Living												—			—		31,317			—
Assisted Living and Memory Care												10,290			1,180		43,088			1,537
CCRCs												—			—		12,173			—
Health Care Services												—			—		—			—
Management Services												—			2,589		1,938			2,623
Total asset impairment:												10,290			3,769		88,516			4,160
Loss (gain) on facility lease termination and modification, net	—			2,337		2,006			148,804			—			1,797		—			2,006
Income (loss) from operations	$	(20,222	)	$	3,626	$	(1,350	)	$	(547,794	)	$	(59,977	)	$	2,211	$	(45,077	)	$	18,872


	As of				As of
(in thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Total assets:
Independent Living	$	1,461,087	$	1,104,774	$	1,510,783	$	1,441,652
Assisted Living and Memory Care	4,271,885		3,684,170		4,043,817		4,157,610
CCRCs	786,825		707,819		792,989		742,809
Health Care Services	273,943		254,950		248,702		256,715
Corporate and Management Services	580,463		715,547		828,252		595,647
Total assets	$	7,374,203	$	6,467,260	$	7,424,543	$	7,194,433


(1)	All revenue and other operating income is earned from external third parties in the United States.

(2)

The CCRCs and Health Care Services segments include $9.7 million and $17.0 million, respectively, of other operating income recognized for grants pursuant to the Emergency Fund described in Note 3 and other government sources. Allocations to the applicable segment reflect the segment's receipt and acceptance of the amounts and the Company's estimates of the segment's satisfaction of the conditions of grant during the period.


(3)	Management services segment revenue includes management fees and reimbursements of costs incurred on behalf of managed communities.


~~(3)~~(4)	Segment operating income is defined as segment revenues and other operating income less segment facility operating expense (excluding depreciation and amortization) and costs incurred on behalf of managed communities.

~~16.~~17. Subsequent Events

~~CCRC Venture and HCP Master Lease Transactions~~

On ~~October 1, 2019,~~July 26, 2020 (the “Effective Date”), the Company entered into definitive agreements with Ventas in connection with the restructuring of the Company’s lease arrangements with Ventas, including a Master ~~Transactions and Cooperation~~Transaction Letter Agreement (the ~~“MTCA”~~“Master Agreement”). Pursuant to the Master Agreement:

On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the “Master Lease”) and ~~an Equity Interest Purchase Agreement~~Amended and Restated Guaranty (the ~~“Purchase Agreement”~~“Guaranty”), ~~providing~~which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time. Pursuant to the Master Lease, the Company continues to lease 120 communities for an aggregate initial annual minimum rent of approximately $100 million, which reflects a ~~multi-part transaction with HCP.~~reduction of approximately $83 million of annual minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3% escalator. The ~~parties subsequently amended the agreements to include 1 additional entry fee CCRC community as part~~initial term of the ~~sale~~Master Lease ends December 31, 2025, with 2 10-year extension options available to the Company. The annual minimum rent for the initial lease year of any such renewal term will be the greater of the ~~Company's interest~~fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically extended the initial term in the ~~CCRC Venture (rather than removing~~event of the ~~CCRC from~~consummation of a change of control transaction by the ~~CCRC Venture for joint marketing~~Company. The Master Lease requires the Company to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and ~~sale)~~$3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ending December 31, 2021. In addition, Ventas has agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The ~~components of~~transaction agreements with Ventas further provide that the ~~multi-part transaction include:~~

•

~~CCRC Venture Transaction.~~ Pursuant to the Purchase Agreement, HCP has agreed to acquire the Company's 51% ownership interest in its unconsolidated entry fee CCRC venture with HCP (the “CCRC Venture”), which will hold 14 entry fee CCRCs after giving effect to the internal restructuring described below, for a total purchase price equal to 51% of the equity value of the CCRC Venture, which is measured as $1.06 billion less portfolio debt, subject to a net working capital adjustment. Pursuant to the Purchase Agreement, the parties have agreed to use commercially reasonable efforts to obtain certain governmental approvals and consummate an internal restructuring for the purposes of moving two entry fee CCRCs into a new unconsolidated venture on substantially the same terms as the CCRC Venture and to accommodate the sale of such 2 communities at a future date. Pursuant to the MTCA, the parties have agreed to terminate the Company’s existing management agreements with 14 entry fee CCRCs, and HCP has agreed to pay the Company a $100 million management agreement termination fee, immediately following the closing of the sale of the Company’s ownership interest in the CCRC Venture. Upon termination of the management agreements, the Company will transition operations of the entry fee CCRCs to a new operator in accordance with the terms of the MTCA. The Company expects its cash proceeds from the sale of its ownership interest to be approximately $291 million net of portfolio debt, subject to the net working capital adjustment. The disposition of the ownership interest in the CCRC Venture is anticipated to also result in the Company recording a gain on sale of assets for accounting purposes.

•

Master Lease ~~Transactions.~~ Pursuant to the MTCA, the parties have agreed to amend and restate the Company’s existing master lease with HCP pursuant to which the Company will continue to lease 25 communities from HCP, and the Company has agreed to pay $405.5 million to acquire 18 communities that it currently leases from HCP and to reduce its annual rent under the amended and restated master lease, upon which time the 18 communities will be removed from the master lease. In addition, HCP has agreed to transition 1 leased community to a successor operator. With respect to the continuing 24 communities, the Company’s amended and restated master lease with HCP will have an initial term to expire on December 31, 2027, subject to 2 extension options at the Company's election for ten years each, which must be exercised with respect to the entire pool of leased communities. Pursuant to the amended and restated master lease, the initial base rent for the 24 communities will be approximately $41.8 million and is subject to an escalator of 2.4% per annum on April 1st of each year. Under the terms of the master lease, HCP has agreed to make available up to $35 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%.

~~The MTCA~~ and ~~Purchase Agreement contain~~ certain ~~customary representations and warranties made by each party. The Company and HCP have also agreed to certain customary covenants, including that~~other agreements between the parties will use commercially reasonable efforts to obtain certain required lender consents and governmental approvals, subject to certain limitations. The parties’ obligations to consummate the transactions contemplated by the MTCA and Purchase Agreement are subject to the satisfaction or waiver of certain conditions, including completion of the internal restructuring, the prior or concurrent closing of the transactions contemplated by the Purchase Agreement, which shall occur no later than December 31, 2020, and the receipt of governmental approvals. The Purchase Agreement may be terminated by either party under certain circumstances, including a material breach by the other party of its obligations under the Purchase Agreement that is not cured within the applicable period or the failure of the closing of the Purchase Agreement to occur on or prior to December 31, 2020.cross-defaulted.

The Company’s subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The Guaranty removed the prior requirements that the Company ~~expects~~satisfy, at the parent level, financial covenants and that the Company maintain a security deposit with Ventas. The Guaranty also removed the prior right of Ventas to ~~fund its acquisition~~terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the 18Guaranty, the Company may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600 million, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25 million to Ventas. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy

a maximum leverage ratio level, that the Company fund additional capital expenditures, and that the Company extend the term upon the occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as the Company exercises its lease term extension option with respect to the Master Lease), Ventas shall have the right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination.

On the Effective Date, the Company entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management arrangement with the ~~proceeds~~Company pursuant to a market management agreement (which is terminable by either party). Notwithstanding the foregoing, Ventas may only transition community(ies) from the ~~sale of its interest~~Master Lease to a management arrangement if such transition does not result in a portfolio coverage ratio with respect to the remaining communities in the ~~CCRC Venture~~Master Lease that is less than the portfolio coverage ratio prior to such transition.

On the Effective Date, the Company conveyed 5 owned communities to Ventas in full release and ~~non-recourse mortgage financing on~~satisfaction of $78 million principal amount of indebtedness secured by the ~~acquired~~communities. Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which the Company will manage the communities. The Company ~~expects~~also paid to Ventas $115 million in cash, released all security deposits under the ~~sale~~former guaranty (which included the release of ~~its 51% ownership~~a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45 million unsecured interest-only promissory note to Ventas. The initial interest rate of the promissory note is 9.0% per annum and will increase by 0.50% on each anniversary of the date of issuance. The Company may prepay the outstanding principal amount in whole or in part at any time without premium or penalty. The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the ~~CCRC Venture,~~Guaranty).

On the ~~terminations~~Effective Date, the Company issued to Ventas a warrant (the “Warrant”) to purchase 16.3 million shares of ~~its management agreements~~the Company’s common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas’ option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on ~~14 entry fee CCRCs,~~exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all the Company’s classes of capital stock or of the total value of shares of all the Company’s classes of capital stock (the “Ownership Cap”) (other than as a result of actions taken by Ventas), the Company would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require the Company to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its ~~acquisition~~permitted transferees are entitled to certain registration rights. Under the terms of the ~~18 currently leased communities~~agreement, the Company is required to ~~occur in~~use reasonable best efforts to prepare and file a shelf registration statement with the ~~first quarter~~SEC as promptly as practicable, but no later than the close of business on the fifth day following the date on which the Company files its Quarterly Report on Form 10-Q for the period ended June 30, 2020, with respect to the shares of common stock underlying the Warrant, and, if the ~~sales of~~registration statement is not automatically effective, to have the ~~2 entry fee CCRCs~~registration statement declared effective promptly thereafter. Ventas is entitled to ~~occur over~~customary underwritten offering, piggyback and additional demand registration rights with respect to the ~~next 12 to 18 months; however, there can be no assurance that~~shares underlying the ~~transactions will close or, if they do, when the actual closings will occur.~~

Warrant.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or ~~expectations.~~expectations, including those related to the COVID-19 pandemic. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," ~~"target"~~"target," or other similar words or expressions. These forward-looking statements are based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our assumptions or expectations will be attained, and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to: the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals and us, on our business, results of operations, cash flow, liquidity, and our strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease, the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in our markets, the development and availability of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand, changes in the acuity levels of our new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in our communities, the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, and other expenses, the impact of COVID-19 on our ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in our debt and lease documents, increased regulatory requirements, including unfunded mandatory testing, increased and enforcement actions resulting from COVID-19, including those that may limit our collection efforts for delinquent accounts and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts; events which adversely affect the ability of seniors to afford resident fees, ~~and entrance fees,~~ including downturns in the economy, ~~national or local~~ housing markets, consumer confidence or the equity markets and unemployment among family ~~members;~~members, which may be adversely impacted by the pandemic; changes in reimbursement rates, methods or timing under governmental reimbursement programs including the Medicare and Medicaid programs; the impact of ongoing healthcare reform efforts; the effects of ~~continued new~~ senior housing construction and development, oversupply and increased competition; disruptions in the financial markets, including those related to the pandemic, that affect our ability to obtain financing or extend or refinance debt as it matures and our financing costs; the risks associated with current global economic conditions, including changes related to the pandemic, and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which we operate; our ability to generate sufficient cash flow to cover required interest and long-term lease payments and to fund our planned capital ~~projects;~~projects, which may be adversely affected by the pandemic; the effect of our indebtedness and long-term leases on our liquidity; the effect of our non-compliance with any of our debt or lease agreements (including the financial covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of our non-compliance with any such agreements and the risk of loss of our property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of our borrowing base calculations and our consolidated fixed charge coverage ratio on availability under our revolving credit facility; the potential phasing out of LIBOR which may increase the costs of our debt obligations; increased competition for or a shortage of personnel, wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; failure to maintain the security and functionality of our information systems, or to prevent a cybersecurity attack or ~~breach;~~breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; our inability to achieve or maintain profitability; our ability to complete pending or expected disposition, acquisition, or other transactions on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and our ability to identify and pursue any such opportunities in the future; our ability to obtain additional capital on terms acceptable to us; our ability to complete our capital expenditures in accordance with our plans; our ability to identify and pursue development, investment and acquisition opportunities and our ability to successfully integrate acquisitions; competition for the acquisition of assets; delays in obtaining regulatory approvals; ~~risks associated with the lifecare benefits offered to residents of certain of our entrance fee CCRCs;~~ terminations, early or otherwise, or non-renewal of management agreements; conditions of housing markets, regulatory changes, ~~and~~ acts of nature, and the effects of climate change in geographic areas where we are concentrated; terminations of our resident agreements and vacancies in the living

spaces we ~~lease;~~lease, which may be adversely impacted by the pandemic; departures of key officers and potential disruption caused by changes in management; risks related to the implementation of our strategy, including initiatives undertaken to execute on our strategic priorities and their effect on our results; actions of activist stockholders, including a proxy contest; market conditions and capital allocation decisions that may influence our determination from time to time whether to purchase any shares under our existing share repurchase program and our ability to fund any repurchases; our ability to maintain consistent quality control; a decrease in the overall demand for senior ~~housing;~~housing, which may be adversely impacted by the pandemic; environmental contamination at any of our communities; failure to comply with existing environmental laws; costs to defend against, or an adverse determination or resolution of, complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations; unanticipated costs to comply with legislative or regulatory developments; as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"), including those set forth under "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this Quarterly Report on Form 10-Q. We cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Overview

As of ~~September~~June 30, ~~2019,~~2020, we are the largest operator of senior living communities in the United States based on total capacity, with ~~794~~737 communities in 4544 states and the ability to serve approximately ~~75,000~~65,000 residents. We offer our residents access to a ~~full~~broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). We also offer a range of home health, hospice, and outpatient therapy services to ~~residents~~more than 17,000 patients as of ~~many of our communities and to seniors living outside of our communities.~~that date.

Our goal is to be the first choice in senior living by being the ~~nation’s~~nation's most trusted and effective senior living provider and employer. With our range of community and service offerings, we believe that we are positioned to take advantage of favorable demographic trends over time. Our community and service offerings combine housing with hospitality and healthcare services. Our senior living communities offer residents a supportive home-like setting, assistance with activities of daily living such as eating, bathing, dressing, toileting, ~~and~~ transferring/walking, and, in certain communities, licensed skilled nursing services. We also provide home health, hospice, and outpatient therapy services to residents of many of our communities and to seniors living outside of our communities. 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, which we believe enables them to 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.

~~Community Portfolio~~COVID-19 Pandemic

The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, our nation’s economy, the senior living industry, and our business. Although a significant portion of our corporate support associates began working from home in March 2020, we continue to serve and care for seniors through the pandemic. Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19.

The health and wellbeing of our residents, patients, and associates is and has been our highest priority. We initiated our COVID-19 preparation efforts in January 2020 and continue to actively monitor requirements and guidance of federal, state, and local governments and agencies, including the U.S. Centers for Disease Control and Prevention and U.S. Centers for Medicare & Medicaid Services ("CMS"), and adapt our policies and procedures when applicable. Our response efforts center on infection prevention and control protocols. We have enhanced and reinforced training our associates in such protocols.

Seeking to prevent the introduction of COVID-19 into our communities, and to help control further exposure to infections within communities, in March 2020 we began restricting visitors at all our communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. Upon confirmation of positive COVID-19 exposure at a community, we follow government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents. These restrictions were in place across our portfolio for the three months ended June 30, 2020. More recently, in response to federal, state, and local efforts to reopen the economies surrounding our communities, we have adopted a framework for determining when to ease restrictions at each of our communities based on several criteria, including regulatory requirements and guidance, completion of baseline testing at the community, and the community having no current confirmed positive COVID-19 cases. Beginning in July 2020, we began offering residents at some of our communities outdoor visits with families, reduced capacity communal dining, and limited communal activities programming. Due to the vulnerable nature of our residents, we expect many of the foregoing restrictions will continue at our communities for some time, even as federal, state, and local stay-at-home and social distancing orders and recommendations are relaxed.

In April 2020, we proactively commenced a resident and associate testing program for our communities. We conducted the testing program in conjunction with state and local testing requirements at several of our communities. We undertook the program to identify positive, but asymptomatic, individuals, to better understand how our infection protocols are working, and to help minimize the exposure to residents and associates of someone known to be COVID positive. We have completed baseline testing at all of our communities. To date, the program has accumulated over 100,000 test results. Less than 1% of our residents as of July 31, 2020 are currently confirmed positive for COVID-19. Based on results of our program and other testing, around 3% of our residents who have lived with us anytime during 2020 have tested positive. Further testing, whether undertaken proactively or as a result of regulatory requirements, may result in significant additional expense, additional temporary restrictions on move-ins at affected

communities, continued need for isolating positive residents, increased use of personal protection equipment by our associates, and increased labor costs.

The pandemic and related infection prevention and control protocols within senior living communities have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities. We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time. In response to these developments, we have redesigned our sales process to include virtual tours, video engagement, and outdoor prospective resident meetings, enhanced and adapted our marketing programs to address the social distancing environment, and sought to strengthen our relationships with referral partners. We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents. We are accepting new residents to most of our communities, which as of July 31, 2020 includes 85% of our communities.

The pandemic and our response efforts began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. During the three months ended June 30, 2020, the year-over-year decrease in monthly move-ins of our same-community portfolio ranged from approximately 65% in April 2020 to approximately 35% in June 2020, and was approximately 40% for July 2020. Lower move-in activity was partially offset by lower than normal controllable move-out activity. As a result, our same community weighted average monthly occupancy declined from 83.0% in March 2020 to 77.8% in June 2020, and was 76.8% in July 2020. We estimate that the pandemic and our response efforts resulted in $43.1 million of lost resident fee revenue in our same-community portfolio for the three months ended June 30, 2020. Further deterioration of our resident fee revenue will result from lower move-in activity and the resident attrition inherent in our business, which may increase due to the impacts of COVID-19. Lower controllable move-out activity during the pandemic may continue to partially offset future adverse revenue impacts. Our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in an 18.7% year-over-year decline in home health average daily census for the three months ended June 30, 2020. We expect home health average daily census to begin to recover during the six months ended December 31, 2020 with gradual improvements to elective medical procedures, hospital discharges, and senior housing occupancy.

Facility operating expense for the three and six months ended June 30, 2020 includes $60.6 million and $70.6 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for acquisition of additional personal protective equipment ("PPE"), medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation costs, increased labor expense, increased workers compensation and health plan expense, increased insurance premiums and retentions, consulting and professional services costs, and costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. We are not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs are likely to be substantial. As described further below, we also recorded non-cash impairment charges in our operating results of $76.7 million for the three months ended March 31, 2020 for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to the COVID-19 pandemic and lower than expected operating performance at communities for which assets were impaired.

We have taken, and continue to take, actions to enhance and preserve our liquidity in response to the pandemic. We drew $166.4 million on our revolving credit facility, in March 2020, and we suspended repurchases under our existing share repurchase program. During the three months ended June 30, 2020, we accepted $33.5 million of cash for grants under the Public Health and Social Services Emergency Fund (the “Emergency Fund”) and $85.0 million of accelerated/advanced Medicare payments, and we deferred $26.5 million of the employer portion of social security payroll taxes. Each of these programs were created or expanded under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), as described below. We also have delayed or canceled a number of elective capital expenditure projects resulting in an approximate $50 million reduction to our pre-pandemic full-year 2020 capital expenditure plans. On July 26, 2020, we entered into definitive agreements with Ventas, Inc. ("Ventas") to restructure our 120 community (10,174 units) triple-net master lease arrangements as further described below. Pursuant to the multi-part transaction, among other things, we paid a $119.2 million one-time cash payment to Ventas, reduced our initial annual minimum rent under the amended and restated master lease to $100 million effective July 1, 2020, and removed the prior requirements that we satisfy financial covenants and that we maintain a security deposit with Ventas. The annual minimum rent under the amended and restated master lease reflects a reduction of approximately $86 million over the next twelve months.

As of ~~September~~June 30, ~~2019, we owned 336 communities (31,226 units), leased 335 communities (24,036 units), managed 17 communities (7,308 units)~~2020, our total liquidity was $600.2 million, consisting of $452.4 million of unrestricted cash and cash equivalents, $109.9 million of marketable securities, and $37.9 million of additional availability on ~~behalf~~our revolving credit facility. As of ~~unconsolidated ventures, and managed 106 communities (12,860 units) on behalf~~June 30, 2020, $166.4 million of ~~third parties. During the next 12 months, we expect to close~~borrowings were outstanding on the ~~dispositions~~revolving credit facility. We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate

our financing structure and the state of ~~six owned communities (1,087 units) classified as held for sale as~~debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic.

During March 2020, we completed our financing plans in the regular course of ~~September 30, 2019, which resulted in $60.4 million being recorded as assets held for sale and $30.8 million of~~business, including closing three non-recourse mortgage debt ~~being included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to such communities. This debt is expected to be repaid~~financing transactions totaling $208.5 million with the proceeds ~~from~~used to refinance the ~~sales. We continue to market several other communities as part~~majority of our ~~real estate strategy announced in 2018. During the next approximately 12 months we also anticipate terminations~~2020 maturities and to partially fund our acquisitions of ~~certain of our management arrangements with the CCRC Venture and with third parties as we transition to new operators our interim management on formerly leased~~26 communities ~~and our management on certain former unconsolidated ventures in which we sold our interest. Additionally, in~~completed during the three months ended ~~September 30, 2019, we provided notice of our intent to exercise the purchase option with respect to eight leased communities (336 units) and expect the purchase to close in the three months ending~~ March 31, 2020. ~~The closings~~As of June 30, 2020, our remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million and $254.1 million, respectively, which are primarily non-recourse mortgage debt maturities.

