Brookdale Senior Living Annual Report 2015

Plain-text annual report

2015 ANNUAL REPORT Bringing New Life to Senior Living TM * Adjusted EBITDA and Cash From Facility Operations are financial measures that are not calculated in accordance with Generally Accepted Accounting Principles. See “Non- GAAP Financial Measures” beginning on page 67 of the Annual Report on Form 10-K included in this 2015 Annual Report for an explanation of how we define each of these measures, a detailed description of why we believe such measures are useful and the limitations on each measure and a reconciliation of each measure to net income (loss). The graph compares the five-year cumulative total return for Brookdale common stock with the comparable cumulative return of the S&P 500 Index and the S&P Health Care Index. The comparisons in this graph are required by the SEC and are not intended to forecast or be indicative of possible future performance of Brookdale shares or the referenced indices. * Assumes $100 invested on 12/31/10 in stock or index, including reinvestment of all dividends. FINANCIAL HIGHLIGHTS (in thousands, except per share data) 2015 2014 As of and for the years ended December 31 Selected Operating Data Total revenue $4,960,608 $3,831,706 Income (loss) from operations $(165,206) $(84,905) Net income (loss) attributable to Brookdale common stockholders $(457,477) $(148,990) Net income (loss) per share attributable to Brookdale common stockholders, basic and diluted $(2.48) $(1.01) *Adjusted EBITDA $793,383 $516,009 *Cash From Facility Operations $317,058 $218,342 Property, plant and equipment and leasehold intangibles, net $8,031,376 $8,389,505 Selected Balance Sheet Data Cash and cash equivalents $88,029 $104,083 Total assets $10,048,564 $10,417,461 Debt and capital and financing lease obligations $6,432,413 $6,246,253 Brookdale stockholders’ equity $2,458,888 $2,881,724 Weighted average shares used in computing basic and diluted net loss per share 184,333 148,185 Stock Performance Data Closing share price on December 31 $18.46 $36.67 Comparision of Five Year Cumulative Total Return* Among Brookdale Senior Living Inc., the S&P 500 Index and the S&P Health Care Index $300 $250 $200 $150 $100 $50 0 12/10 12/11 12/12 12/13 12/14 12/15 Brookdale Senior Living Inc. S&P 500 S&P Health Care 12/10 12/11 12/12 12/13 12/14 12/15 Brookdale Senior Living Inc. S&P 500 S&P Health Care 100.00 100.00 100.00 81.22 102.11 112.73 118.26 118.45 132.90 126.95 156.82 188.00 171.28 178.29 235.63 86.22 180.75 251.87 2 BROOKDALE ANNUAL REPORT LETTER TO SHAREHOLDERS Dear Fellow Shareholders, It is a privilege to share with you the three parts of Brookdale’s multi-year journey. We are redefining our industry as we bring new life to senior living. We can do this because Brookdale has the size and scale to meet the evolving needs that all people develop as they advance in age. Brookdale has the experience and innovative drive to be the leader in delivering the basics and to keep finding better ways to care for people as they age. And Brookdale has a culture of service in which we build close, personal relationships with seniors and their families. We become a trusted partner. Our strengths allow us to grow our business to meet the needs of our shareholders, of the seniors we serve, and of our associates. As a result of our mid-2014 merger with our largest competitor, Emeritus Corporation, Brookdale is by far the largest national provider of connected services for seniors in America. Combining the two largest operators doesn’t happen every day and, most likely, will never happen again. This was a pivotal moment in which we saw the opportunity to transform senior living. We saw clear synergies that would be welcomed by our shareholders. We saw the promise of greatly improving the quality of life for the seniors we are so passionate about serving. And, we saw new ways to provide opportunities for tens of thousands of associates to develop and grow in their careers and find new ways of expressing their passion for serving seniors. And so, in 2014, we embarked on a multi-year journey to create the country’s first national senior living company. We are well on the way. The first step of the plan was the 2014 merger. The second step was the integration of the two companies during the full year of 2015. In 2016, we are beginning to show the benefits of the competitive advantages and synergies resulting from the size and scale of the combined enterprise. We are confident in our ability to realize the full benefits in 2017. We remain steadfast in our commitment to a successful journey. In 2015 we faced more challenges than anticipated, but, in the end, we accomplished the behind-the-scenes aspects of our integration goals. A large and complex undertaking, we successfully integrated more than 500 new communities, with more than 30,000 new associates, onto the Brookdale platform by the end of 2015. This included a four-wave process to introduce all the major systems and processes to the new locations. And we began an intensive three-year renovation initiative to substantially