Availability under the revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the ~~various pending~~communities securing the credit facility and ~~expected transactions are,~~our consolidated fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, we would be required to repay the difference to restore the outstanding balance to the new borrowing base. During 2019, the parties entered into an amendment to the credit facility agreement that provides for availability calculations to be made at additional consolidated fixed charge coverage ratio thresholds, with a minimum required consolidated fixed charge coverage ratio of 1.00. For the twelve months ended June 30, 2020, the consolidated fixed charge coverage ratio was 1.28.

Due primarily to the impacts of the COVID-19 pandemic, and based upon our current estimate of cash flows, we have determined that it is probable that we will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on our part. Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and a requirement to repay the $166.4 million of borrowings outstanding on the revolving credit facility.

As a result, we have continued efforts on our plan to refinance the assets currently securing the credit facility. We currently anticipate that such refinancings will be ~~subject~~completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the ~~satisfaction~~$166.4 million balance on the revolving credit facility and terminate the facility without payment of ~~various closing conditions, including (where applicable) the receipt of regulatory approvals.~~a premium or penalty. However, there can be no assurance that any such additional financing will be available or on terms that are acceptable to us, in which case we would expect to take other mitigating actions prior to the ~~transactions will close or, if they do, when the actual closings will occur.~~maturity dates.

~~CCRC Venture~~Based upon our current liquidity and ~~HCP Master Lease Transactions~~estimated cash flows, we have estimated that we would be unable to repay a portion of the 2021 maturities and the borrowings outstanding on the revolving credit facility as they become due without refinancing these maturities or obtaining additional financing proceeds. We have continued efforts on our plan to refinance the assets currently securing the credit facility and to refinance the substantial majority of the remaining 2020 and 2021 maturities with non-recourse mortgage debt. We currently anticipate that it is probable that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on the revolving credit facility and terminate the facility without payment of a premium or penalty and to pay our contractual obligations as they come due over the next twelve months. However, there is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, in which case we would expect to take other mitigating actions prior to the maturity dates.

~~On October 1, 2019, we entered~~In response to the pandemic, on March 27, 2020, the President signed the CARES Act into ~~definitive agreements, including a Master Transactions~~law, which was amended and ~~Cooperation Agreement (the “MTCA”)~~expanded by the Paycheck Protection Program and ~~an Equity Interest Purchase Agreement (the “Purchase Agreement”), providing for a multi-part transaction with HCP, Inc. (now known as Healthpeak Properties, Inc.) (“HCP”).~~Health Care Enhancement Act signed into law on April 24, 2020. The ~~parties subsequently amended the agreement~~legislation provides liquidity and financial relief to ~~include on additional entry fee CCRC community as part~~certain businesses, among other things. The impacts to us of certain provisions of the ~~sale~~CARES Act are summarized below.

During the three months ended June 30, 2020, we accepted $33.5 million of cash for grants from the Emergency Fund, which was expanded by the CARES Act to provide grants or other funding mechanisms to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. Approximately $28.8 million of the grants were made available pursuant to the Emergency Fund’s general distribution, with grant amounts based primarily on our relative share of aggregate 2019 Medicare fee-for-service reimbursements and generally related to home health, hospice, outpatient therapy, and skilled nursing care provided through our Health Care Services and CCRCs segments. Approximately $4.7 million of the grants were made available pursuant to the Emergency Fund’s targeted allocation for certified skilled nursing facilities, with amounts determined using a per-facility and per-bed model. During July 2020, we applied for additional grants pursuant to the Emergency Fund’s Medicaid and CHIP allocation. The amount of such grants are expected to be based on 2% of a portion of our ~~interest~~2018 gross revenues from patient care, and we expect to receive up to approximately $50 million of grants from this allocation.

The grants received are subject to the terms and conditions of the program, including that such funds may only be used to prevent, prepare for, and respond to COVID-19 and will reimburse only for healthcare related expenses or lost revenues that are attributable to COVID-19. During the three months ended June 30, 2020, we recognized $26.4 million of the grants as

other operating income based upon our estimates of our satisfaction of the conditions of the grants during such period. As of June 30, 2020, $7.1 million of unrecognized grants were included in refundable fees and deferred revenue within our condensed consolidated balance sheets and are expected to be recognized in other operating income during the six months ended December 31, 2020.

HHS continues to evaluate and provide allocations of, and regulation and guidance regarding, grants made under the Emergency Fund. We intend to pursue additional funding that may become available pursuant to the Emergency Fund. However, there can be no assurance that we will qualify for, or receive, grants in the ~~CCRC Venture (rather than removing~~amount we expect or that future funding programs will be made available for which we qualify.

During the ~~CCRC from~~three months ended June 30, 2020, we received $85.0 million under the ~~CCRC Venture for joint marketing~~Accelerated and ~~sale). The components~~Advance Payment Program administered by CMS, which was temporarily expanded by the CARES Act. Recoupment of accelerated/advanced payments are required to begin 120 days after their issuance through offsets of new Medicare claims, and all accelerated/advanced payments are due 210 days following their issuance.

Under the CARES Act, we have elected to defer payment of the ~~multi-part transaction include:~~employer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020. One-half of such deferral amount will become due on each of December 31, 2021 and December 31, 2022. As of June 30, 2020 we have deferred $26.5 million under the program and intend to defer an additional approximately $40 million of the employer portion of payroll taxes estimated to be incurred for the six months ending December 31, 2020.

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~~CCRC Venture Transaction.~~ ~~Pursuant to~~The CARES Act temporarily suspended the Purchase Agreement, HCP has agreed to acquire our 51% ownership interest in our unconsolidated entry fee CCRC venture with HCP (the “CCRC Venture”), which will hold 14 entry fee CCRCs (6,383 units) after giving effect to the internal restructuring described below, for a total purchase price equal to 51% of the equity value of the CCRC Venture, which is measured as $1.06 billion less portfolio debt, subject to a net working capital adjustment. Pursuant to the Purchase Agreement, the parties have agreed to use commercially reasonable efforts to obtain certain governmental approvals and consummate an internal restructuring2% Medicare sequestration for the ~~purposes~~period May 1, 2020 to December 31, 2020, which primarily benefits our Health Care Services segment. This suspension had a favorable impact of ~~moving two entry~~$1.0 million on the segment’s resident fee ~~CCRCs (889 units) into a new unconsolidated venture on substantially~~revenue for the same terms as the CCRC Venture and to accommodate the sale of such two communities at a future date. Pursuant to the MTCA, the parties have agreed to terminate our existing management agreements with 14 entry fee CCRCs, and HCP has agreed to pay us a $100 million management agreement termination fee, immediately following the closing of the sale of our ownership interest in the CCRC Venture. Upon termination of the management agreements, we will transition operations of the entry fee CCRCs to a new operator in accordance with the terms of the MTCA. We expect our cash proceeds from the sale of our ownership interest to be approximately $291 million net of portfolio debt, subject to the net working capital adjustment.

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~~Master Lease Transactions.~~ ~~Pursuant to the MTCA, the parties have agreed to amend and restate our existing master lease with HCP pursuant to which we will continue to lease 25 communities (2,711 units) from HCP,~~three months ended June 30, 2020, and we ~~have agreed to pay $405.5 million to acquire 18 communities (2,014 units)~~estimate that ~~we currently lease from HCP and to reduce our annual rent under~~ the amended and restated master lease, upon which time the 18 communities will be removed from the master lease. In addition, HCP has agreed to transition one leased community (159 units) to a successor operator. With respect to the continuing 24 communities (2,552 units), the amended and restated master lease with HCPsuspension will have ~~an initial term to expire~~a $3.0 million favorable impact on the segment’s resident fee revenue for the six months ended December 31, 2027, subject to two extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased communities. Pursuant to the amended and restated master lease, the initial base rent for the 24 communities will be approximately $41.8 million and is subject to an escalator of 2.4% per annum on April 1st of each year. Under the terms of the master lease, HCP will agree to make available up to $35 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%2020.

We continue to evaluate our eligibility to claim the employee retention tax credit under the CARES Act for certain of our associates. The ~~MTCA~~refundable tax credit is available to employers that fully or partially suspend operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19, and ~~Purchase Agreement contain certain customary representations and warranties made by each party. The Company and HCP have also agreed~~is equal to ~~certain customary covenants, including~~50% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $5,000 per employee. We estimate that we will ~~use commercially reasonable efforts~~be eligible to obtain certain required lender consents and governmental approvals, subject to certain limitations. The parties’ obligations to consummate the transactions contemplated by the MTCA and Purchase Agreement are subject to the satisfactionclaim tax credits of $10 million or waiver of certain conditions, including completion of the internal restructuring, the prior or concurrent closing of the transactions contemplated by the Purchase Agreement, which shall occur no later than December 31, 2020, and the receipt of governmental approvals. The Purchase Agreement may be terminated by either party under certain circumstances, including a material breach by the other party of its obligations under the Purchase Agreement that is not cured within the applicable period or the failure of the closing of the Purchase Agreement to occur on or prior to December 31, 2020.

We anticipate that the expected sale of our interest in the CCRC Venture will utilize a portion of our carryforward tax losses to shield the expected significant taxable investment gain on such transaction.

We expect the sale of our 51% ownership interest in the CCRC Venture, the terminations of our management agreements on 14 entry fee CCRCs, and our acquisition of the 18 currently leased communities to occur in the first quarter of 2020, and the sales of the two entry fee CCRCs to occur over the next 12 to 18 months; however,more. However, there can be no assurance that ~~the transactions will close or, if they do, when the actual closings will occur. Subsequent to these transactions,~~ we will ~~have exited substantially all of our unconsolidated venture interests and entry fee CCRC operations. We expect to evaluate using a portion of~~qualify for, or receive, tax credits in the ~~net proceeds for opportunistic share repurchases and elective debt pay downs.~~amount we expect.

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

Transaction Activity and Impact of Dispositions on Results of Operations

During ~~2017 and 2018~~the period from January 1, 2019 through June 30, 2020, we ~~undertook an initiative to optimize our community portfolio under which we~~acquired 26 formerly leased communities, disposed of owned and leased communities and restructured leases. Further, in 2018 we evaluated our owned-community portfolio for opportunities to monetize select high-value communities. As a result of these initiatives, lease restructuring, expiration and termination activity, and other transactions, during the period of January 1, 2018 to September 30, 2019 we disposed of an aggregate of 3015 owned communities ~~(2,534~~(1,707 units), and sold our ownership interest in our unconsolidated entry fee CCRC Venture (the “CCRC Venture”) with Healthpeak Properties, Inc. (“Healthpeak”), and our triple-net lease obligations on ~~an aggregate of 97~~12 communities ~~(9,636~~(789 units) were terminated. ~~During this period~~On July 26, 2020, we ~~also sold~~entered into definitive agreements with Ventas to restructure our ~~ownership interests in~~120 community (10,174 units) triple-net master lease arrangements. In addition, we conveyed to Ventas five ~~unconsolidated ventures~~communities and ~~acquired six communities that we previously leased or managed. We agreed to~~will manage ~~a number of formerly leased communities on an interim basis until~~ the communities ~~have been transitioned to new managers, and during such interim periods those communities are reported in~~following the ~~Management Services segment.~~closing.

Summaries of the significant transactions impacting the periods presented, and the impacts of dispositions of owned and leased communities on our results of operations, are included below. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 for more details regarding the terms of such transactions, including transactions we entered into with ~~Ventas, Inc. ("Ventas"), Welltower Inc. ("Welltower")~~Healthpeak during 2019.

During the next 12 months, we expect to close on the dispositions of two owned unencumbered communities (417 units) classified as held for sale as of June 30, 2020 and ~~HCP during 2017 and 2018, which together restructured a significant portion~~the termination of our ~~triple-net~~ lease ~~obligations~~obligation on two communities (148 units). We also anticipate terminations of certain of our management arrangements with third parties as we transition to new operators our ~~largest lessors.~~

management on certain former unconsolidated ventures in which we sold our interest and our interim management on formerly leased communities. The closings of the various pending and expected transactions described herein are, or will be, 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.

Summaries of ~~Completed~~ Transactions

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Healthpeak: On October 1, 2019, we entered into definitive agreements, including a Master Transactions and Cooperation Agreement (the "MTCA") and an Equity Interest Purchase Agreement (the "Purchase Agreement"), providing for a multi-part transaction with Healthpeak. The parties subsequently amended the agreements to include one additional entry fee CCRC community as part of the sale of our interest in the CCRC Venture (rather than removing the community from the CCRC Venture for joint marketing and sale). The components of the multi-part transaction include:

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CCRC Venture Transaction: Pursuant to the Purchase Agreement, on January 31, 2020, Healthpeak acquired our 51% ownership interest in the CCRC Venture, which held 14 entry fee CCRCs (6,383 units), for a purchase price of $289.2 million, net of a $5.9 million post-closing net working capital adjustment paid to Healthpeak during the three months ended June 30, 2020 (representing an aggregate valuation of $1.06 billion less portfolio debt, subject to a net working capital adjustment). We recognized a $369.8 million gain on sale of assets for the six months ended June 30, 2020, and we derecognized the net equity method liability for the sale of the ownership interest in the CCRC Venture. At the closing, the parties terminated the existing management agreements on the 14 entry fee CCRCs, Healthpeak paid us a $100.0 million management agreement termination fee, and we transitioned operations of the entry fee CCRCs to a new operator. We recognized $100.0 million of management fee revenue for the three months ended March 31, 2020 for the management termination fee. The sale of our interest in the CCRC Venture and the $100.0 million of management termination fees generated approximately $579.0 million of taxable income in three months ended March 31, 2020. We will utilize any 2020 operating losses generated and tax loss carryforwards (including our capital loss carryforward that was generated in 2018) to offset the taxable gain on this transaction. Prior to the January 31, 2020 closing, the parties moved the remaining two entry fee CCRCs (889 units) into a new unconsolidated venture on substantially the same terms as the CCRC Venture to accommodate the sale of such two communities expected to occur in 2021. Subsequent to these transactions, we will have exited substantially all of our entry fee CCRC operations.

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Master Lease Transactions. Pursuant to the MTCA, on January 31, 2020, the parties amended and restated our existing master lease pursuant to which we continue to lease 25 communities (2,711 units) from Healthpeak, and we acquired 18 formerly leased communities (2,014 units) from Healthpeak, at which time the 18 communities were removed from the master lease. At the closing, we paid $405.5 million to acquire such communities and to reduce our annual rent under the amended and restated master lease. We funded the community acquisitions with $192.6 million of non-recourse mortgage financing and the proceeds from the multi-part transaction. In addition, Healthpeak has agreed to terminate the lease for one leased community (159 units). With respect to the continuing 24 communities (2,552 units), our amended and restated master lease: (i) has an initial term to expire on December 31, 2027, subject to two extension options at our election for ten years each, which must be exercised with respect to the entire pool of leased communities; (ii) the initial annual base rent for the 24 communities is $41.7 million and is subject to an escalator of 2.4% per annum on April 1st of each year; and (iii) Healthpeak has agreed to make available up to $35.0 million for capital expenditures for a five-year period related to the 24 communities at an initial lease rate of 7.0%. As a result of the community acquisition

transaction, we recognized a $19.7 million gain on debt extinguishment and derecognized the $105.1 million carrying amount of financing lease obligations for eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement. During the three months ended March 31, 2020, we obtained $30.0 million of additional non-recourse mortgage financing on the acquired communities.

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Acquisitions Pursuant to Purchase Options: On January 22, 2020, we acquired eight formerly leased communities (336 units) from National Health Investors, Inc. pursuant to our exercise of a purchase option for a purchase price of $39.3 million. We funded the community acquisitions with cash on hand. During the three months ended March 31, 2020, we obtained $29.2 million of non-recourse mortgage financing, primarily secured by the acquired communities.

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Dispositions of Owned Communities. During the ~~year~~six months ended ~~December 31, 2018,~~June 30, 2020, we completed the sale of 22one owned ~~communities (1,819~~community (78 units) for cash proceeds of ~~$380.7~~$5.5 million, net of ~~transaction costs. These dispositions included the sale of three communities during the nine months ended September 30, 2018 for cash proceeds of $12.8 million, net of associated debt and~~ transaction costs, and for which we recognized a net gain on sale of assets of $1.9 million. During the nine months ended September 30, 2019, we completed the sale of eight owned communities (715 units) for cash proceeds of $39.0 million, net of associated debt and transaction costs, and for which we recognized a net gain on sale of assets of $0.9$0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

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~~Welltower.~~Ventas Lease Portfolio Restructuring: ~~Pursuant to transactions~~On July 26, 2020 (the “Effective Date”), we entered into definitive agreements with ~~Welltower~~Ventas in ~~June 2018,~~connection with the restructuring of our ~~triple-net~~ lease ~~obligations on 37 communities (4,095 units) were terminated effective June 30, 2018. We paid Welltower an aggregate lease termination fee of $58.0 million, and we recognized~~arrangements with Ventas, including a ~~$22.6 million loss on lease termination during~~Master Transaction Letter Agreement (the “Master Agreement”). Pursuant to the three months ended June 30, 2018. In addition, effective June 30, 2018, we sold our 20% equity interest in our Welltower RIDEA venture to Welltower for net proceeds of $33.5 million and for which we recognized a $14.7 million gain on sale during the three months ended June 30, 2018. We also elected not to renew two master leases with Welltower which matured on September 30, 2018 (11 communities; 1,128 units). In addition, the parties separately agreed to allow us to terminate leases with respect to, and to remove from the remaining Welltower leased portfolio, a number of communities with annual aggregate base rent up to $5.0 million upon Welltower's sale of such communities, and we would receive a corresponding 6.25% rent credit on Welltower's disposition proceeds.Master Agreement:

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~~Ventas.~~ During the three months ended June 30, 2018, we recognized a $125.7 million non-cash loss on lease modification in connection with our restructuring a portfolio of 128 communities that we leased from Ventas into a Master Lease and Security Agreement (the "Ventas Master Lease"), primarily for the extension of the triple-net lease obligations for communities with lease terms that were unfavorable to us given market conditions on the amendment date in exchange for modifications to the change of control provisions and financial covenant provisions of the community leases. Pursuant to the Ventas Master Lease, we have exercised our right to direct Ventas to market for sale 28 communities. Ventas is obligated to use commercially reasonable, diligent efforts to sell such communities on or before December 31, 2020 (subject to extension for regulatory purposes); provided, that Ventas' obligation to sell any such community is subject to Ventas' receiving a purchase price in excess of a mutually agreed upon minimum sale price and to certain other customary closing conditions. Upon any such sale, such communities will be removed from the Ventas Master Lease, and the annual minimum rent under the Ventas Master Lease will be reduced by the amount of the net sale proceeds received by Ventas multiplied by 6.25%. During the three months ended June 30, 2019, five (306 units) of the 28 communities identified were sold by Ventas and removed from the Ventas Master Lease, and the annual minimum rent was prospectively reduced by $1.5 million.

On the Effective Date the parties entered into the Amended and Restated Master Lease and Security Agreement (the “Master Lease”) and Amended and Restated Guaranty (the “Guaranty”), which amended and restated the prior Master Lease and Security Agreement and prior Guaranty, each dated as of April 26, 2018 and as amended from time to time. Pursuant to the Master Lease, we continue to lease 120 communities (10,174 units) for an aggregate initial annual minimum rent of approximately $100 million, which reflects a reduction of approximately $83 million of annual minimum rent in effect prior to the transaction. Effective on January 1 of each lease year, beginning January 1, 2022, the annual minimum rent will be subject to a 3% escalator. The initial term of the Master Lease ends December 31, 2025, with two 10-year extension options available to us. The annual minimum rent for the initial lease year of any such renewal term will be the greater of the fair market rental of the communities or the increased annual minimum rent for such lease year applying the foregoing 3% escalator. The Master Lease removed the prior provision that would have automatically extended the initial term in the event of the consummation of a change of control transaction by us. The Master Lease requires us to spend (or escrow with Ventas) a minimum of $1,500 per unit on a community-level basis and $3,600 per unit on an aggregate basis of all communities, in each case per 24-month period ending December 31 during the lease term, commencing with the 24-month period ending December 31, 2021. In addition, Ventas has agreed to fund costs associated with certain pre-approved capital expenditure projects in the aggregate amount of up to $37.8 million. Upon disbursement of such expenditures, the annual minimum rent under the Master Lease will increase by the amount of the disbursement multiplied by 50% of the sum of the then current 10-year treasury note rate and 4.5%. The transaction agreements with Ventas further provide that the Master Lease and certain other agreements between the parties will be cross-defaulted.

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~~HCP.~~ Pursuant to transactions we entered into with HCP in November 2017, during the three months ended June 30, 2018, we acquired five communities (858 units) from HCP, two of which we formerly leased, for an aggregate purchase price of $242.8 million, and during the three months ended March 31, 2018, we acquired one community (137 units) for an aggregate purchase price of $32.1 million. During the year ended December 31, 2018 leases with respect to 33 communities (3,123 units) were terminated, and such communities were removed from our master lease with HCP. In addition, during the three months ended March 31, 2018, HCP acquired our 10% ownership interest in our RIDEA venture with HCP for $62.3 million and for which we recognized a $41.7 million gain on sale. Management agreements for 35 communities with former unconsolidated ventures with HCP have been terminated by HCP since November 2017. We have recognized a $9.3 million non-cash management contract termination gain, of which $0.6 million was recognized during the three months ended September 30, 2018 and $0.8 million and $5.6 million was recognized during the nine months ended September 30, 2019 and 2018, respectively.

Our subsidiaries’ obligations under the Master Lease are guaranteed at the parent level pursuant to the Guaranty. The Guaranty removed the prior requirements that we satisfy, at the parent level, financial covenants and that we maintain a security deposit with Ventas. The Guaranty also removed the prior right of Ventas to terminate the Master Lease on the basis of parent level financial covenants. Pursuant to the terms of the Guaranty, we may consummate a change of control transaction without the need for consent of Ventas so long as certain objective conditions are satisfied, including the post-transaction guarantor’s maintaining a minimum tangible net worth of at least $600 million, having minimum levels of operational experience and reputation in the senior living industry, and paying a change of control fee of $25 million to Ventas. The Guaranty removed the prior provisions that would have required that such post-transaction guarantor satisfy a maximum leverage ratio level, that we fund additional capital expenditures, and that we extend the term upon the occurrence of the change in control transaction. Under the terms of the Guaranty, commencing January 1, 2024 (and until such time (if any) as we exercise our lease term extension option with respect to the Master Lease), Ventas shall have the right to terminate the Master Lease (with respect to one or more communities), provided that the trailing twelve month coverage ratio of each such community is less than 0.9x and provided further that the removal and termination of any such communities does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such removal and termination.

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~~Blackstone.~~ During the three months ended September 30, 2018, leases for two communities owned by a former unconsolidated venture with affiliates of Blackstone Real Estate Advisors VIII L.P. were terminated, and we sold our 15% equity interest in the venture consisting of 64 communities.

On the Effective Date, we entered into a Second Amended and Restated Omnibus Agreement with Ventas, which provides that if a default occurs and is continuing under certain other material leases or under certain material financings and if the same continues beyond the permitted cure period or the applicable landlord or lender exercises any material remedies, Ventas shall have the right to transition all or a portion of the communities from the Master Lease to a management arrangement with us pursuant to a market management agreement (which is terminable by either party). Notwithstanding the foregoing, Ventas may only transition community(ies) from the Master Lease to a management arrangement if such

transition does not result in a portfolio coverage ratio with respect to the remaining communities in the Master Lease that is less than the portfolio coverage ratio prior to such transition.

On the Effective Date, we conveyed five owned communities (471 units) to Ventas in full release and satisfaction of $78 million principal amount of indebtedness secured by the communities. Upon closing, the parties entered into new terminable, market rate management agreements pursuant to which we will manage the communities. We also paid to Ventas $115 million in cash, released all security deposits under the former guaranty (which included the release of a $42.4 million deposit held by Ventas and the payment of $4.2 million in cash as settlement of the amount of letters of credit), and issued a $45 million unsecured interest-only promissory note to Ventas. The initial interest rate of the promissory note is 9.0% per annum and will increase by 0.50% on each anniversary of the date of issuance. We may prepay the outstanding principal amount in whole or in part at any time without premium or penalty. The promissory note matures on the earlier of December 31, 2025 or the occurrence of a change of control transaction (as defined in the Guaranty).

On the Effective Date, we issued to Ventas a warrant (the “Warrant”) to purchase 16.3 million shares of our common stock, $0.01 par value per share, at a price per share of $3.00. The Warrant is exercisable at Ventas’ option at any time and from time to time, in whole or in part, until December 31, 2025. The exercise price and the number of shares issuable on exercise of the Warrant are subject to certain anti-dilution adjustments, including for cash dividends, stock dividends, stock splits, reclassifications, non-cash distributions, certain repurchases of common stock and business combination transactions. To the extent that the number of shares owned by Ventas (including shares underlying the Warrant) would be more than 9.6% of the total combined voting power of all our classes of capital stock or of the total value of shares of all our classes of capital stock (the “Ownership Cap”) (other than as a result of actions taken by Ventas), we would generally be required to repurchase the number of shares necessary to avoid Ventas exceeding the Ownership Cap unless Ventas makes an election to require us to pay Ventas cash in lieu of issuing shares pursuant to the Warrant in excess of the Ownership Cap. The Warrant and the shares issuable upon exercise thereof have not been registered under the Securities Act of 1933, as amended, and were issued in a private placement pursuant to Section 4(a)(2) thereof. On the Effective Date, the parties entered into a Registration Rights Agreement, pursuant to which Ventas and its permitted transferees are entitled to certain registration rights. Under the terms of the agreement, we are required to use reasonable best efforts to prepare and file a shelf registration statement with the SEC as promptly as practicable, but no later than the close of business on the fifth day following the date on which we file our Quarterly Report on Form 10-Q for the period ended June 30, 2020, with respect to the shares of common stock underlying the Warrant, and, if the registration statement is not automatically effective, to have the registration statement declared effective promptly thereafter. Ventas is entitled to customary underwritten offering, piggyback and additional demand registration rights with respect to the shares underlying the Warrant.

Summary of Financial Impact of Completed Dispositions

The following table sets forth, for the ~~three months ended September 30, 2018,~~periods indicated, the amounts included within our consolidated financial data for the 7720 communities that we disposed through sales and lease terminations during the period from ~~July~~April 1, ~~2018~~2019 to June 30, ~~2019~~2020 through the respective disposition dates. ~~We did not dispose of any communities during the three months ended September 30, 2019.~~


	Three Months Ended September 30, 2018						Three Months Ended June 30, 2020
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions		Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Independent Living	$	144,631	$	14,099	$	130,532	$	130,278	$	—	$	130,278
Assisted Living and Memory Care	483,125		45,496		437,629		432,156		103		432,053
CCRCs	104,147		4,401		99,746		79,025		—		79,025
Senior housing resident fees	$	731,903	$	63,996	$	667,907	$	641,459	$	103	$	641,356
Facility operating expense
Independent Living	$	87,525	$	8,588	$	78,937	$	89,240	$	—	$	89,240
Assisted Living and Memory Care	338,424		35,182		303,242		344,600		647		343,953
CCRCs	82,338		3,785		78,553		74,721		—		74,721
Senior housing facility operating expense	$	508,287	$	47,555	$	460,732	$	508,561	$	647	$	507,914
Cash facility lease payments	$	105,530	$	13,111	$	92,419	$	87,169	$	366	$	86,803



	Three Months Ended June 30, 2019
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Independent Living	$	135,951	$	—	$	135,951
Assisted Living and Memory Care	450,225		5,809		444,416
CCRCs	101,253		9,476		91,777
Senior housing resident fees	$	687,429	$	15,285	$	672,144
Facility operating expense
Independent Living	$	84,492	$	—	$	84,492
Assisted Living and Memory Care	317,081		5,489		311,592
CCRCs	83,406		9,508		73,898
Senior housing facility operating expense	$	484,979	$	14,997	$	469,982
Cash facility lease payments	$	94,267	$	961	$	93,306

The following ~~tables set~~table sets forth, for the periods indicated, the amounts included within our consolidated financial data for the ~~127~~27 communities that we disposed through sales and lease terminations during the period from January 1, ~~2018~~2019 to June 30, ~~2019~~2020 through the respective disposition dates.

Nine Months Ended September 30, 2019
(in thousands) Actual Results Amounts Attributable to Completed Dispositions Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Independent Living $ 408,519
$ —
$ 408,519
Assisted Living and Memory Care 1,361,225
12,385
1,348,840
CCRCs 305,084
—
305,084
Senior housing resident fees $ 2,074,828
$ 12,385
$ 2,062,443
Facility operating expense
Independent Living $ 254,770
$ —
$ 254,770
Assisted Living and Memory Care 970,526
10,204
960,322
CCRCs 251,128
—
251,128
Senior housing facility operating expense $ 1,476,424
$ 10,204
$ 1,466,220
Cash facility lease payments $ 283,697
$ 1,451
$ 282,246



	Six Months Ended June 30, 2020
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Independent Living	$	266,140	$	—	$	266,140
Assisted Living and Memory Care	889,635		1,455		888,180
CCRCs	173,572		—		173,572
Senior housing resident fees	$	1,329,347	$	1,455	$	1,327,892
Facility operating expense
Independent Living	$	173,688	$	—	$	173,688
Assisted Living and Memory Care	670,078		2,476		667,602
CCRCs	149,337		—		149,337
Senior housing facility operating expense	$	993,103	$	2,476	$	990,627
Cash facility lease payments	$	176,752	$	964	$	175,788


	Nine Months Ended September 30, 2018						Six Months Ended June 30, 2019
(in thousands)	Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions		Actual Results		Amounts Attributable to Completed Dispositions		Actual Results Less Amounts Attributable to Completed Dispositions
Resident fees
Independent Living	$	462,321	$	74,970	$	387,351	$	271,645	$	—	$	271,645
Assisted Living and Memory Care	1,537,432		223,763		1,313,669		908,751		19,501		889,250
CCRCs	314,012		15,106		298,906		204,980		19,354		185,626
Senior housing resident fees	$	2,313,765	$	313,839	$	1,999,926	$	1,385,376	$	38,855	$	1,346,521
Facility operating expense
Independent Living	$	275,659	$	44,256	$	231,403	$	167,310	$	—	$	167,310
Assisted Living and Memory Care	1,046,456		160,606		885,850		634,908		17,668		617,240
CCRCs	243,721		13,701		230,020		165,496		19,010		146,486
Senior housing facility operating expense	$	1,565,836	$	218,563	$	1,347,273	$	967,714	$	36,678	$	931,036
Cash facility lease payments	$	361,013	$	80,046	$	280,967	$	255,483	$	2,388	$	253,095

The following table sets forth the number of communities and units in our senior housing segments disposed through sales and lease terminations during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and twelve months ended December 31, ~~2018:~~2019:


	Nine Months Ended September 30,	Twelve Months Ended December 31,
	2019	2018	Six Months Ended June 30, 2020	Twelve Months Ended December 31, 2019
Number of communities
Independent Living	—	17
Assisted Living and Memory Care	16	91	3	20
CCRCs	—	3	—	4
Total	16	111	3	24
Total units
Independent Living	—	2,864
Assisted Living and Memory Care	1,322	7,437	208	1,600
CCRCs	—	547	—	827
Total	1,322	10,848	208	2,427

Other Recent Developments

~~Impact of New Lease Accounting Standard~~Goodwill Impairment Estimates

~~We adopted~~As of June 30, 2020, we had a goodwill balance of $154.1 million. Goodwill recorded in connection with business combinations is allocated to the ~~new lease accounting standard (ASC 842) effective January 1, 2019. Adoption~~respective reporting unit and included in our application of the ~~new lease standard~~provisions of ASC 350, Intangibles - Goodwill and ~~its application~~Other.

Goodwill allocated to ~~residency agreements~~our Independent Living and ~~costs related thereto resulted~~Health Care Services reporting units is $27.3 million and $126.8 million as of June 30, 2020, respectively. Our interim goodwill impairment analyses did not result in any impairment charges during the six months ended June 30, 2020. Based on the results of our interim quantitative goodwill impairment test as of March 31, 2020, we estimated that the fair values of both our Independent Living and Health Care Services reporting units exceeded their carrying amount by approximately 20%. Additionally, we estimated that there were no significant changes to the fair values of both our Independent Living and Health Care Services reporting units during the three months ended June 30, 2020.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions that are unpredictable and inherently uncertain. These estimates and assumptions include revenue and expense growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. 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 differences in the ~~recognition~~projected occupancy rates or monthly service fee rates, changes in the cost structure of existing communities, changes in reimbursement rates from Medicare for healthcare services, and changes in healthcare reform. 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, changes in reimbursement rates from Medicare for healthcare services, and changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that additional ~~non-cash resident fees~~goodwill is impaired.

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 ~~facility operating expense for~~if necessary, the ~~three~~fair value of our assets and ~~nine months ended September~~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.

As of March 31, 2020 and June 30, ~~2019. The result~~2020, there was a ~~non-cash net impact to net income (loss) and Adjusted EBITDA~~wide range of ~~negative $6.0 million and $19.0 million for the three and nine months ended September 30, 2019, respectively. For the full year 2019, we expect the non-cash net impact of adoption~~possible outcomes as a result of the ~~new lease standard and application to our residency agreements and costs related thereto to be approximately negative $27 million to net income (loss) and Adjusted EBITDA. Adoption~~COVID-19 pandemic, as there was a high degree of uncertainty about its ultimate impacts. Management’s estimates of the ~~new lease standard had no impact~~impacts of the pandemic are highly dependent on ~~the amount of net cash provided by (used in) operating activities~~variables that are difficult to predict, as described above. Future events may indicate differences from management's current judgments and ~~Adjusted Free Cash Flow for the three and nine months ended September 30, 2019 and is not expected to have any impact on such measures for the full year.~~estimates which could, in turn, result in future impairments.

~~Increased Competitive Pressures~~

During and since 2016 we have experienced an elevated rate of competitive new openings, with significant new competition opening in several of our markets, which has adversely affected our occupancy, revenues, results of operations, and cash flow. We

expect the elevated rate of competitive new openings and pressures on our occupancy and rate growth to continue through 2019. Such increased level of new openings and oversupply, as well as lower levels of unemployment, generally have also contributed to increased competition for community leadership and personnel and wage pressures. We continue to address new competition by focusing on operations with the objective to ensure high customer satisfaction, retain key leadership, and actively engage district and regional management in community operations; enhancing our local and national marketing and public relations efforts; and evaluating current community position relative to competition and repositioning if necessary (e.g., services, amenities, programming and price). We also continue to invest above industry to improve the total rewards program and performance management, training, and development program for our community leaders and staff.

~~Planned~~ Capital Expenditures

~~During 2018~~In response to the COVID-19 pandemic, we ~~completed an intensive review~~have delayed or canceled a number of ~~our community-level~~elective capital expenditure needs with a focus on ensuring that our communities are in appropriate physical condition to support our strategy and determining what additional investments are needed to protect the value of our community portfolio.projects. As a result, ~~of that review, we have budgeted to make significant additional near-term investments in our communities, a portion of which will be reimbursed by our lessors. In the aggregate,~~ we expect our full-year ~~2019~~2020 non-development capital expenditures, net of anticipated lessor reimbursements, and development capital expenditures to be approximately ~~$250 million. For 2019, this includes an increase of approximately $75~~$150 million inand $20 million, which reflects a $40 million and $10 million reduction to our ~~community-level capital expenditures relative to 2018, primarily attributable to major building infrastructure projects.~~pre-pandemic plans for 2020, respectively. We anticipate that our ~~2019~~2020 capital expenditures will be funded from cash on hand, cash flows from operations, and ~~if necessary, amounts drawn on our secured credit facility. We expect that our 2020 community-level capital expenditures will continue to be elevated relative to 2018, but lower than 2019.~~

~~Program Max Initiative~~

During the nine months ended September 30, 2019, we made continued progress on our Program Max initiative under which we expand, renovate, redevelop, and reposition certain of our existing communities where economically advantageous. During such period, we invested $18.7 million on Program Max projects. We currently have 15 Program Max projects that have been approved, most of which have begun construction and are expected to generate 28 net new units.

~~Tax Reform~~

On December 22, 2017, the President signed the Tax Cuts and Jobs Act ("Tax Act") into law. The Tax Act limits the annual deductibility of a corporation's net interest expense unless it elects to be exemptreimbursements from such deductibility limitation under the real property trade or business exception. The Company elected the real property trade or business exception with the 2018 tax return. As such, the Company is required to apply the alternative depreciation system ("ADS") to all current and future residential real property and qualified improvement property assets. This change impacts the current and future tax depreciation deductions and impacted the Company's valuation allowance accordingly. Additional information that may affect the Company's provisional amounts would include further clarification and guidance on how the Internal Revenue Service will implement tax reform and further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company's state and local income tax returns, state and local net operating losses, and corresponding valuation allowances.lessors.

Results of Operations

As of ~~September~~June 30, ~~2019~~2020 our total operations included ~~794~~737 communities with a capacity to serve approximately ~~75,000~~65,000 residents. As of that date we owned ~~336~~355 communities ~~(31,226~~(32,481 units), leased ~~335~~305 communities ~~(24,036~~(21,538 units), ~~managed 17 communities (7,308 units) on behalf of unconsolidated ventures,~~ and managed ~~106~~77 communities ~~(12,860~~(10,694 units) ~~on behalf of third parties.~~. The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in ~~Part I, Item 1~~"Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period of January 1, ~~2018~~2019 to ~~September~~June 30, ~~2019 significantly~~2020 affect the comparability of our results of operations, and summaries of such transactions and their impact on our results of operations are discussed above ~~under "Completed Transactions~~in "Transaction Activity and Impact of Dispositions on Results of Operations."

~~This section uses~~We use the operating measures ~~defined below.~~described below in connection with operating and managing our business and reporting our results of operations. Our adoption and application of the new lease accounting standard ~~has~~ impacted our results for the ~~three and nine months~~year ended ~~September 30,~~December 31, 2019 ~~and will impact our results for the remaining 2019 periods,~~ due to our recognition of additional resident fee revenue and facility operating expense, which isare non-cash and isare non-recurring in ~~future years.~~years subsequent to December 31, 2019. To aid in comparability between periods, presentations of our results on a same community basis, and RevPAR and RevPOR, exclude the impact of the lease accounting standard.

•

Operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the ~~same store communities (utilizing~~impact of changes in the composition of our ~~methodology for determining same store communities which generally excludes assets held for sale, acquisitions~~portfolio of communities. The operating results exclude hurricane and ~~dispositions since the beginning of the prior year,~~natural disaster expense and ~~certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects)~~related insurance recoveries, and for the 2019 ~~period,~~periods, exclude the additional resident fee revenue and facility operating expense recognized as a result of the application of the ~~new~~ lease accounting standard ~~under~~ ASC 842. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, certain communities that have expansion, redevelopment, and repositioning projects that are anticipated to be under construction in the current year, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed, in-process, or planned development-related capital expenditure projects. As presented herein, same community results include the direct costs incurred to prepare for and respond to the COVID-19 pandemic. These costs had been excluded from same community results presented in our quarterly report on Form 10-Q for the three months ended March 31, 2020.

•

RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 ~~period,~~periods, the additional resident fee revenue recognized as a result of the application of the ~~new~~ lease accounting standard ~~under~~ ASC 842), 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. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses RevPAR, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate.

•

RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue and entrance fee amortization, and, for the 2019 ~~period,~~periods, the additional resident fee revenue recognized as a result of the application of the ~~new~~ lease accounting standard ~~under~~ ASC 842), 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. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments. Our management uses

RevPOR, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance.

Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living and Memory Care, and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver to senior housing resident fee revenue.

This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures. During the first quarter of 2019, we modified our definition of Adjusted EBITDA to exclude transaction and organizational restructuring costs, and amounts for all periods herein reflect application of the modified definition.

Comparison of Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

Summary Operating Results

The following table summarizes our overall operating results for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,						Increase (Decrease)
(in thousands)	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Total revenue	$	1,008,949		$	1,120,062		$	(111,113	)	(9.9	)%
Total revenue and other operating income												$	865,909		$	1,019,457		$	(153,548	)	(15.1	)%
Facility operating expense	615,717			607,076			8,641			1.4	%	606,034			590,246			15,788			2.7	%
Net income (loss)	(78,508		)	(37,140		)	41,368			111.4	%	(118,420		)	(56,055		)	62,365			111.3	%
Adjusted EBITDA	80,447			128,122			(47,675		)	(37.2	)%	44,733			104,036			(59,303		)	(57.0	)%

The decrease in total revenue and other operating income was primarily attributable to a $110.0 million decrease in management services revenue, including management fees and reimbursed costs incurred on behalf of managed communities, primarily due to terminations of management agreements subsequent to the beginning of the prior year period. Resident fees decreased $70.2 million, including a 3.5% decrease in same community RevPAR, comprised of a 480 basis points decrease in same community weighted average occupancy and a 2.3% increase in same community RevPOR. We estimate that the COVID-19 pandemic and our response efforts resulted in $43.1 million of lost resident fee revenue on a same community basis for the three months ended June 30, 2020. Estimated lost resident fee revenue represents the difference between the actual revenue for the period and our expectations prior to estimating the effects of COVID-19. Revenue for home health services decreased $24.3 million, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic and the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, the disposition of 7720 communities through sales of owned communities and lease terminations since the beginning of the prior year period ~~which~~ resulted in ~~$63.9~~$15.2 million less in resident fees during the three months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. ~~The decrease in resident fees was partially offset by a 1.8% increase in same community RevPAR, comprised~~Our total revenue and other operating income for the three months ended June 30, 2020 includes $26.7 million of a 2.8% increase in same community RevPOR and an 80 basis points decrease in same community weighted average occupancy. Additionally, management services revenue, including management fees and reimbursed costs incurredgovernment grants as other operating income based on ~~behalf~~our estimates of ~~managed communities, decreased $72.2 million primarily due to terminations of management agreements subsequent to the beginning~~our satisfaction of the ~~prior year~~conditions of the grants during the period.

The increase in facility operating expense was primarily attributable to ~~a 7.0%~~an 11.3% increase in same community facility operating expense, which was primarily due to $52.9 million of incremental costs incurred during the three months ended June 30, 2020 to address the COVID-19 pandemic. Additionally, there was an increase in labor expense ~~attributable to~~on a same community basis arising from wage rate ~~increases, an~~increases. The increase in ~~employee benefit~~same community facility operating expense ~~and an increase in advertising, property remediation, and insurance costs during the period. The increase~~ was partially offset by decreases in repairs and maintenance costs due to fewer move-ins and advertising costs during the ~~disposition of communities since the beginning of the prior year~~ period ~~which resulted in $47.5 million less~~as we intentionally scaled back such activities. The increase in facility operating expense ~~during~~was partially offset by a decrease in labor costs for home health services as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the ~~three months ended September 30, 2019 compared to the prior year period.~~new payment model.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of ~~approximately $8.0~~$5.3 million and ~~$14.0~~$11.8 million, respectively, during the three months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense excludes ~~approximately $7.3~~$4.9 million and ~~$12.8~~$10.9 million, respectively, of such additional revenue and expenses.

The increase in net loss was primarily attributable to a $100.6 million decrease in reimbursed costs incurred on behalf of managed communities, as well as the revenue and facility operating expense factors ~~noted above, a $9.3 million decrease in net gain on sale of assets, and a $16.0 million decrease in benefit for income taxes.~~

previously discussed.

The decrease in Adjusted EBITDA was primarily attributable to the revenue and facility operating expense factors ~~noted above.~~previously discussed, partially offset by a decrease in general and administrative expense.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	689,452		$	731,903		$	(42,451	)	(5.8	)%	$	641,459		$	687,429		$	(45,970	)	(6.7	)%
Other operating income												$	9,698		$	—		$	9,698		NM
Facility operating expense	$	508,710		$	508,287		$	423		0.1	%	$	508,561		$	484,979		$	23,582		4.9	%

Number of communities (period end)	671			729			(58		)	(8.0	)%	660			671			(11		)	(1.6	)%
Number of units (period end)	55,262			60,009			(4,747		)	(7.9	)%	54,019			55,209			(1,190		)	(2.2	)%
Total average units	55,258			61,370			(6,112		)	(10.0	)%	54,040			55,465			(1,425		)	(2.6	)%
RevPAR	$	4,109		$	3,973		$	136		3.4	%	$	3,954		$	4,097		$	(143	)	(3.5	)%
Occupancy rate (weighted average)	84.2		%	84.2		%	—			n/a		78.7		%	83.5		%	(480		) bps	n/a
RevPOR	$	4,880		$	4,718		$	162		3.4	%	$	5,022		$	4,909		$	113		2.3	%

Same Community Operating Results and Data
Resident fees	$	629,159		$	618,129		$	11,030		1.8	%	$	597,511		$	619,285		$	(21,774	)	(3.5	)%
Other operating income												$	6,445		$	—		$	6,445		NM
Facility operating expense	$	450,181		$	420,846		$	29,335		7.0	%	$	467,970		$	420,643		$	47,327		11.3	%

Number of communities	644			644			—			—		638			638			—			—
Total average units	50,761			50,773			(12		)	—		50,107			50,101			6			—
RevPAR	$	4,129		$	4,056		$	73		1.8	%	$	3,975		$	4,120		$	(145	)	(3.5	)%
Occupancy rate (weighted average)	84.5		%	85.3		%	(80		) bps	n/a		79.2		%	84.0		%	(480		) bps	n/a
RevPOR	$	4,886		$	4,755		$	131		2.8	%	$	5,020		$	4,905		$	115		2.3	%

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	136,874		$	144,631		$	(7,757	)	(5.4	)%	$	130,278		$	135,951		$	(5,673	)	(4.2	)%
Facility operating expense	$	87,460		$	87,525		$	(65	)	(0.1	)%	$	89,240		$	84,492		$	4,748		5.6	%

Number of communities (period end)	68			75			(7		)	(9.3	)%	68			68			—			—	%
Number of units (period end)	12,511			13,550			(1,039		)	(7.7	)%	12,534			12,460			74			0.6	%
Total average units	12,511			13,553			(1,042		)	(7.7	)%	12,534			12,440			94			0.8	%
RevPAR	$	3,581		$	3,557		$	24		0.7	%	$	3,465		$	3,592		$	(127	)	(3.5	)%
Occupancy rate (weighted average)	89.1		%	89.5		%	(40		) bps	n/a		83.5		%	89.1		%	(560		) bps	n/a
RevPOR	$	4,018		$	3,973		$	45		1.1	%	$	4,147		$	4,033		$	114		2.8	%

Same Community Operating Results and Data
Resident fees	$	118,981		$	115,887		$	3,094		2.7	%	$	122,716		$	126,563		$	(3,847	)	(3.0	)%
Facility operating expense	$	73,088		$	68,964		$	4,124		6.0	%	$	83,492		$	76,796		$	6,696		8.7	%

Number of communities	62			62			—			—		64			64			—			—
Total average units	11,068			11,074			(6		)	(0.1	)%	11,703			11,690			13			0.1	%
RevPAR	$	3,583		$	3,488		$	95		2.7	%	$	3,495		$	3,609		$	(114	)	(3.2	)%
Occupancy rate (weighted average)	89.9		%	89.9		%	—			n/a		83.8		%	88.8		%	(500		) bps	n/a
RevPOR	$	3,987		$	3,879		$	108		2.8	%	$	4,169		$	4,063		$	106		2.6	%

The decrease in the ~~segment’s~~segment's resident fees was primarily attributable to the disposition of seven communities since the beginning of the prior year period, which resulted in $14.1 million less in resident fees during the three months ended September 30, 2019 compared to the prior year period. Thea decrease in ~~resident fees was partially offset by~~ the ~~increase in the segment’s~~segment's same community RevPAR, comprised of a ~~2.8%~~500 basis points decrease in same community weighted average occupancy and a 2.6% increase in same community ~~RevPOR and consistent~~RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of ~~89.9%.~~reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $6.4 million of lost resident fee revenue on a same community basis for this segment for the three months ended June 30, 2020. The increase in the ~~segment’s~~segment's same community RevPOR was primarily the result of in-place rent increases.

The ~~decrease~~increase in the ~~segment’s~~segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $8.6 million less in facility operating expense during the three months ended September 30, 2019 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the ~~segment’s~~segment's same community facility operating expense ~~including an increase~~as a result of $8.8 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in ~~labor expense arising from wage rate increases, an increase in employee benefit expense,~~repairs and ~~an increase in~~maintenance costs due to fewer move-ins and advertising ~~property remediation, and insurance~~ costs during the ~~period.~~period as we intentionally scaled back such activities.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of ~~approximately $2.5~~$1.9 million and ~~$3.4~~$3.1 million, respectively, during the three months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes ~~approximately $2.2~~$1.8 million and ~~$3.0~~$2.9 million, respectively, of such additional revenue and expenses.

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	452,474		$	483,125		$	(30,651	)	(6.3	)%	$	432,156		$	450,225		$	(18,069	)	(4.0	)%
Other operating income												$	152		$	—		$	152		NM
Facility operating expense	$	335,618		$	338,424		$	(2,806	)	(0.8	)%	$	344,600		$	317,081		$	27,519		8.7	%

Number of communities (period end)	577			627			(50		)	(8.0	)%	570			577			(7		)	(1.2	)%
Number of units (period end)	36,177			39,725			(3,548		)	(8.9	)%	35,744			36,175			(431		)	(1.2	)%
Total average units	36,173			40,933			(4,760		)	(11.6	)%	35,785			36,451			(666		)	(1.8	)%
RevPAR	$	4,127		$	3,934		$	193		4.9	%	$	4,025		$	4,092		$	(67	)	(1.6	)%
Occupancy rate (weighted average)	83.2		%	82.7		%	50		bps	n/a		77.8		%	82.1		%	(430		) bps	n/a
RevPOR	$	4,962		$	4,755		$	207		4.4	%	$	5,172		$	4,987		$	185		3.7	%

Same Community Operating Results and Data
Resident fees	$	433,108		$	424,091		$	9,017		2.1	%	$	424,021		$	433,211		$	(9,190	)	(2.1	)%
Other operating income												$	151		$	—		$	151		NM
Facility operating expense	$	313,833		$	291,617		$	22,216		7.6	%	$	336,342		$	297,421		$	38,921		13.1	%

Number of communities	563			563			—			—		560			560			—			—
Total average units	34,852			34,857			(5		)	—		34,792			34,799			(7		)	—
RevPAR	$	4,142		$	4,056		$	86		2.1	%	$	4,062		$	4,150		$	(88	)	(2.1	)%
Occupancy rate (weighted average)	83.3		%	84.0		%	(70		) bps	n/a		78.2		%	82.6		%	(440		) bps	n/a
RevPOR	$	4,975		$	4,826		$	149		3.1	%	$	5,191		$	5,024		$	167		3.3	%

The decrease in the ~~segment’s~~segment's resident fees was primarily attributable to the disposition of 68 communities since the beginning of the prior year period, which resulted in $45.4 million less in resident fees during the three months ended September 30, 2019 compared to the prior year period. Thea decrease in ~~resident fees was partially offset by~~ the ~~increase in the segment’s~~segment's same community RevPAR, comprised of a ~~3.1% increase in same community RevPOR and a 70~~440 basis points decrease in same community weighted average ~~occupancy.~~occupancy and a 3.3% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $26.0 million of lost resident fee revenue on a same community basis for this segment for the three months ended June 30, 2020. The increase in the ~~segment’s~~segment's same community RevPOR was primarily the result of in-place rent increases. ~~The decrease~~Additionally, the disposition of 16 communities since the beginning of the prior year period resulted in $5.7 million less in resident fees during the ~~segment’s same community weighted average occupancy reflects~~three months ended June 30, 2020 compared to the ~~impact of new competition in our markets.~~prior year period.

The ~~decrease~~increase in the ~~segment’s~~segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $38.0 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, and an increase in labor expense arising from wage rate increases. The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins and advertising costs during the period as we intentionally scaled back such activities. Additionally, the disposition of communities since the beginning of the prior year period ~~which~~ resulted in ~~$35.1~~$4.8 million less in facility operating expense during the three months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the segment’s same community facility operating expense, including an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an increase in advertising, property remediation, and insurance costs during the period.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of ~~approximately $4.6~~$2.7 million and ~~$9.1~~$7.4 million, respectively, during the three months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes ~~approximately $4.4~~$2.6 million and ~~$8.6~~$7.1 million, respectively, of such additional revenue and expenses.

CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	100,104		$	104,147		$	(4,043	)	(3.9	)%	$	79,025		$	101,253		$	(22,228	)	(22.0	)%
Other operating income												$	9,546		$	—		$	9,546		NM
Facility operating expense	$	85,632		$	82,338		$	3,294		4.0	%	$	74,721		$	83,406		$	(8,685	)	(10.4	)%

Number of communities (period end)	26			27			(1		)	(3.7	)%	22			26			(4		)	(15.4	)%
Number of units (period end)	6,574			6,734			(160		)	(2.4	)%	5,741			6,574			(833		)	(12.7	)%
Total average units	6,574			6,884			(310		)	(4.5	)%	5,721			6,574			(853		)	(13.0	)%
RevPAR	$	5,012		$	5,024		$	(12	)	(0.2	)%	$	4,572		$	5,081		$	(509	)	(10.0	)%
Occupancy rate (weighted average)	80.4		%	82.6		%	(220		) bps	n/a		74.0		%	80.6		%	(660		) bps	n/a
RevPOR	$	6,234		$	6,082		$	152		2.5	%	$	6,181		$	6,305		$	(124	)	(2.0	)%

Same Community Operating Results and Data
Resident fees	$	77,070		$	78,151		$	(1,081	)	(1.4	)%	$	50,774		$	59,511		$	(8,737	)	(14.7	)%
Other operating income												$	6,294		$	—		$	6,294		NM
Facility operating expense	$	63,260		$	60,265		$	2,995		5.0	%	$	48,136		$	46,426		$	1,710		3.7	%

Number of communities	19			19			—			—		14			14			—			—
Total average units	4,841			4,842			(1		)	—		3,612			3,612			—			—
RevPAR	$	5,279		$	5,354		$	(75	)	(1.4	)%	$	4,686		$	5,492		$	(806	)	(14.7	)%
Occupancy rate (weighted average)	81.1		%	83.7		%	(260		) bps	n/a		72.9		%	82.0		%	(910		) bps	n/a
RevPOR	$	6,509		$	6,397		$	112		1.8	%	$	6,430		$	6,701		$	(271	)	(4.0	)%

The decrease in the ~~segment’s~~segment's resident fees was primarily attributable to the disposition of two communities since the beginning of the prior year period, which resulted in $4.4 million less in resident fees during the three months ended September 30, 2019 compared to the prior year period. Additionally, there was a decrease in the ~~segment’s~~segment's same community RevPAR, comprised of a ~~260~~910 basis points decrease in same community weighted average occupancy and a ~~1.8% increase~~4.0% decrease in same community RevPOR. The decrease in the ~~segment’s~~segment's same community weighted average occupancy primarily reflects the impact of ~~new competition~~reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in ~~our markets.~~$10.7 million of lost resident fee revenue on a same community basis for this segment for the three months ended June 30, 2020. The ~~increase~~decrease in the ~~segment’s~~segment's same community RevPOR was primarily the result of a mix shift away from skilled nursing within the segment, partially offset by in-place rent increases. Additionally, the disposition of four communities since the beginning of the prior year period resulted in $9.5 million less in resident fees during the three months ended June 30, 2020 compared to the prior year period.

The ~~increase~~decrease in the segment's facility operating expense was primarily attributable to an increase in the segment’s same community facility operating expense, including an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an increase in advertising, property remediation, and insurance costs during the period. The increase in facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in ~~$3.8~~$9.5 million less in facility operating expense during the three months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the segment's same community facility operating expense as a result of $6.1 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of ~~approximately $0.9~~$0.7 million and ~~$1.5~~$1.3 million, respectively, during the three months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes ~~approximately $0.7~~$0.5 million and ~~$1.2~~$0.9 million, respectively, of such additional revenue and expenses.

Operating Results - Health Care Services Segment

The following table summarizes the operating results and data for our Health Care Services segment for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(in thousands, except census and treatment codes)	Three Months Ended September 30,				Increase (Decrease)				Three Months Ended June 30,				Increase (Decrease)
	2019		2018		Amount		Percent		2020		2019		Amount			Percent
Resident fees	$	111,785	$	108,276	$	3,509	3.2	%	$	90,170	$	114,434	$	(24,264	)	(21.2	)%
Other operating income									$	16,995	$	—	$	16,995		NM
Facility operating expense	$	107,007	$	98,789	$	8,218	8.3	%	$	97,473	$	105,267	$	(7,794	)	(7.4	)%

Home health average daily census	15,357		14,890		467		3.1	%	12,980		15,966		(2,986		)	(18.7	)%
Hospice average daily census	1,642		1,411		231		16.4	%	1,646		1,540		106			6.9	%
Outpatient therapy treatment codes	171,578		168,569		3,009		1.8	%

The ~~increase~~decrease in the ~~segment’s~~segment's resident fees was primarily attributable to ~~an increase~~a decrease in ~~volume~~revenue for ~~hospice~~home health services, ~~and an increase in~~as our home health average daily census ~~partially offset by sales force turnover and customer relations issues related~~began to decrease in March 2020 due to the ~~centralized intake initiative.~~

~~The increase in the segment’s facility operating expense was primarily attributable~~COVID-19 pandemic, as referrals declined significantly due to ~~an increase in labor costs arising from wage rate increases~~suspension of elective medical procedures and ~~the expansion of our hospice services. In addition, there was an increase in employee benefit expense.~~

~~On October 31, 2019, the Centers for Medicare~~hospital discharges increased due to stay-at-home orders and ~~Medicaid Services (“CMS”) issued a final rule that included routine updates to home health payment rates and sets forth~~recommendations. Additionally, the implementation of the Patient-Driven Grouping Model ~~(“PDGM”~~("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, ~~that will be~~which became effective beginning January 1, ~~2020.~~2020, resulted in a decrease in revenue for home health services. The ~~final rule also will phase out requests~~decrease in resident fees was partially offset by an increase in volume and related revenues for ~~anticipated payment ("RAP") over 2020 with~~hospice services. We estimate that the ~~full elimination~~COVID-19 pandemic and our response efforts resulted in $14.8 million of ~~RAPs in 2021. We are currently~~lost resident fee revenue for the three months ended June 30, 2020.

The decrease in the ~~process of preparing~~segment's facility operating expense was primarily attributable to a decrease in labor costs for ~~the implementation of PDGM effective January 1, 2020 and are evaluating the impact of the final rule on~~home health services as we adjusted our home health ~~operations.~~services operational structure, to better align our facility operating expenses and business model with the new payment model. The decrease in the segment's facility operating expense was partially offset by $3.1 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic and an increase in labor costs for hospice services arising from wage rate increases and the expansion of our hospice services throughout 2019.

Operating Results - Management Services Segment

The following table summarizes the operating results and data for our Management Services segment for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(in thousands, except communities, units, and occupancy)	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
	2019			2018			Amount			Percent		2020		2019		Amount			Percent
Management fees	$	13,564		$	18,528		$	(4,964	)	(26.8	)%	$	6,076	$	15,449	$	(9,373	)	(60.7	)%
Reimbursed costs incurred on behalf of managed communities	$	194,148		$	261,355		$	(67,207	)	(25.7	)%	$	101,511	$	202,145	$	(100,634	)	(49.8	)%

Number of communities (period end)	123			232			(109		)	(47.0	)%	77		138		(61		)	(44.2	)%
Number of units (period end)	20,168			32,511			(12,343		)	(38.0	)%	10,694		21,451		(10,757		)	(50.1	)%
Total average units	20,730			32,471			(11,741		)	(36.2	)%	10,905		22,464		(11,559		)	(51.5	)%
Occupancy rate (weighted average)	83.4		%	84.0		%	(60		) bps	n/a

The decrease in management fees was primarily attributable to the transition of management arrangements on ~~117~~87 net communities since the beginning of the prior year period, generally for ~~interim management arrangements on formerly leased or owned communities and~~ management arrangements on certain former unconsolidated ventures in which we sold our ~~interest.~~interest and interim management arrangements on formerly leased communities. Management fees of ~~$13.6~~$6.1 million for the three months ended ~~September~~June 30, ~~2019~~2020 include ~~$0.5~~$1.8 million of management fees attributable to communities for which our management agreements were terminated during such period ~~and approximately $8 million of management fees attributable to communities that~~or we expect the terminations of our management agreements to occur in the next approximately 12 months, including management ~~agreements on communities owned by the CCRC Venture, interim management arrangements on formerly leased communities, and management~~ arrangements on certain former unconsolidated ventures in which we sold our ~~interest. Pursuant to the MTCA with HCP, HCP has agreed to pay us $100 million immediately following the closing of the sale of our ownership~~ interest, ~~in the CCRC Venture, which is expected to close in the first quarter of 2020.~~management agreements on communities owned by unconsolidated ventures, and interim management arrangements on formerly leased communities.

The decrease in reimbursed costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(in thousands)	Three Months Ended September 30,						Increase (Decrease)					Three Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
General and administrative expense	$	56,409		$	58,796		$	(2,387	)	(4.1	)%	$	52,518		$	57,576		$	(5,058	)	(8.8	)%
Facility operating lease expense	67,253			70,392			(3,139		)	(4.5	)%	62,379			67,689			(5,310		)	(7.8	)%
Depreciation and amortization	93,550			110,980			(17,430		)	(15.7	)%	93,154			94,024			(870		)	(0.9	)%
Goodwill and asset impairment	2,094			5,500			(3,406		)	(61.9	)%
Asset impairment												10,290			3,769			6,521			173.0	%
Loss (gain) on facility lease termination and modification, net	—			2,337			(2,337		)	(100.0	)%	—			1,797			(1,797		)	(100.0	)%
Costs incurred on behalf of managed communities	194,148			261,355			(67,207		)	(25.7	)%	101,511			202,145			(100,634		)	(49.8	)%
Interest income	2,162			1,654			508			30.7	%	2,243			2,813			(570		)	(20.3	)%
Interest expense	(62,078		)	(68,626		)	(6,548		)	9.5	%	(52,422		)	(62,828		)	(10,406		)	(16.6	)%
Debt modification and extinguishment costs	(2,455		)	(33		)	2,422			NM
Gain (loss) on debt modification and extinguishment, net												(157		)	(2,672		)	(2,515		)	(94.1	)%
Equity in earnings (loss) of unconsolidated ventures	(2,057		)	(1,340		)	717			(53.5	)%	438			(991		)	1,429			NM
Gain (loss) on sale of assets, net	579			9,833			(9,254		)	(94.1	)%	(1,029		)	2,846			(3,875		)	NM
Other non-operating income (loss)	3,763			(17		)	3,780			NM		988			3,199			(2,211		)	(69.1	)%
Benefit (provision) for income taxes	1,800			17,763			(15,963		)	(89.9	)%	(8,504		)	(633		)	7,871			NM

General and Administrative Expense. The decrease in general and administrative expense was primarily attributable to a reduction in our travel costs as we intentionally scaled back such activities, a reduction in our incentive compensation costs, and a reduction in our corporate headcount as we scaled our general and administrative costs in connection with community dispositions. The decrease was partially offset by a ~~$0.7~~$2.7 million increase in transactional and organizational restructuring costs compared to the prior period, to ~~$3.9~~$3.4 million for the three months ended ~~September~~June 30, ~~2019. The increase was due to $3.4 of transaction costs related to stockholder relations advisory matters incurred during the three months ended September 30, 2019.~~2020. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, ~~our assessment of options and alternatives to enhance stockholder value,~~ and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance ~~and retention~~ costs. ~~For the full year 2019, we~~We expect transaction and organizational restructuring costs ~~related to stockholder relations advisory matters to~~will be ~~approximately $5.5 million, of which $3.4 million was incurred for~~higher in the three months ~~ended~~ending September 30, ~~2019.~~2020 including such costs incurred with respect to the transaction with Ventas announced on July 27, 2020.

Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to ~~lease termination activity~~the acquisition of formerly leased communities since the beginning of the prior year ~~quarter.~~period.

~~Depreciation and Amortization.~~ ~~The decrease in depreciation and amortization expense was primarily due to disposition activity through sales and lease terminations since the beginning of the prior year quarter.~~

~~Goodwill and~~ Asset Impairment.During the current year period, we recorded ~~$2.1~~$10.3 million of non-cash impairment charges, primarily for right-of-use assets ~~held for sale and property, plant and equipment and leasehold intangibles~~ for certain ~~communities.~~leased communities with decreased future cash flow estimates as a result of the COVID-19 pandemic. During the prior year period, we recorded ~~$5.5~~$3.8 million of non-cash impairment charges. The prior year period impairment charges primarily consisted of a $3.0 million decrease in the estimated selling prices of assets held for sale and a $2.5 million impairment of property, plant and equipment and leasehold intangibles for certain communities, primarily in the Assisted Living and Memory Care segment. See Note 56 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the impairment charges.

Costs Incurred on Behalf of Managed Communities. The decrease in costs incurred on behalf of managed communities was primarily due to terminations of management agreements subsequent to the beginning of the prior year period.

Interest Expense. The decrease in interest expense was primarily due to ~~financing lease termination activity and~~ a decrease in interest expense on long-term debt, reflecting the impact of lower interest rates, and the ~~repayment~~acquisition of ~~debt~~communities previously subject to financing leases since the beginning of ~~the prior year period and lower interest rates.~~

~~Gain (Loss) on Sale of Assets, Net.~~ ~~The decrease in gain on sale of assets, net was primarily due to gains recognized for the termination of financing leases during~~ the prior year period.

Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 was primarily due to ~~an increase in~~ the ~~full year valuation allowance projected in 2019 as compared to 2018.~~annualized effective rate for 2020.

We recorded an aggregate deferred federal, state, and local tax benefit of ~~$19.4~~$26.7 million as a result of the operating loss for the three months ended ~~September~~June 30, ~~2019,~~2020, which was offset by an increase in the valuation allowance of ~~$17.8~~$33.2 million. The change in the valuation allowance for the three months ended ~~September~~June 30, ~~2019~~2020 resulted from the anticipated reversal of future tax liabilities offset by future tax deductions. We recorded an aggregate deferred federal, state, and local tax benefit of ~~$15.4~~$13.0 million as a result of the operating loss for the three months ended ~~September~~June 30, ~~2018, and we reduced our~~2019. The tax benefit was offset by an increase in the valuation allowance ~~in the quarter by $2.7~~of $13.3 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 September 30, 2019 and December 31, 2018 was $387.9 million and $336.4 million, respectively.

We recorded interest charges related to our tax contingency reserve for cash tax positions for the three months ended September 30, 2019 and 2018 which are included in provision for income tax for the period. Tax returns for years 2014 through 2018 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.

~~Operating Results - Unconsolidated Ventures~~

The Company’s proportionate share of Adjusted EBITDA of unconsolidated ventures was $9.8 million for the three months ended September 30, 2019, which represented a decrease of 13.1% from the three months ended September 30, 2018 primarily attributable to the sale of our interest in two unconsolidated ventures since the beginning of the prior year quarter. Upon completion of the dispositions pursuant to the multi-part transaction with HCP announced October 1, 2019 we will have eliminated substantially all of our unconsolidated venture interests. See above under "CCRC Venture and HCP Master Lease Transactions" for more details regarding the terms and expected timing of such dispositions.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

Summary Operating Results

The following table summarizes our overall operating results for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,					Increase (Decrease)
(in thousands)	2019			2018			Amount			Percent		2020		2019			Amount			Percent
Total revenue	$	3,070,450		$	3,462,496		$	(392,046	)	(11.3	)%
Total revenue and other operating income												$	1,880,048	$	2,061,501		$	(181,453	)	(8.8	)%
Facility operating expense	1,792,057			1,866,477			(74,420		)	(4.0	)%	1,194,516		1,176,340			18,176			1.5	%
Net income (loss)	(177,169		)	(659,883		)	(482,714		)	(73.2	)%	251,077		(98,661		)	349,738			NM
Adjusted EBITDA	301,066			422,495			(121,429		)	(28.7	)%	229,802		220,619			9,183			4.2	%

The decrease in total revenue and other operating income was primarily attributable to an $111.1 million decrease in management services revenue, including management fees and reimbursed costs incurred on behalf of managed communities, primarily due to terminations of management agreements subsequent to the beginning of the prior year period, partially offset by $100.0 million of management fee revenue during the three months ended March 31, 2020 for the management termination fee payment from Healthpeak. Resident fees decreased $97.0 million, including a $42.5 million decrease for home health services, as our home health average daily census began to decrease in March 2020 due to the COVID-19 pandemic and the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, the disposition of ~~127~~27 communities through sales of owned communities and lease terminations since the beginning of the prior year period ~~which~~ resulted in ~~$301.5~~$37.4 million less in resident fees during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. ~~The decrease in resident fees was partially offset by a 1.8% increase in same~~Same community RevPAR decreased 0.7%, comprised of a ~~3.1% increase in same community RevPOR and a 100~~280 basis points decrease in same community weighted average ~~occupancy. Additionally, management services~~occupancy and a 2.7% increase in same community RevPOR. We estimate that the COVID-19 pandemic and our response efforts resulted in $45.5 million of lost resident fee revenue ~~including management fees~~on a same community basis for the six months ended June 30, 2020. Our total revenue and ~~reimbursed costs incurred~~other operating income for the six months ended June 30, 2020 includes $26.7 million of government grants as other operating income based on ~~behalf~~our estimates of ~~managed communities, decreased $162.2 million primarily due to terminations of management agreements subsequent to the beginning~~our satisfaction of the ~~prior year~~conditions of the grants during the period.

The ~~decrease~~increase in facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $208.4 million less in facility operating expense during the nine months ended September 30, 2019 compared to the prior year period. The decrease was partially offset by a ~~5.6%~~9.2% increase in same community facility operating expense, which was primarily due to $62.0 million of incremental costs incurred during the six months ended June 30, 2020 to address the COVID-19 pandemic. Additionally, there was an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an extra day of expense due to the leap year. The increase was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in ~~advertising and insurance costs~~$34.2 million less in facility operating expense during the six months ended June 30, 2020 compared to the prior year period.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense of ~~approximately $16.0~~$8.1 million and ~~$35.0~~$21.0 million, respectively, during the ~~nine~~six months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense excludes ~~approximately $14.6~~$7.4 million and ~~$32.0~~$19.3 million, respectively, of such additional revenue and expenses.

The ~~improvement to~~increase in net income ~~(loss)~~ was primarily attributable to ~~decreases in goodwill and asset impairment expense and in loss on facility lease termination and modification compared to the prior period, offset by~~ a ~~decrease~~$369.8 million increase in net gain on sale of assets, ~~and~~resulting from our sale of our interest in the CCRC Venture, offset by the net revenue and facility operating expense factors noted above. Goodwill and asset impairment expense was $6.3 million for the nine months ended September 30, 2019 compared to $452.0 million for the prior year period. We recognized a loss on lease termination and modification of $148.8 million for the nine months ended September 30, 2018 primarily as a result of agreements with Ventas and Welltower. Net gain on sale of assets was $2.7 million for the nine months ended September 30, 2019 compared to a net gain on sale of assets of $76.6 million for the prior year period.previously discussed.

The ~~decrease~~increase in Adjusted EBITDA was primarily attributable to the management termination fee, offset by the other revenue and facility operating expense factors noted above, offset by lower general and administrative expenses (excluding non-cash stock-based compensation expense and transaction and organizational restructuring costs) of $10.1 million and lower cash facility operating lease payments of $33.4 million.previously discussed.

Operating Results - Senior Housing Segments

The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living and Memory Care, and CCRCs) on a combined basis for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Nine Months Ended September 30,							Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
	2019				2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	2,074,828			$	2,313,765		$	(238,937	)	(10.3	)%	$	1,329,347		$	1,385,376		$	(56,029	)	(4.0	)%
Other operating income													$	9,698		$	—		$	9,698		NM
Facility operating expense	$	1,476,424		��	$	1,565,836		$	(89,412	)	(5.7	)%	$	993,103		$	967,714		$	25,389		2.6	%

Number of communities (period end)	671				729			(58		)	(8.0	)%	660			671			(11		)	(1.6	)%
Number of units (period end)	55,262				60,009			(4,747		)	(7.9	)%	54,019			55,209			(1,190		)	(2.2	)%
Total average units	55,728				64,757			(9,029		)	(13.9	)%	54,112			55,963			(1,851		)	(3.3	)%
RevPAR	$	4,103			$	3,968		$	135		3.4	%	$	4,092		$	4,100		$	(8	)	(0.2	)%
Occupancy rate (weighted average)	83.7		%		84.3		%	(60		) bps	n/a		81.0		%	83.5		%	(250		) bps	n/a
RevPOR	$	4,900			$	4,709		$	191		4.1	%	$	5,054		$	4,909		$	145		3.0	%

Same Community Operating Results and Data
Resident fees	$	1,890,071			$	1,856,594		$	33,477		1.8	%	$	1,234,565		$	1,243,404		$	(8,839	)	(0.7	)%
Other operating income													$	6,445		$	—		$	6,445		NM
Facility operating expense	$	1,306,364			$	1,237,417		$	68,947		5.6	%	$	913,589		$	836,479		$	77,110		9.2	%

Number of communities	644				644			—			—		638			638			—			—
Total average units	50,753				50,777			(24		)	—		50,111			50,097			14			—
RevPAR	$	4,135			$	4,060		$	75		1.8	%	$	4,106		$	4,137		$	(31	)	(0.7	)%
Occupancy rate (weighted average)	84.2		%		85.2		%	(100		) bps	n/a		81.4		%	84.2		%	(280		) bps	n/a
RevPOR	$	4,913			$	4,764		$	149		3.1	%	$	5,047		$	4,914		$	133		2.7	%

Independent Living Segment

The following table summarizes the operating results and data for our Independent Living segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	408,519		$	462,321		$	(53,802	)	(11.6	)%	$	266,140		$	271,645		$	(5,505	)	(2.0	)%
Other operating income												$	—		$	—		$	—		NM
Facility operating expense	$	254,770		$	275,659		$	(20,889	)	(7.6	)%	$	173,688		$	167,310		$	6,378		3.8	%

Number of communities (period end)	68			75			(7		)	(9.3	)%	68			68			—			—	%
Number of units (period end)	12,511			13,550			(1,039		)	(7.7	)%	12,534			12,460			74			0.6	%
Total average units	12,460			14,561			(2,101		)	(14.4	)%	12,532			12,435			97			0.8	%
RevPAR	$	3,592		$	3,528		$	64		1.8	%	$	3,540		$	3,597		$	(57	)	(1.6	)%
Occupancy rate (weighted average)	89.3		%	88.4		%	90		bps	n/a		85.3		%	89.4		%	(410		) bps	n/a
RevPOR	$	4,021		$	3,991		$	30		0.8	%	$	4,149		$	4,023		$	126		3.1	%

Same Community Operating Results and Data
Resident fees	$	356,724		$	346,239		$	10,485		3.0	%	$	250,659		$	253,385		$	(2,726	)	(1.1	)%
Other operating income												$	—		$	—		$	—		NM
Facility operating expense	$	214,817		$	204,369		$	10,448		5.1	%	$	162,656		$	152,121		$	10,535		6.9	%

Number of communities	62			62			—			—		64			64			—			—
Total average units	11,058			11,078			(20		)	(0.2	)%	11,705			11,685			20			0.2	%
RevPAR	$	3,585		$	3,473		$	112		3.2	%	$	3,569		$	3,614		$	(45	)	(1.2	)%
Occupancy rate (weighted average)	89.8		%	89.2		%	60		bps	n/a		85.6		%	89.2		%	(360		) bps	n/a
RevPOR	$	3,991		$	3,891		$	100		2.6	%	$	4,172		$	4,053		$	119		2.9	%

The decrease in the ~~segment’s~~segment's resident fees was primarily attributable to the ~~disposition~~additional resident fee revenue for this segment of ~~17 communities since~~$3.3 million during the ~~beginning~~six months ended June 30, 2019 as a result of the ~~prior year period, which resulted in $75.0 million less in resident fees during~~application of the ~~nine months ended September 30,~~new lease accounting standard effective January 1, 2019 ~~compared to the prior year period. The~~and a decrease in ~~resident fees was partially offset by~~ the ~~increase in the segment’s~~segment's same community RevPAR, comprised of a ~~2.6% increase in same community RevPOR and a 60~~360 basis points ~~increase~~decrease in same community weighted average ~~occupancy.~~occupancy and a 2.9% increase in same community RevPOR. The decrease in the segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $6.9 million of lost resident fee revenue on a same community basis for this segment for the six months ended June 30, 2020. The increase in the ~~segment’s~~segment's same community RevPOR was primarily the result of in-place rent increases. ~~Additionally, the decrease in resident fees was partially offset by $2.9 million of additional revenue for one community acquired subsequent to the beginning of the prior year period.~~

The ~~decrease~~increase in the ~~segment’s~~segment's facility operating expense was primarily attributable to the disposition of communities since the beginning of the prior year period, which resulted in $44.3 million less in facility operating expense during the nine months ended September 30, 2019 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the ~~segment’s~~segment's same community facility operating expense, including $9.9 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, ~~an increase in advertising costs,~~ and an ~~increase~~extra day of expense due to the leap year. These increases in ~~insurance costs during~~ the ~~period. Additionally, the decrease in~~segment's same community facility operating expense ~~was~~were partially offset by ~~$2.1 million of additional facility operating expense for one community acquired subsequent~~decreases in repairs and maintenance costs due to fewer move-ins during the ~~beginning of the prior year period.~~period as we intentionally scaled back such activities.

~~In addition to the foregoing factors, we~~We recognized additional resident fee revenue and additional facility operating expense for this segment of ~~approximately $5.8~~$3.3 million and ~~$9.2~~$5.7 million, respectively, during the ~~nine~~six months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately ~~$5.1~~$3.1 million and ~~$8.1~~$5.4 million, respectively, of such additional revenue and expenses.

Assisted Living and Memory Care Segment

The following table summarizes the operating results and data for our Assisted Living and Memory Care segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	1,361,225		$	1,537,432		$	(176,207	)	(11.5	)%	$	889,635		$	908,751		$	(19,116	)	(2.1	)%
Other operating income												$	152		$	—		$	152		NM
Facility operating expense	$	970,526		$	1,046,456		$	(75,930	)	(7.3	)%	$	670,078		$	634,908		$	35,170		5.5	%

Number of communities (period end)	577			627			(50		)	(8.0	)%	570			577			(7		)	(1.2	)%
Number of units (period end)	36,177			39,725			(3,548		)	(8.9	)%	35,744			36,175			(431		)	(1.2	)%
Total average units	36,701			43,369			(6,668		)	(15.4	)%	35,864			36,964			(1,100		)	(3.0	)%
RevPAR	$	4,096		$	3,939		$	157		4.0	%	$	4,134		$	4,081		$	53		1.3	%
Occupancy rate (weighted average)	82.3		%	83.0		%	(70		) bps	n/a		79.9		%	81.8		%	(190		) bps	n/a
RevPOR	$	4,979		$	4,743		$	236		5.0	%	$	5,175		$	4,987		$	188		3.8	%

Same Community Operating Results and Data
Resident fees	$	1,297,455		$	1,275,442		$	22,013		1.7	%	$	871,629		$	868,798		$	2,831		0.3	%
Other operating income												$	151		$	—		$	151		NM
Facility operating expense	$	904,693		$	855,773		$	48,920		5.7	%	$	654,941		$	591,394		$	63,547		10.7	%

Number of communities	563			563			—			—		560			560			—			—
Total average units	34,854			34,857			(3		)	—		34,794			34,800			(6		)	—
RevPAR	$	4,136		$	4,066		$	70		1.7	%	$	4,175		$	4,161		$	14		0.3	%
Occupancy rate (weighted average)	82.7		%	84.1		%	(140		) bps	n/a		80.3		%	82.7		%	(240		) bps	n/a
RevPOR	$	5,004		$	4,833		$	171		3.5	%	$	5,197		$	5,036		$	161		3.2	%

The decrease in the ~~segment’s~~segment's resident fees was primarily attributable to the disposition of ~~107~~22 communities since the beginning of the prior year period, which resulted in ~~$211.4~~$18.0 million less in resident fees during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. The decrease in resident fees was partially offset by the increase in the ~~segment’s~~segment's same community RevPAR, comprised of a ~~3.5%~~3.2% increase in same community RevPOR and a ~~140~~240 basis points decrease in same community weighted average occupancy. The increase in the ~~segment’s~~segment's same community RevPOR was primarily the result of in-place rent increases. The decrease in the ~~segment’s~~segment's same community weighted average occupancy primarily reflects the impact of ~~new competition~~reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in ~~our markets. Additionally, the decrease in resident fees was partially offset by $2.7~~$27.6 million of ~~additional~~lost resident fee revenue on a same community basis for ~~two communities acquired subsequent to~~this segment for the ~~beginning of the prior year period.~~six months ended June 30, 2020.

The ~~decrease~~increase in the ~~segment’s~~segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including $45.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, and an increase in labor expense arising from wage rate increases, increased contract labor costs, an increase in employee benefit expense, and an extra day of expense due to the leap year. The increase in the segment's same community facility operating expense was partially offset by decreases in repairs and maintenance costs due to fewer move-ins during the period as we intentionally scaled back such activities. The increase in facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in ~~$150.4~~$15.2 million less in facility operating expense during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the segment’s same community facility operating expense, including an increase in labor expense arising from wage rate increases, an increase in employee benefit expense, and an increase in advertising and insurance costs during the period. Additionally, the decrease in facility operating expense was partially offset by $1.6 million of additional facility operating expense for two communities acquired subsequent to the beginning of the prior year period.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately ~~$8.3~~$3.6 million and ~~$21.9~~$12.8 million, respectively, during the ~~nine~~six months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately ~~$7.8~~$3.5 million and ~~$20.7~~$12.2 million, respectively, of such additional revenue and expenses.

CCRCs Segment

The following table summarizes the operating results and data for our CCRCs segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, including operating results and data on a same community basis.


(in thousands, except communities, units, occupancy, RevPAR, and RevPOR)	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Resident fees	$	305,084		$	314,012		$	(8,928	)	(2.8	)%	$	173,572		$	204,980		$	(31,408	)	(15.3	)%
Other operating income												$	9,546		$	—		$	9,546		NM
Facility operating expense	$	251,128		$	243,721		$	7,407		3.0	%	$	149,337		$	165,496		$	(16,159	)	(9.8	)%

Number of communities (period end)	26			27			(1		)	(3.7	)%	22			26			(4		)	(15.4	)%
Number of units (period end)	6,574			6,734			(160		)	(2.4	)%	5,741			6,574			(833		)	(12.7	)%
Total average units	6,567			6,827			(260		)	(3.8	)%	5,716			6,564			(848		)	(12.9	)%
RevPAR	$	5,108		$	5,091		$	17		0.3	%	$	5,034		$	5,156		$	(122	)	(2.4	)%
Occupancy rate (weighted average)	81.3		%	83.2		%	(190		) bps	n/a		78.2		%	81.7		%	(350		) bps	n/a
RevPOR	$	6,284		$	6,119		$	165		2.7	%	$	6,438		$	6,308		$	130		2.1	%

Same Community Operating Results and Data
Resident fees	$	235,892		$	234,913		$	979		0.4	%	$	112,277		$	121,221		$	(8,944	)	(7.4	)%
Other operating income												$	6,294		$	—		$	6,294		NM
Facility operating expense	$	186,854		$	177,275		$	9,579		5.4	%	$	95,992		$	92,964		$	3,028		3.3	%

Number of communities	19			19			—			—		14			14			—			—
Total average units	4,841			4,842			(1		)	—		3,612			3,612			—			—
RevPAR	$	5,387		$	5,366		$	21		0.4	%	$	5,181		$	5,594		$	(413	)	(7.4	)%
Occupancy rate (weighted average)	82.1		%	83.9		%	(180		) bps	n/a		77.5		%	83.2		%	(570		) bps	n/a
RevPOR	$	6,560		$	6,393		$	167		2.6	%	$	6,672		$	6,725		$	(53	)	(0.8	)%

The decrease in the ~~segment’s~~segment's resident fees was primarily attributable to the disposition of ~~three~~five communities since the beginning of the prior year period, which resulted in ~~$15.1~~$19.4 million less in resident fees during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. ~~The~~Additionally, there was a decrease in ~~resident fees was partially offset by~~ the ~~increase in the segment’s~~segment's same community RevPAR, comprised of a ~~2.6% increase in same community RevPOR and a 180~~570 basis points decrease in same community weighted average ~~occupancy.~~occupancy and a 0.8% decrease in same community RevPOR. The ~~increase~~decrease in the ~~segment’s~~segment's same community weighted average occupancy primarily reflects the impact of reduced move-in activity related to the COVID-19 pandemic and our response efforts. We estimate that the COVID-19 pandemic and our response efforts resulted in $11.0 million of lost resident fee revenue on a same community basis for this segment for the six months ended June 30, 2020. The decrease in the segment's same community RevPOR was primarily the result of ~~in-place rent increases. The decrease in~~a mix shift away from skilled nursing within the ~~segment’s same community weighted average occupancy reflects the impact of new competition in our markets. Additionally, the decrease in resident fees was~~segment, partially offset by ~~$4.3 million of additional revenue for one community acquired subsequent to the beginning of the prior year period.~~in-place rent increases.

The ~~increase~~decrease in the segment's facility operating expense was primarily attributable to an increase in the segment’s same community facility operating expense, including an increase in labor expense arising from wage rate increases and an increase in employee benefit expense. Additionally, there was $2.8 million of additional facility operating expense for one community acquired subsequent to the beginning of the prior year period. The increase in facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in ~~$13.7~~$19.0 million less in facility operating expense during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to the prior year period. The decrease in facility operating expense was partially offset by an increase in the segment's same community facility operating expense, including $6.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic, partially offset by decreases in labor expense arising from fewer hours worked and healthcare supplies costs during the period as we intentionally scaled back such costs for the reduced occupancy.

In addition to the foregoing factors, we recognized additional resident fee revenue and additional facility operating expense for this segment of approximately ~~$2.0~~$1.1 million and ~~$4.0~~$2.5 million, respectively, during the ~~nine~~six months ended ~~September~~June 30, 2019 as a result of the application of the new lease accounting standard effective January 1, 2019. Same community resident fee revenue and facility operating expense for this segment excludes approximately ~~$1.6~~$0.8 million and ~~$3.1~~$1.7 million, respectively, of such additional revenue and expenses.

Operating Results - Health Care Services Segment

The following table summarizes the operating results and data for our Health Care Services segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(in thousands, except census and treatment codes)	Nine Months Ended September 30,				Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
	2019		2018		Amount			Percent		2020		2019		Amount			Percent
Resident fees	$	337,751	$	328,649	$	9,102		2.8	%	$	184,989	$	225,966	$	(40,977	)	(18.1	)%
Other operating income										$	16,995	$	—	$	16,995		NM
Facility operating expense	$	315,633	$	300,641	$	14,992		5.0	%	$	201,413	$	208,626	$	(7,213	)	(3.5	)%

Home health average daily census	15,740		15,206		534			3.5	%	13,500		15,935		(2,435		)	(15.3	)%
Hospice average daily census	1,538		1,350		188			13.9	%	1,672		1,485		187			12.6	%
Outpatient therapy treatment codes	500,045		511,804		(11,759		)	(2.3	)%

The ~~increase~~decrease in the ~~segment’s~~segment's resident fees was primarily attributable to a decrease in revenue for home health services, which reflects the implementation of the Patient-Driven Grouping Model ("PDGM"), an alternate home health case-mix adjustment methodology with a 30-day unit of payment, which became effective beginning January 1, 2020. Additionally, our home health average daily census also began to decrease in March 2020 due to the COVID-19 pandemic, as referrals declined significantly due to suspension of elective medical procedures and hospital discharges increased due to stay-at-home orders and recommendations. The decrease in resident fees was partially offset by an increase in volume for hospice ~~services~~services. We estimate that the COVID-19 pandemic and ~~an increase~~our response efforts resulted in ~~home health average daily census, partially offset by sales force turnover, customer relations issues related to~~$17.9 million of lost resident fee revenue for the ~~centralized intake initiative, unfavorable case-mix, and community dispositions.~~six months ended June 30, 2020.

The ~~increase~~decrease in the ~~segment’s~~segment's facility operating expense was primarily attributable to a decrease in labor costs for home health services as we adjusted our home health services operational structure, to better align our facility operating expenses and business model with the new payment model. The decrease in the segment's facility operating expense was partially offset by $3.5 million of incremental direct costs to prepare for and respond to the COVID-19 pandemic and an increase in labor costs for hospice services arising from wage rate increases and the expansion of our hospice ~~services. In addition, there was an increase in employee benefit expense.~~services throughout 2019.

Operating Results - Management Services Segment

The following table summarizes the operating results and data for our Management Services segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(in thousands, except communities, units, and occupancy)	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,				Increase (Decrease)
	2019			2018			Amount			Percent		2020		2019		Amount			Percent
Management fees	$	44,756		$	54,280		$	(9,524	)	(17.5	)%	$	114,791	$	31,192	$	83,599		NM
Reimbursed costs incurred on behalf of managed communities	$	613,115		$	765,802		$(152,687)			(19.9	)%	$	224,228	$	418,967	$(194,739)			(46.5	)%

Number of communities (period end)	123			232			(109		)	(47.0	)%	77		138		(61		)	(44.2	)%
Number of units (period end)	20,168			32,511			(12,343		)	(38.0	)%	10,694		21,451		(10,757		)	(50.1	)%
Total average units	22,747			32,197			(9,450		)	(29.4	)%	12,115		23,755		(11,640		)	(49.0	)%
Occupancy rate (weighted average)	83.0		%	83.9		%	(90		) bps	n/a

The ~~decrease~~increase in management fees was primarily attributable to the $100.0 million management termination fee payment received from Healthpeak during the three months ended March 31, 2020. We have completed the transition of management arrangements on ~~106~~128 net communities since the beginning of the prior year period, generally for interim management arrangements on ~~formerly leased or owned communities and management arrangements on certain~~ former unconsolidated ventures in which we sold our ~~interest.~~interest and interim management arrangements on formerly leased or owned communities. Management fees of ~~$44.8~~$114.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 include ~~$6.0~~$102.2 million of management fees attributable to communities for which our management agreements were terminated during such period and approximately ~~$24~~$3.3 million of management fees attributable to communities that we expect the terminations of our management agreements to occur in the next approximately 12 months, including management agreements on certain former unconsolidated ventures in which

we sold our interest, management agreements on communities owned by ~~the CCRC Venture,~~unconsolidated ventures, and interim management arrangements on formerly leased communities, and management arrangements on certain former unconsolidated ventures in which we sold our interest. Pursuant to the MTCA with HCP, HCP has agreed to pay us $100 million immediately following the closing of the sale of our ownership interest in the CCRC Venture, which is expected to close in the first quarter of 2020.communities.

The decrease in reimbursed costs incurred on behalf of managed communities was primarily attributable to terminations of management agreements subsequent to the beginning of the prior year period.

Operating Results - Other Income and Expense Items

The following table summarizes other income and expense items in our operating results for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(in thousands)	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
	2019			2018			Amount			Percent		2020			2019			Amount			Percent
General and administrative expense	$	170,296		$	203,138		$	(32,842	)	(16.2	)%	$	107,113		$	113,887		$	(6,774	)	(5.9	)%
Facility operating lease expense	203,610			232,752			(29,142		)	(12.5	)%	126,860			136,357			(9,497		)	(7.0	)%
Depreciation and amortization	284,462			341,351			(56,889		)	(16.7	)%	183,892			190,912			(7,020		)	(3.7	)%
Goodwill and asset impairment	6,254			451,966			(445,712		)	(98.6	)%
Asset impairment												88,516			4,160			84,356			NM
Loss (gain) on facility lease termination and modification, net	2,006			148,804			(146,798		)	(98.7	)%	—			2,006			(2,006		)	(100.0	)%
Costs incurred on behalf of managed communities	613,115			765,802			(152,687		)	(19.9	)%	224,228			418,967			(194,739		)	(46.5	)%
Interest income	8,059			7,578			481			6.3	%	3,698			5,897			(2,199		)	(37.3	)%
Interest expense	(188,271		)	(215,067		)	(26,796		)	(12.5	)%	(108,782		)	(126,193		)	(17,411		)	(13.8	)%
Debt modification and extinguishment costs	(5,194		)	(77		)	5,117			NM
Gain (loss) on debt modification and extinguishment, net												19,024			(2,739		)	21,763			NM
Equity in earnings (loss) of unconsolidated ventures	(3,574		)	(6,907		)	(3,333		)	(48.3	)%	(570		)	(1,517		)	(947		)	(62.4	)%
Gain (loss) on sale of assets, net	2,723			76,586			(73,863		)	(96.4	)%	371,810			2,144			369,666			NM
Other non-operating income (loss)	9,950			8,074			1,876			23.2	%	3,650			6,187			(2,537		)	(41.0	)%
Benefit (provision) for income taxes	488			17,724			(17,236		)	(97.2	)%	7,324			(1,312		)	8,636			NM

General and Administrative ~~Expense.~~ Expense. The decrease in general and administrative expense was primarily attributable to a ~~decrease in transaction and organizational restructuring costs and a~~ reduction in our corporate ~~associate~~ headcount, ~~since the beginning of the prior year period~~ as we scaled our general and administrative costs in connection with community ~~dispositions. Transaction~~dispositions, a reduction in our travel costs as we intentionally scaled back such activities, and a reduction in our incentive compensation costs. The decrease was partially offset by a $4.3 million increase in transactional and organizational restructuring costs ~~decreased $20.4 million~~ compared to the prior period, to ~~$5.0~~$5.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Transaction costs include those directly related to acquisition, disposition, financing and leasing activity, ~~our assessment of options and alternatives to enhance stockholder value,~~ and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance ~~and retention~~ costs. ~~For the full year 2019, we~~We expect transaction and organizational restructuring costs ~~related to stockholder advisory matters to~~will be ~~approximately $5.5 million, of which $3.5 million was incurred for~~higher in the ~~nine~~three months ~~ended~~ending September 30, ~~2019.~~2020 including such costs incurred with respect to the transaction with Ventas announced on July 27, 2020.

Facility Operating Lease Expense. The decrease in facility operating lease expense was primarily due to the acquisition of formerly leased communities and lease termination activity since the beginning of the prior year.

Depreciation and ~~Amortization.~~ Amortization. The decrease in depreciation and amortization expense was primarily due to disposition activity through sales and lease terminations since the beginning of the prior year.

~~Goodwill and~~ Asset Impairment. During the current year period, we recorded ~~$6.3~~$88.5 million of non-cash impairment charges, primarily for ~~management contract intangible~~right-of-use assets ~~associated with terminated contracts and property, plant and equipment and leasehold intangibles~~ for certain leased communities ~~primarily within~~with decreased future cash flow estimates as a result of the ~~Assisted Living and Memory Care segment.~~COVID-19 pandemic. During the prior year period, we recorded ~~$452.0~~$4.2 million of non-cash impairment charges. The prior year period impairment charges primarily consisted of $351.7 million of goodwill impairment within the Assisted Living and Memory Care segment, $50.2 million of impairment of property, plant and equipment and leasehold intangibles for certain communities, primarily in the Assisted Living and Memory Care segment, $33.4 million of impairment of our investments in unconsolidated ventures, and $15.0 million for assets held for sale. See Note 56 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the impairment charges.

~~Loss (Gain) on Facility Lease Termination and Modification, Net.~~ During the current year period, we recorded a $2.0 million loss on facility lease termination and modification, net for the termination of leases for eight communities. The decrease in loss on facility lease termination and modification, net was primarily due to a $125.7 million loss on the restructuring of community leases with Ventas and a $24.9 million loss on lease termination activity with Welltower, which was partially offset by a $1.8 million gain on lease termination activity with HCP, during the nine months ended September 30, 2018.

Interest Expense. The decrease in interest expense was primarily due to ~~financing lease termination activity and a decrease in~~ interest expense on long-term debt, reflecting the impact of ~~the repayment of debt since the beginning of the prior year period and~~ lower interest ~~rates.~~

~~Debt Modification~~rates, and ~~Extinguishment Costs.~~ ~~The increase in debt modification and extinguishment costs was primarily due~~the acquisition of communities previously subject to ~~an increase debt modification activity compared to the prior year period.~~

~~Equity in Earnings (Loss) of Unconsolidated Ventures.~~ ~~The decrease in equity in loss of unconsolidated ventures was primarily due to the sale of investments in unconsolidated ventures~~financing leases since the beginning of the prior year period.

Gain (Loss) on Debt Modification and Extinguishment, Net. The increase in gain on debt modification and extinguishment was primarily due to a $19.7 million gain on debt extinguishment recognized during the three months ended March 31, 2020 for the extinguishment of financing lease obligations for the acquisition from Healthpeak of eight communities which were previously subject to sale-leaseback transactions in which we were deemed to have continuing involvement.

Gain (Loss) on Sale of Assets, Net. The ~~decrease~~increase in gain on sale of assets, net was primarily due to a ~~$59.1~~$369.8 million gain on sale of ~~our investments in unconsolidated ventures and a $12.6 million gain on~~assets recognized for the sale of ~~six communities~~our ownership interest in the CCRC Venture during the ~~prior year period.~~six months ended June 30, 2020.

Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 was primarily due to ~~the non-deductible impairment of goodwill that occurred~~a decrease in the ~~nine months ended September 30, 2018 and~~valuation allowance that was a direct result of the multi-part transaction with Healthpeak. This was partially offset by the adjustment ~~from~~for stock-based compensation, which was greater in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

We recorded an aggregate deferred federal, state, and local tax ~~benefit~~expense of ~~$40.7~~$64.2 million, of which, $28.9 million was recorded as a result of the benefit on our operating loss for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020. The benefit was offset by ~~an increase~~$93.1 million of tax expense that was recorded on the sale of our interest in the CCRC Venture. The tax expense was offset by a decrease in the valuation allowance of ~~$39.4~~$79.5 million. The change in the valuation allowance for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 resulted from the tax impact of the Healthpeak transaction and the anticipated reversal of future tax liabilities offset by future tax deductions. We recorded an aggregate deferred federal, state, and local tax benefit of ~~$71.3~~$21.2 million as a result of the operating loss for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, which was offset by an increase in the valuation allowance of ~~$52.2~~$21.7 million.

~~Operating Results - Unconsolidated Ventures~~

The Company’s proportionate share of Adjusted EBITDA of unconsolidated ventures was $32.0 million for the nine months ended September 30, 2019, which represented a decrease of 24.1% from the nine months ended September 30, 2018 primarily attributable to the sale of our interest in five unconsolidated ventures since the beginning of the prior year period.

Liquidity and Capital Resources

This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measures. During the first quarter of 2019, we modified our definition of Adjusted Free Cash Flow to no longer adjust net cash provided by (used in) operating activities for changes in working capital items other than prepaid insurance premiums financed with notes payable and lease liability for lease termination and modification. Amounts for all periods herein reflect application of the modified definition.

Liquidity and Indebtedness

The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash ~~Flow and proportionate share of Adjusted Free Cash Flow of unconsolidated ventures:~~Flow:


	Nine Months Ended September 30,						Increase (Decrease)					Six Months Ended June 30,						Increase (Decrease)
(in thousands)	2019			2018			Amount			Percent		2020			2019			Amount			Percent
Net cash provided by (used in) operating activities	$	128,330		$	170,508		$	(42,178	)	(24.7	)%	$	209,319		$	59,119		$	150,200		NM
Net cash provided by (used in) investing activities	(150,355		)	(13,027		)	137,328			NM		(295,410		)	(80,299		)	215,111			NM
Net cash provided by (used in) financing activities	(112,834		)	(239,929		)	(127,095		)	(53.0	)%	306,524			(104,079		)	410,603			NM
Net increase (decrease) in cash, cash equivalents, and restricted cash	(134,859		)	(82,448		)	52,411			63.6	%	220,433			(125,259		)	345,692			NM
Cash, cash equivalents, and restricted cash at beginning of period	450,218			282,546			167,672			59.3	%	301,697			450,218			(148,521		)	(33.0	)%
Cash, cash equivalents, and restricted cash at end of period	$	315,359		$	200,098		$	115,261		57.6	%	$	522,130		$	324,959		$	197,171		60.7	%

Adjusted Free Cash Flow	$	(76,915	)	$	37,110		$	(114,025	)	NM		$	118,633		$	(63,340	)	$	181,973		NM
Brookdale's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures	18,280			20,004			(1,724		)	(8.6	)%

The ~~decrease~~increase in net cash provided by operating activities was attributable primarily to the ~~impact~~$100.0 million management termination fee payment received from Healthpeak, $85.0 million of ~~disposition activity, through sales~~cash received under the Medicare accelerated and ~~lease terminations, since~~advance payment program, $33.5 million of government grants accepted, and $26.5 million of social security payroll taxes deferred during the ~~beginning of the prior~~current year ~~period and~~period. These changes were partially offset by an increase in same community facility operating ~~expense. These changes were partially offset by $46.6 million of cash paid~~expense, a decrease in same community revenue, and a decrease in revenue for home health services compared to ~~terminate community operating leases during~~ the prior year period.

The increase in net cash used in investing activities was primarily attributable to a $189.3 million decrease in proceeds from sales of marketable securities, purchases of $137.8 million of marketable securities during the current year period, a $78.5 million decrease in net proceeds from the sale of assets, and a $37.0 million increase in cash paid for capital expenditures. These changes were partially offset by $271.3$446.7 million of cash paid for the acquisition of communities during the current year period, a $51.2 million increase in purchases of marketable securities compared to the prior year period, and a ~~$32.5~~$30.5 million ~~increase~~decrease in cash proceeds from notes ~~receivable.~~receivable compared to the prior year period. These changes were partially offset by a $248.1 million increase in net proceeds from the sale of assets, a $53.8 million increase in proceeds from sales and maturities of marketable securities, and a $9.4 million decrease in cash paid for capital expenditures compared to the prior year period.

The ~~decrease~~change in net cash ~~used in~~provided by (used in) financing activities was primarily attributable to a ~~$97.8~~$315.2 million ~~decrease~~increase in debt proceeds compared to the prior year period and $166.4 million of draws on our secured credit facility during the current year period. These changes were partially offset by a $65.9 million increase in repayment of debt and financing lease obligations compared to the prior year period ~~including the impact of our cash settlement of the aggregate principal amount of the $316.3 million of 2.75% convertible senior notes during June 2018,~~and a ~~$38.6~~$4.1 million increase in debt proceeds compared to the prior year period, and $12.5 million of cash paid to terminate community financing leases during the prior year period. These changes were partially offset by $18.4 million of cash paid during the current year period for ~~share repurchases.~~financing costs.

The ~~decrease~~increase in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities and a ~~$49.5~~$39.0 million ~~increase~~decrease in non-development capital expenditures, net ~~and an increase in same community facility operating expense. These changes were partially offset by the impact of disposition activity, through sales and lease terminations, since the beginning of~~compared to the prior year period. The decrease in our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures was primarily attributable to the sale of our interest in five unconsolidated ventures since the beginning of the prior year.

Our principal sources of liquidity have historically been from:

cash balances on hand, cash equivalents, and marketable securities;

cash 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. During the three months ended June 30, 2020, we also have received cash grants and advanced/accelerated Medicare payments under programs expanded or created under the CARES Act, and we have elected to utilize the CARES Act payroll tax deferral program, each as described above. We continue to seek further government-sponsored financial relief related to the COVID-19 pandemic, although we cannot provide assurance that such efforts will be successful or regarding the amount of, or conditions required to qualify for, any government-sponsored relief.

Our liquidity requirements have historically arisen from:

working capital;

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

debt service and lease payments;

acquisition consideration, lease termination and restructuring costs, and transaction and integration costs;

capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning 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;

purchases of common stock under our share repurchase authorizations;

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

prior to 2009, dividend payments.

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

working capital;

operating costs such as employee compensation and related benefits, severance costs, general and administrative expense, and supply ~~costs;~~costs, including those related to the COVID-19 pandemic;

debt service and lease payments;

payment of deferred payroll taxes under the CARES Act;

acquisition ~~consideration, including the acquisition of 18 communities pursuant to agreements with HCP and the acquisition of certain leased communities under purchase option provisions;~~consideration;

transaction costs and expansion of our healthcare services;

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

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

~~purchases 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 ~~September~~June 30, ~~2019,~~2020, we had two principal corporate-level debt obligations: our secured credit facility providing commitments of $250.0 million and our separate unsecured facility providing for up to ~~$47.5~~$50.0 million of letters of credit.

As of ~~September~~June 30, ~~2019,~~2020, we had ~~$3.6~~$3.9 billion of debt outstanding, including $166.4 million drawn on our secured credit facility and excluding lease obligations, at a ~~weighted-average~~weighted average interest rate of ~~4.66%~~3.8%. As of such date, ~~95.5%~~92.7%, or ~~$3.4~~$3.6 billion of our total debt obligations represented non-recourse property-level mortgage financings, ~~$88.6~~$93.7 million of letters of credit had been issued under our secured credit facility and separate unsecured letter of credit facility, and ~~no balance~~$166.4 million was drawn on our secured credit facility. As of ~~September~~June 30, 2019, the current portion of long-term debt was $343.6 million, including $30.8 million of mortgage debt related to six communities classified as held for sale as of September 30, 2019. As of September 30, 2019, $1.12020, $1.3 billion of our long-term debt is variable rate debt subject to interest rate cap agreements. The remaining ~~$102.9~~$131.0 million of our long-term variable rate debt isand $166.4 million drawn on our secured credit facility are not subject to any interest rate cap agreements.

As of ~~September~~June 30, ~~2019,~~2020, we had ~~$1.5~~$2.0 billion ~~and $858.0 million~~ of operating and financing lease ~~obligations, respectively.~~obligations. For the twelve months ending ~~September~~June 30, ~~2020~~2021, we will be required to make approximately ~~$312.4 million and $89.0~~$392.6 million of cash lease payments in connection with our existing operating and financing leases, ~~respectively.~~

~~In connection with~~including a $119.2 million one-time cash payment to Ventas on July 27, 2020 (after giving effect to the multi-part transaction with HCP entered into in October 2019, we agreed to acquire 18 communities for an aggregate purchase price of $405.5 million in 2020, which we expect to close during the three months ended March 31, 2020. We expect to fund the acquisition with non-recourse mortgage financingVentas on ~~the acquired communities and a portion of the proceeds from the sale of our interest in the CCRC Venture.~~

Additionally, in the three months ended September 30, 2019, we provided notice of our intent to exercise the purchase option with respect to eight of our leased communities (336 units) and expect the purchase to close in the three months ending March 31, 2020. We expect to fund the acquisitions with the proceeds from non-recourse mortgage financing on the acquired communities and cash on hand.July 26, 2020).

Total liquidity of ~~$455.4~~$600.2 million as of ~~September~~June 30, ~~2019~~2020 included ~~$241.4~~$452.4 million of unrestricted cash and cash equivalents (excluding restricted cash and lease security deposits of ~~$122.6~~$115.5 million in the aggregate), ~~$49.8~~$109.9 million of marketable securities,

and ~~$164.2~~$37.9 million of availability on our secured credit facility. Total liquidity as of ~~September~~June 30, ~~2019 decreased $137.1~~2020 increased $118.9 million from total liquidity of ~~$592.5~~$481.3 million as of December 31, ~~2018.~~2019. The ~~decrease~~increase was primarily attributable to temporary liquidity relief under the ~~negative $76.9 million~~CARES Act and the transactions with Healthpeak completed during the three months ended March 31, 2020, including the impact of ~~Adjusted Free Cash Flow, repayment~~the related financing transactions.

We continue to seek opportunities to enhance and preserve our liquidity, including through reducing expenses and elective capital expenditures, continuing to evaluate our financing structure and the state of debt markets, and seeking further government-sponsored financial relief related to the COVID-19 pandemic. As of ~~$387.7~~June 30, 2020, our remaining 2020 and 2021 maturities (after giving effect to the multi-part transaction with Ventas on July 26, 2020) are $36.4 million ~~during the period, $18.4~~and $254.1 million, ~~paid for share repurchases, an increase in restricted cash deposits~~respectively, which are primarily non-recourse mortgage debt maturities. We have continued efforts on our ~~insurance programs as we replaced letters~~plan to refinance those and other maturities, including our line of credit, ~~as collateral~~ with ~~restricted cash, and a lower amount~~non-recourse mortgage debt. There is no assurance that debt financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in seeking further government-sponsored financial relief or regarding the terms and conditions of any such relief. Additionally, 49 communities (3,925 units) were unencumbered by mortgage debt as of June 30, 2020.

We currently estimate that our existing cash flows from operations, together with cash on hand, amounts available under our secured credit ~~facility. These decreases were partially offset by~~facility, expected grants to be received from the Emergency Fund, proceeds from ~~debt~~anticipated dispositions of ~~$318.5 million, net cash proceeds~~owned communities, and financings and refinancings of ~~$53.4 million from asset sales,~~various assets, will be sufficient to fund our liquidity needs for at least the next 12 months, assuming continued access to credit markets and ~~cash proceeds~~the impacts of ~~$34.1 million from notes receivable during~~ the ~~current period.~~pandemic on the economy and our industry begin to moderate in the near term.

AsOur actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of ~~September 30, 2019, our current liabilities exceeded current assets by $429.6 million. Our current liabilities include $251.5 million~~capital expenditures, general economic conditions, and the cost of ~~operating~~capital. Volatility in the credit and ~~financing lease obligations recognized~~financial markets may have an adverse impact on our ~~condensed consolidated balance sheet, including $188.6 million~~liquidity by making it more difficult for ~~the current portion~~us to obtain financing or refinancing. Shortfalls in cash flows from operating results or other principal sources of ~~operating lease obligations recognized~~liquidity may have an adverse impact on our condensed consolidated balance sheet as a result of the application of ASC 842. Additionally, due to the nature of our business, it is not unusual to operate in the position of negative working capital because we collect revenues much more quickly, often in advance, than we are required to pay obligations, and we have historically refinanced or extended maturities of debt obligations as they become current liabilities. Our operations generally result in a very low level of current assets primarily stemming from our deployment of cash to pay down long-term liabilities,ability to fund our planned capital expenditures, ~~and~~or to pursue ~~transaction opportunities.~~any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our 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.

Capital Expenditures

Our 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 unit turnovers (subject to a $500 floor)) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and healthcare services programs, and the remediation or replacement of assets as a result of casualty losses. 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~~

With our ~~Program Max initiative,~~development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our 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~~development 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. ~~We currently have 15 Program Max projects that have been approved, most of which have begun construction and are expected to generate 28 net new units.~~

Following Hurricane Irma in 2017, legislation was adopted in the State of Florida in March 2018 that requires skilled nursing homes and assisted living and memory care communities in Florida to obtain generators and fuel necessary to sustain operations and maintain comfortable temperatures in the event of a power outage. Our impacted Florida communities must be in compliance as of January 1, 2019, which has been extended in certain circumstances. To comply with this legislation, we made approximately $12.1 million and $4.5 million in capital expenditures in 2018 and the nine months ended September 30, 2019, respectively. We expect to incur approximately $0.5 million of additional capital expenditures in the remainder of 2019 to comply with this legislation.

The following table summarizes our capital expenditures for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 for our consolidated business:


(in millions)	Nine Months Ended September 30, 2019		Six Months Ended June 30, 2020
Community-level capital expenditures, net ⁽¹⁾	$	158.5	$	68.9
Corporate ⁽²⁾	21.7
Corporate capital expenditures, net⁽²⁾			13.2
Non-development capital expenditures, net ⁽³⁾	180.2		82.1
Development capital expenditures, net	18.7		6.8
Total capital expenditures, net	$	198.9	$	88.9


(1)	Reflects the amount invested, net of lessor reimbursements of ~~$12.0~~$13.9 million.


(2)	Includes ~~$10.5~~$1.3 million of remediation costs at our communities resulting from hurricanes and other natural disasters and for the acquisition of emergency power generators at our impacted Florida communities.


(3)	Amount is included in Adjusted Free Cash Flow.

~~During 2018~~In response to the COVID-19 pandemic, we ~~completed an intensive review~~have delayed or canceled a number of ~~our community-level~~elective capital expenditure needs with a focus on ensuring that our communities are in appropriate physical condition to support our strategy and determining what additional investments are needed to protect the value of our community portfolio.projects. As a result, ~~of that review, we have budgeted to make significant additional near-term investments in our communities, a portion of which will be reimbursed by our lessors. In the aggregate,~~ we expect our full-year ~~2019~~2020 non-development capital expenditures, net of anticipated lessor reimbursements, and development capital expenditures to be approximately ~~$250 million. For 2019, this includes an increase of approximately $75~~$150 million inand $20 million, which reflects a $40 million and $10 million reduction to our community-level capital expenditures relative to 2018, primarily attributable to major building infrastructure projects. We also expect our full-year 2019 development capital expenditures, net of anticipated lessor reimbursements, to be approximately $30 million.pre-pandemic plans for 2020, respectively. We anticipate that our ~~2019~~2020 capital expenditures will be funded from cash on hand, cash flows from operations, and ~~if necessary, amounts drawn on~~reimbursements from lessors.

Funding our ~~secured credit facility. With this additional investment in our communities, we expect our Adjusted Free Cash Flow to be negative for 2019. In addition, we expect that our 2020 community-level~~planned capital expenditures, ~~will continue~~pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to ~~be elevated relative to 2018, but lower than 2019.~~

~~Execution on~~support our strategy ~~including completing our capital expenditure plans and pursuing expansion of our healthcare services,~~ may require additional capital. 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, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the 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 them on terms acceptable to us, we may have to ~~forgo,~~ delay or abandon our plans.

We currently estimate that our existing cash flows from operations, together with cash on hand, amounts available under our secured credit facility and 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 a relatively stable macroeconomic environment.

Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital. Volatility in the credit and financial markets may have an adverse impact on our liquidity by making it more difficult for us to obtain financing or refinancing. Shortfalls in cash flows from operating results or other principal sources of liquidity may have an adverse impact on our ability to maintain capital spending levels, to execute on our strategy or to pursue lease restructuring, development, or acquisitions that we may identify. 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.

Credit Facilities

~~On December 5, 2018, we entered into a~~Our Fifth Amended and Restated Credit Agreement with Capital One, National Association, as administrative agent, lender, and swingline lender and the other lenders from time to time parties thereto (the ~~"Amended~~"Credit Agreement")~~. The Amended Agreement amended and restated in its entirety our Fourth Amended and Restated Credit Agreement dated as of December 19, 2014 (the "Original Agreement"). The Amended Agreement~~ provides commitments for a $250 million revolving credit facility with a $60 million sublimit for letters of credit and a $50 million swingline feature. We have a one-time right under the ~~Amended~~Credit Agreement to increase commitments on the revolving credit facility by an additional $100 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The ~~Amended~~Credit Agreement provides us a one-time right to reduce the amount of the revolving credit commitments, and we may terminate the revolving credit facility at any time, in each case without payment of a premium or penalty. The ~~Amended~~Credit Agreement ~~extended the maturity date of the Original Agreement from~~matures on January 3, ~~2020 to January 3, 2024 and decreased the interest rate payable on drawn amounts.~~2024. Amounts drawn under the facility ~~will continue to~~ bear interest at 90-day LIBOR plus an applicable ~~margin; however, the Amended Agreement reduced the applicable margin from a range of 2.50% to 3.50% to a range of 2.25% to 3.25%.~~margin. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.25% margin at utilization equal to or lower than 35%, a 2.75% margin at utilization greater than 35% but less than or equal to 50%, and a 3.25% margin at utilization greater than 50%. A quarterly commitment fee ~~continues to be~~is payable on the unused portion of the facility at 0.25% per annum when the outstanding amount of obligations (including revolving credit and swingline loans and letter of credit obligations) is greater than or equal to 50% of the revolving credit commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the revolving credit commitment amount.

The credit facility is secured by first priority mortgages on certain of our communities. In addition, the ~~Amended~~Credit Agreement permits us to pledge the equity interests in subsidiaries that own other communities and grant negative pledges in connection therewith

~~therewith (rather~~(rather than mortgaging such communities), provided that not more than 10% of the borrowing base may result from communities subject to negative pledges. Availability under the revolving credit facility will vary from time to time based on borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and our consolidated fixed charge coverage ratio. ~~During~~To the ~~third quarter of 2019,~~extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, we ~~added three communities~~would be required to repay the difference to restore the outstanding balance to the new borrowing ~~base and~~base. During 2019, the parties entered into an amendment to the ~~Amended~~Credit Agreement that provides for availability calculations to be made at additional consolidated fixed charge coverage ratio thresholds.

As of ~~September~~June 30, ~~2019, no~~2020, $166.4 million of borrowings were outstanding on the revolving credit facility, ~~$41.2~~$45.5 million of letters of credit were outstanding, and the revolving credit facility had ~~$164.2~~$37.9 million of availability. We also had a separate unsecured letter of credit facility providing for up to ~~$47.5~~$50.0 million of letters of credit as of ~~September~~June 30, ~~2019~~2020 under which ~~$47.5~~$48.2 million of ~~letters of credit~~ had been issued as of that date.

Long-Term Leases

As of ~~September~~June 30, ~~2019,~~2020, we operated ~~335~~305 communities under long-term leases ~~(244~~(237 operating leases and 9168 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio.

The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or ~~tied to~~based upon changes in the consumer price index or ~~the~~ leased property revenue. We are responsible for all operating costs, including repairs, property taxes, and insurance. ~~As of September 30, 2019, the weighted-average remaining lease term of our operating and financing leases was 7.1 and 8.5 years, respectively.~~ The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options.

The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum net worth and stockholders' equity levels and lease coverage ~~ratios, and not to exceed prescribed leverage~~ ratios, as further described below. In addition, our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met.

In addition, certain of our master leases and management agreements contain radius restrictions, which limit our ability to own, develop or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, or develop, or acquire senior housing communities and operating companies.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, our cash lease payments for our operating leases were ~~$76.6~~$75.5 million and ~~$231.0~~$151.6 million, respectively, and for our financing leases were ~~$22.1~~$16.6 million and ~~$66.5~~$34.9 million, respectively. For the twelve months ending ~~September~~June 30, ~~2020,~~2021, we will be required to make ~~approximately $312.4 million and $89.0~~$392.6 million of cash lease payments in connection with our existing operating and financing leases, ~~respectively.~~including a $119.2 million one-time cash payment to Ventas on July 27, 2020 (after giving effect to the multi-part transaction with Ventas on July 26, 2020). Our capital expenditure plans for ~~2019~~2020 include required minimum spend of approximately ~~$12~~$17 million for capital expenditures under certain of our community ~~leases, and thereafter~~leases. Additionally, we are required to spend an average of approximately ~~$20~~$25 million per year for each of the following four years and approximately $41 million thereafter under the initial lease terms of such leases.

Debt and Lease Covenants

Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum net worth and ~~stockholders’~~stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain

circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and

deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or ~~annual~~ lease payments. In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements.

Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors).

Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.

As of ~~September~~June 30, ~~2019,~~2020, we are in compliance with the financial covenants of our debt agreements and long-term leases.

Contractual Commitments

Significant ongoing commitments consist primarily of leases, debt, purchase commitments, and certain other long-term liabilities. For a summary and complete presentation and description of our ongoing commitments and contractual obligations, see the "Contractual Commitments" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on February ~~14, 2019. There have been~~19, 2020. Except as discussed therein, there were no other material changes outside the ordinary course of business in our contractual commitments during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

As a result of the multi-part transaction with Ventas on July 26, 2020, our cash lease payments were increased by $77.7 million for the year ending December 31, 2020 and we eliminated future cash lease payments of $89.3 million, $90.6 million, $92.0 million, $93.4 million, and $94.8 million for each of the years ending December 31, 2021, 2022, 2023, 2024, and 2025, respectively. Additionally, our long-term debt obligations (excluding related interest payments) decreased by $78.4 million for year ending December 31, 2021, and increased by $45.0 million for the year ending December 31, 2025 as a result of the multi-part transaction with Ventas. See Note 17 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about the multi-part transaction with Ventas.

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2019,~~2020, 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 an interest in certain unconsolidated ventures. Except in limited circumstances, our risk of loss is limited to our investment in each venture. 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

This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with GAAP. Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations ~~included below~~ of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP performance measure that we define as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment

charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, ~~our assessment of options and alternatives to enhance stockholder value,~~ and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third party costs. Organizational restructuring costs include those related to our efforts to reduce general and administrative expense and our senior leadership changes, including severance and retention costs. During the first quarter of 2019, we modified our definition of Adjusted EBITDA to exclude transaction and organizational restructuring costs, and amounts for all periods herein reflect application of the modified definition.severance.

Our proportionate share of Adjusted EBITDA of unconsolidated ventures is calculated based on our equity ownership percentage and in a manner consistent with our definition of Adjusted EBITDA for our consolidated entities. Our investments in unconsolidated ventures are accounted for under the equity method of accounting and, therefore, our proportionate share of Adjusted EBITDA of unconsolidated ventures does not represent our equity in earnings or loss of unconsolidated ventures on our condensed consolidated statements of operations.

We believe that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to our financing and capital structure and other items that management does not consider as part of our underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) we believe that this measure is used by research analysts and investors to evaluate our operating results and to value companies in our industry. ~~We believe that presentation of our proportionate share of Adjusted EBITDA of unconsolidated ventures is useful to investors for similar reasons with respect to the unconsolidated ventures.~~

Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate our business under our current financing and capital structure; (ii) excluded depreciation, amortization, and impairment charges may represent the wear and tear and/or reduction in value of our communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) we may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, or facility lease termination and modification, or debt modification and extinguishment, ~~costs,~~ non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect our operating results.

The table below reconciles our Adjusted EBITDA from our net income (loss).


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018			2020			2019			2020			2019
Net income (loss)	$	(78,508	)	$	(37,140	)	$	(177,169	)	$	(659,883	)	$	(118,420	)	$	(56,055	)	$	251,077		$	(98,661	)
Provision (benefit) for income taxes	(1,800		)	(17,763		)	(488		)	(17,724		)	8,504			633			(7,324		)	1,312
Equity in (earnings) loss of unconsolidated ventures	2,057			1,340			3,574			6,907			(438		)	991			570			1,517
Debt modification and extinguishment costs	2,455			33			5,194			77
Loss (gain) on debt modification and extinguishment, net													157			2,672			(19,024		)	2,739
Loss (gain) on sale of assets, net	(579		)	(9,833		)	(2,723		)	(76,586		)	1,029			(2,846		)	(371,810		)	(2,144		)
Other non-operating (income) loss	(3,763		)	17			(9,950		)	(8,074		)	(988		)	(3,199		)	(3,650		)	(6,187		)
Interest expense	62,078			68,626			188,271			215,067			52,422			62,828			108,782			126,193
Interest income	(2,162		)	(1,654		)	(8,059		)	(7,578		)	(2,243		)	(2,813		)	(3,698		)	(5,897		)
Income (loss) from operations	(20,222		)	3,626			(1,350		)	(547,794		)	(59,977		)	2,211			(45,077		)	18,872
Depreciation and amortization	93,550			110,980			284,462			341,351			93,154			94,024			183,892			190,912
Goodwill and asset impairment	2,094			5,500			6,254			451,966
Asset impairment													10,290			3,769			88,516			4,160
Loss (gain) on facility lease termination and modification, net	—			2,337			2,006			148,804			—			1,797			—			2,006
Operating lease expense adjustment	(4,814		)	(2,487		)	(13,626		)	(14,656		)	(8,221		)	(4,429		)	(14,954		)	(8,812		)
Amortization of deferred gain	—			(1,090		)	—			(3,269		)
Non-cash stock-based compensation expense	5,929			6,035			18,315			20,710			6,119			6,030			12,076			12,386
Transaction and organizational restructuring costs	3,910			3,221			5,005			25,383			3,368			634			5,349			1,095
Adjusted EBITDA ⁽¹⁾	$	80,447		$	128,122		$	301,066		$	422,495		$	44,733		$	104,036		$	229,802		$	220,619

(1)

~~Adoption~~Adjusted EBITDA for the three and six months ended June 30, 2019 includes a negative non-recurring net impact of $6.5 million and $13.0 million, respectively, from the ~~new~~application of the lease accounting standard effective January 1, 2019, ~~will have a non-recurring impact on our full-year 2019 Adjusted EBITDA. Adjusted EBITDA~~ for the three and nine months ended September 30, 2019 includes a negative net impact of approximately $6.0 million and $19.0 million, respectively, from the application of the new lease accounting standard.

The table below reconciles our proportionate share of Adjusted EBITDA of unconsolidated ventures from net income (loss) of such unconsolidated ventures. For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of our unconsolidated ventures.

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2019 2018 2019 2018
Net income (loss) $ (4,156 ) $ (6,674 ) $ (7,189 ) $ (42,753 )
Provision (benefit) for income taxes 18
64
65
507
Debt modification and extinguishment costs —
13
21
131
Loss (gain) on sale of assets, net 23
—
—
2,837
Other non-operating (income) loss 78
(5 ) 78
(1,875 )
Interest expense 7,042
12,849
21,770
62,858
Interest income (897 ) (830 ) (2,574 ) (2,416 )
Income (loss) from operations 2,108
5,417
12,171
19,289
Depreciation and amortization 17,108
22,135
50,937
123,257
Asset impairment —
63
302
336
Operating lease expense adjustment —
—
—
8
Adjusted EBITDA of unconsolidated ventures $ 19,216
$ 27,615
$ 63,410
$ 142,890

Brookdale's proportionate share of Adjusted EBITDA of unconsolidated ventures $ 9,800
$ 11,280
$ 31,997
$ 42,140

the six months ended June 30, 2020 includes the $100.0 million management agreement termination fee payment received from Healthpeak, and for the three months ended June 30, 2020 includes $26.7 million of government grants recognized in other operating income during the period.

Adjusted Free Cash Flow

Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination and modification, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases; plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: ~~Non-Development Capital Expenditures~~non-development capital expenditures and payment of financing lease obligations. ~~Non-Development Capital Expenditures is~~Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades and other major building infrastructure projects for our communities and is presented net of lessor reimbursements. ~~Non-Development Capital Expenditures does~~Non-development capital expenditures do 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. During the first quarter of 2019, we modified our definition of Adjusted Free Cash Flow to no longer adjust net cash provided by (used in) operating activities for changes in working capital items other than prepaid insurance premiums financed with notes payable and lease liability for lease termination and modification, and amounts for all periods herein reflect application of the modified definition.

Our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures is calculated based on our equity ownership percentage and in a manner consistent with our definition of Adjusted Free Cash Flow for our consolidated entities. Our investments in our unconsolidated ventures are accounted for under the equity method of accounting and, therefore, our proportionate share of 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.

We believe that presentation of Adjusted Free Cash flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by our management for budgeting and other planning purposes, to review our historic and prospective sources of operating liquidity, and to review our ability to service our outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; (ii) it is used as a metric in our performance-based compensation programs; and (iii) it provides an indicator to management to determine if adjustments to current spending decisions are needed. We believe that presentation of our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures is useful to investors for similar reasons with respect to the unconsolidated ventures and, to the extent such cash is not distributed to us, it generally represents cash used or to be used by the ventures for the repayment of debt, investing in expansions or acquisitions, reserve requirements, 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.

Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination and modification generally represent charges/gains that may significantly affect our liquidity; and (iii) the impact of timing of cash expenditures, including the timing of ~~Non-Development Capital Expenditures,~~non-development capital expenditures, limits the usefulness of the measure for short-term comparisons. In addition, our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures has material limitations as a liquidity measure because it does not represent cash available directly for use by our consolidated business except to 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.

The table below reconciles our Adjusted Free Cash Flow from our net cash provided by (used in) operating activities.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018			2020			2019			2020			2019
Net cash provided by (used in) operating activities	$	69,211		$	71,924		$	128,330		$	170,508		$	151,840		$	64,128		$	209,319		$	59,119
Net cash provided by (used in) investing activities	(70,056		)	(24,539		)	(150,355		)	(13,027		)	(47,483		)	19,774			(295,410		)	(80,299		)
Net cash provided by (used in) financing activities	(8,755		)	(37,949		)	(112,834		)	(239,929		)	(40,726		)	(87,443		)	306,524			(104,079		)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(9,600	)	$	9,436		$	(134,859	)	$	(82,448	)	$	63,631		$	(3,541	)	$	220,433		$	(125,259	)

Net cash provided by (used in) operating activities	$	69,211		$	71,924		$	128,330		$	170,508		$	151,840		$	64,128		$	209,319		$	59,119
Distributions from unconsolidated ventures from cumulative share of net earnings	(858		)	(1,012		)	(2,388		)	(2,159		)	—			(781		)	—			(1,530		)
Changes in prepaid insurance premiums financed with notes payable	(6,215		)	(6,181		)	5,875			6,244			(5,770		)	(6,752		)	11,664			12,090
Changes in operating lease liability related to lease termination	—			—			—			33,596
Cash paid for loss on facility operating lease termination and modification, net	—			—			—			13,044
Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases	(11,043		)	—			(12,043		)	—			(6,421		)	(1,000		)	(10,509		)	(1,000		)
Non-development capital expenditures, net	(59,121		)	(41,275		)	(180,187		)	(130,692		)	(21,521		)	(66,464		)	(82,077		)	(121,066		)
Property insurance proceeds	—			—			—			156
Payment of financing lease obligations	(5,549		)	(13,370		)	(16,502		)	(53,271		)	(4,677		)	(5,500		)	(9,764		)	(10,953		)
Proceeds from refundable entrance fees, net of refunds	—			(368		)	—			(316		)
Adjusted Free Cash Flow	$	(13,575	)	$	9,718		$	(76,915	)	$	37,110
Adjusted Free Cash Flow⁽¹⁾													$	113,451		$	(16,369	)	$	118,633		$	(63,340	)

(1)

~~The calculation of~~ Adjusted Free Cash Flow includes transaction ~~costs of $3.9 million and $5.0 million for the three and nine months ended September 30, 2019, respectively, and transaction~~ and organizational restructuring costs of ~~$3.2~~$3.4 million and ~~$25.4~~$0.6 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2018, respectively.~~2020 and 2019, respectively, and $5.3 million and $1.1 million for the six months ended June 30, 2020 and 2019, respectively; includes the $100.0 million management agreement termination fee payment received from

The table below reconciles our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures from net cash provided by (used in) operating activities of such unconsolidated ventures. For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of our unconsolidated ventures.

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2019 2018 2019 2018
Net cash provided by (used in) operating activities $ 29,397
$ 24,497
$ 84,778
$ 122,269
Net cash provided by (used in) investing activities (12,097 ) (14,623 ) (29,527 ) (45,011 )
Net cash provided by (used in) financing activities (14,538 ) (9,702 ) (39,775 ) (62,361 )
Net increase (decrease) in cash, cash equivalents, and restricted cash $ 2,762
$ 172
$ 15,476
$ 14,897

Net cash provided by (used in) operating activities $ 29,397
$ 24,497
$ 84,778
$ 122,269
Non-development capital expenditures, net (11,993 ) (14,822 ) (29,674 ) (53,750 )
Property insurance proceeds —
—
—
1,535
Proceeds from refundable entrance fees, net of refunds (5,763 ) (2,500 ) (19,396 ) (12,535 )
Adjusted Free Cash Flow of unconsolidated ventures $ 11,641
$ 7,175
$ 35,708
$ 57,519

Brookdale's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures $ 5,938
$ 4,618
$ 18,280
$ 20,004

Healthpeak for the six months ended June 30, 2020; and includes $85.0 million of accelerated/advanced Medicare payments, $33.5 million of Emergency Fund government grants accepted, and $26.5 million of payroll taxes deferred during the three months ended June 30, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks from changes in interest rates charged on our credit facilities and other variable-rate indebtedness. The impact on earnings and the value of our long-term debt are subject to change as a result of movements in market rates and prices. As of ~~September~~June 30, ~~2019,~~2020, we had ~~approximately~~ $2.3 billion of long-term fixed rate debt, ~~and $1.2~~$1.4 billion of long-term variable rate ~~debt.~~debt, and $166.4 million drawn on our variable rate secured credit facility. For the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, our total fixed-rate debt and variable-rate debt outstanding, including our secured credit facility had a ~~weighted-average~~weighted average interest rate of ~~4.78%~~4.09%.

In the normal course of business, 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 ~~September~~June 30, ~~2019, $1.1~~2020, $1.3 billion, or ~~31.7%~~34.2%, of our long-term debt is variable rate debt subject to interest rate cap agreements and ~~$102.9~~$131.0 million, or ~~2.9%~~3.5%, of our long-term debt is variable rate debt not subject to any interest rate cap agreements. The $166.4 million drawn on our secured credit facility is variable rate debt not subject to any interest rate cap agreements. Our outstanding variable rate debt is indexed to LIBOR, and accordingly our annual interest expense related to variable rate debt is directly affected by movements in LIBOR. After consideration of hedging instruments currently in place, and including the impact of our variable rate secured credit facility, increases in LIBOR of 100, 200, and 500 basis points would have resulted in additional annual interest expense of ~~$12.6~~$15.9 million, ~~$24.8~~$31.8 million, and ~~$36.2~~$71.0 million, respectively. Certain of ~~the Company's~~our variable debt instruments include springing provisions that obligate ~~the Company~~us to acquire additional interest rate caps in the event that LIBOR increases above certain levels, and the implementation of those provisions would result in additional mitigation of interest costs.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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 (as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) 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 ~~September~~June 30, ~~2019,~~2020, our disclosure controls and procedures were effective.

Changes in 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 quarter ended ~~September~~June 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information contained in Note 1112 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by this reference.

Item 1A. Risk Factors

~~There have been no material changes to~~The following risk factors add and modify the risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 filed with the SEC on February 19, 2020.

The COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals and us, is adversely impacting, and likely will continue to adversely impact our business, results of operations, cash flow, liquidity, and stock price, and such impacts may be material.

The United States broadly continues to experience the COVID-19 pandemic, which has significantly disrupted, and likely will continue to significantly disrupt for some period, our nation’s economy, the senior living industry, and our business. We expect that the pandemic, and the response efforts of federal, state, and local government authorities, businesses, individuals and us, likely

will continue to adversely impact our business, results of operations, cash flow, and liquidity through 2021. We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, liquidity, and stock price, and such impacts may be material and persist for some time. Further, our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth.

Due to the average age and prevalence of chronic medical conditions among our residents and patients, they generally are at disproportionately higher risk of hospitalization and adverse outcomes if they contract COVID-19. Seeking to prevent the introduction of COVID-19 into our communities, and to help control further exposure to infections within communities, in March 2020 we began restricting visitors at all our communities to essential healthcare personnel and certain compassionate care situations, screening associates and permitted visitors, suspending group outings, modifying communal dining and programming to comply with social distancing guidelines and, in most cases, implementing in-room only dining and activities programming, requesting that residents refrain from leaving the community unless medically necessary, and requiring new residents and residents returning from a hospital or nursing home to isolate in their apartment for fourteen days. Upon confirmation of positive COVID-19 exposure at a community, we follow government guidance regarding minimizing further exposure, including associates’ adhering to personal protection protocols, restricting new resident admissions, and in some cases isolating residents. These restrictions were in place across our portfolio for the three months ended June 30, 2020. Due to the vulnerable nature of our residents, we expect many of the foregoing restrictions will continue at our communities for some time, even as federal, state, and local stay-at-home and social distancing orders and recommendations are relaxed. We have completed baseline COVID-19 testing at all of our communities. Further testing, whether undertaken proactively or as a result of regulatory requirements, may result in significant additional expense, additional temporary restrictions on move-ins at affected communities, continued need for isolating positive residents, increased use of personal protection equipment by our associates, and increased labor costs.

The pandemic and related infection prevention and control protocols within senior living communities have significantly disrupted demand for senior living communities and the sales process, which typically includes in-person prospective resident visits within communities. We believe potential residents and their families are more cautious regarding moving into senior living communities while the pandemic continues, and such caution may persist for some time. Our efforts to adapt our sales and marketing efforts to meet demand may not be successful. We cannot predict with reasonable certainty whether or when demand for senior living communities will return to pre-COVID-19 levels or the extent to which the pandemic’s effect on demand may adversely affect the amount of resident fees we are able to collect from our residents.

The pandemic and our response efforts began to adversely impact our occupancy and resident fee revenue significantly during March 2020, as new resident leads, visits (including virtual visits), and move-in activity declined significantly compared to typical levels. During the three months ended June 30, 2020, the year-over-year decrease in monthly move-ins of our same-community portfolio ranged from approximately 65% in April 2020 to approximately 35% in June 2020, and was approximately 40% for July 2020. Furthermore, our same community weighted average monthly occupancy declined from 83.0% in March 2020 to 77.8% in June 2020, and was 78.6% in July 2020. We estimate that the pandemic and our response efforts resulted in $43.1 million of lost resident fee revenue in our same-community portfolio for the three months ended June 30, 2020. Further deterioration of our resident fee revenue will result from lower move-in activity and the resident attrition inherent in our business, which may increase due to the impacts of COVID-19. In addition, our home health average daily census also began to decrease in March 2020 due to lower occupancy in our communities and fewer elective medical procedures and hospital discharges, resulting in an 18.7% year-over-year decline in home health average daily census for the three months ended June 30, 2020.

Facility operating expense for the three and six months ended June 30, 2020 includes $60.6 million and $70.6 million, respectively, of incremental direct costs to prepare for and respond to the pandemic, including costs for acquisition of additional personal protective equipment, medical equipment, and cleaning and disposable food service supplies, enhanced cleaning and environmental sanitation costs, increased labor expense, increased workers compensation and health plan expense, increased insurance premiums and retentions, and consulting and professional services costs, as well as costs for COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. We are not able to reasonably predict the total amount of costs we will incur related to the pandemic, and such costs are likely to be substantial. We have taken, and may take in future periods, significant impairment charges related to COVID-19 due to lower than expected operating performance at communities.

fixed charge coverage ratio. To the extent the outstanding borrowings on the credit facility exceed future borrowing base calculations, we would be required to repay the difference to restore the outstanding balance to the new borrowing base. Due primarily to the impacts of the COVID-19 pandemic, and based upon our current estimate of cash flows, we have determined that it is probable that we will not satisfy the minimum consolidated fixed charge coverage ratio covenant under the credit facility for one or more quarterly determination dates in the first half of 2021 without further action on our part. Failure to satisfy the minimum ratio would result in the availability under the revolving credit facility being reduced to zero and a requirement to repay the $166.4 million of borrowings outstanding on the revolving credit facility. As a result, we have continued efforts on our plan to refinance the assets currently securing the credit facility. We currently anticipate that such refinancings will be completed and the proceeds of such refinancings, together with cash on hand, will be sufficient to repay the $166.4 million balance on the revolving credit facility and terminate the facility without payment of a premium or penalty. However, there can be no assurance that any such additional financing will be available or on terms that are acceptable to us, in which case we would expect to take other mitigating actions prior to financing maturity dates.

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

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

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

We have been and are currently involved in litigation and claims incidental to the conduct of our business, which we believe are generally comparable to other companies in the senior living and healthcare industries, including, but not limited to, putative class action claims from time to time regarding staffing at our communities and compliance with consumer protection laws and the Americans with Disabilities Act. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, we maintain general liability, professional liability, and other insurance policies in amounts and with coverage and deductibles we believe are appropriate, based on the nature and risks of our business, historical experience, availability, and industry standards. Our current policies provide for deductibles for each claim and contain various exclusions from coverage. Accordingly, we are, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such policies and/or exceed the policy limits. If we experience a greater number of losses than we anticipate, or if certain claims are not covered by insurance, our results of operations and financial condition could be adversely affected.

The senior living and healthcare services businesses entail an inherent risk of liability, particularly given the demographics of our residents and patients, 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. The frequency and magnitude of such alleged claims and legal costs may increase due to the COVID-19 pandemic or our response efforts. 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. There can be no guarantee that we will not have any claims that exceed our policy limits in the future, which could subject us to substantial uninsured liabilities.

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, our insurance policies' deductibles, or self-insured retention, are accrued based on an actuarial projection of future liabilities. If these projections are inaccurate and if there is an unexpectedly large number of successful claims that result in liabilities in excess of our accrued reserves, 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 terms for coverage, exposing us to the volatility of the insurance markets, including the possibility of rate increases and changes in coverage and other terms. 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


(a)	Not applicable.


(b)	Not applicable.


(c)	The following table contains information regarding purchases of our common stock made during the quarter ended ~~September~~June 30, ~~2019~~2020 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
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs ($ in thousands) ⁽²⁾
7/1/2019 - 7/31/2019 —
$ —
—
$ 67,703
8/1/2019 - 8/31/2019 16,631
8.23
—
67,703
9/1/2019 - 9/30/2019 —
—
—
67,703
Total 16,631
$ 8.23
—



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	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($ in thousands) ⁽²⁾
4/1/2020 - 4/30/2020	—	$	—	—	$	44,026
5/1/2020 - 5/31/2020	17,061	3.46		—	44,026
6/1/2020 - 6/30/2020	—	—		—	44,026
Total	17,061	$	3.46	—


(1)	Consists entirely of ~~16,631~~ shares withheld to satisfy tax liabilities due upon the vesting of restricted ~~stock during August 2019.~~stock. 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 share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of its common stock. The 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 ~~September~~June 30, ~~2019, approximately $67.7~~2020, $44.0 million remained available under the repurchase program.

Item 6. Exhibits




Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of the Company, as ~~amended.~~amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on November 5, 2019 (File No. 001-32641)).
3.2		Amended and Restated Bylaws of the Company dated October 29, 2019 (incorporated by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K filed on October 29, 2019 (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		Description of the Company's common stock (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K filed on February 19, 2020 (File No. 001-32641)).
10.1		~~First Amendment to Fifth~~ Letter Agreement dated as of July 26, 2020 by and between the Company and Ventas.*
10.2		Amended and Restated ~~Credit~~Master Lease and Security Agreement dated as of July 26, 2020 by and ~~Other Credit Documents~~among certain subsidiaries of the Company as Tenant and certain subsidiaries of Ventas as Landlord.*
10.3		Amended and Restated Guaranty dated ~~August 16, 2019~~as of July 26, 2020 by and among the Company as Guarantor, certain subsidiaries of the Company as ~~Borrowers, Capital One, National Association, as Administrative Agent, Lender~~Tenant, and ~~Swingline Lender,~~Ventas and ~~the other Lenders party thereto.~~certain of its subsidiaries.*
~~10.2~~10.4		~~Amendment No. 3 to Master Lease and Security Agreement~~Warrant dated July 26, 2020 by and between ~~certain affiliates of~~ the Company ~~named therein as Tenant~~ and ~~certain affiliates of Ventas, Inc. named therein as landlord.~~Ventas.
~~10.3~~10.5		~~Amendment No. 4 to Master Lease and Security~~Registration Rights Agreement dated as of July 26, 2020 by and between ~~certain affiliates of~~ the Company ~~named therein as Tenant~~ and ~~certain affiliates of Ventas, Inc. named therein as landlord.†~~Ventas.
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.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in Inline XBRL (included in Exhibit 101).

*
†	~~Certain portions~~Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

SIGNATURES

Pursuant to the requirements 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.
	(Registrant)

	By:	/s/ Steven E. Swain
	Name:	Steven E. Swain
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)
	Date:	~~November 5, 2019~~
		August 10, 2020

6669



Repayment of debt and financing lease obligations	(404,152		)	(501,946		)
Proceeds from line of credit	—			200,000
Repayment of line of credit	—			(200,000		)
Purchase of treasury stock, net of related payables	(18,401		)	—
Payment of financing costs, net of related payables	(6,357		)	(3,341		)
Proceeds from refundable entrance fees, net of refunds	—			(316		)
Payments for lease termination	—			(12,548		)
Payments of employee taxes for withheld shares	(3,242		)	(2,844		)
Other	827			1,147
Net cash provided by (used in) financing activities	(112,834		)	(239,929		)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(134,859		)	(82,448		)
Cash, cash equivalents, and restricted cash at beginning of period	450,218			282,546
Cash, cash equivalents, and restricted cash at end of period	$	315,359		$	200,098



(in thousands, except for per share amounts)	Shares Granted	Weighted Average Grant Date Fair Value		Total Value
Three months ended March 31, 2019	4,047	$	7.87	$	31,857
Three months ended June 30, 2019	142	$	6.51	$	922
Three months ended September 30, 2019	136	$	7.55	$	1,028



	September 30, 2019
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Health care licenses	$	42,776	$	—		$	42,776
Trade names	27,800		(27,800		)	—
Total	$	70,576	$	(27,800	)	$	42,776

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company