improve the communities we had acquired in the merger. All of this work required considerable focus on activities outside of our normal business and resulted in greater than expected turnover at the crucial community-level management. This situation stabilized by last fall, but there is no question that the disruptions led to disappointing financial results, with a loss of 200 basis points in occupancy, which, in turn, created a shortfall in revenue. But I am so proud of our 82,000 caring associates who have kept our culture of enriching lives every day at the forefront of everything they do. It is heartwarming that so many continued to provide the very best care and service possible for 100,000-plus residents, patients, and their families. By the end of 2015, we strengthened our leadership team. We hired two accomplished, talented executives with decades of large-company experience to join us at Brookdale, and we promoted a long-tenured operator to executive vice president in order to blend outside perspectives with our business and culture. Labeed Diab joined as Chief Operating Officer in November, and Cindy Baier joined us as Chief Financial Officer in December. They each have broad executive experience, tremendous energy and a proven track record of success at large, complex multi-site businesses. Brookdale has already started to benefit from their experience and perspective. And we promoted Mary Sue Patchett to be our Executive Vice President of Community and Field Operations. The combination of her 30 years of industry experience and Labeed’s experience running a large health- care-oriented organization is powerful for us. We also have fresh eyes on our board of directors, with several new members joining us during this past year to inform our perspective and guide our growth. We have also engaged in active dialogue with our largest shareholders to understand their outlook. These discussions have not always been easy, but they have been valuable as we chart the next part of our journey. 3 BROOKDALE ANNUAL REPORTAs I look to 2016 and 2017, I am excited about Brookdale’s clear leadership in senior living and about the fulfillment of our plan. We are strong, and determined to use our strength and resources to greatly improve the quality of the lives of those we serve. We are committed to providing an outstanding work experience for our associates. And we keep in our sights at all times our responsibility to enhance shareholder value. We will continue to improve operational execution and cash flow, optimize our portfolio, strengthen our balance sheet, and increase liquidity. As we journey past integration, we are focused on growing revenue through discipline in our pricing management, by regaining the occupancy we gave up during the disruptions and challenges of integration, and by growing occupancy even beyond that level. We are actively managing costs, especially in labor and procurement costs. We have started capturing the significant cost synergies available to us, leveraging our size and scale. And we expect that we will show strong cash flow growth. Our teams are simplifying the business wherever possible. We are finding ways to reduce administrative work for our communities, so associates can make decisions more quickly and release their individual creativity and caring. That is what makes each community unique and provides for the closer relationships that satisfy our residents, patients, and their families and lead them to recommend Brookdale to others. To sum up, I am confident that, as Brookdale moves forward on this journey, we will deliver substantially improved results that will reward our shareholders, we will become the trusted partner of so many more residents, and we will support and empower our associates. My confidence comes from the strength of this company. Our goal is not to be the biggest but to be the best. We have 82,000 experienced and caring associates, and our powerful culture, built on a foundation of trust, is how we make a difference in hundreds of thousands of lives each year. What sets Brookdale apart today is a very simple yet powerful premise: we enrich lives every day. The very heart of what we do is people taking care of people, and I promise you there is no enterprise more worthy than that. Sincerely, T. Andrew Smith President and Chief Executive Officer Forward-Looking Statements Certain statements in this 2015 Annual Report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those 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, including, but not limited to, statements relating to our operational, sales, marketing and branding initiatives and growth strategies and our expectations regarding their effect on our results; our expectations regarding the senior living industry, occupancy, pricing, revenue, cash flow, operating income, expenses, capital expenditures, the integration of Emeritus, cost savings and synergies, liquidity and leverage, the demand for senior housing, and portfolio optimization; and our expectations regarding returns to shareholders and our growth prospects. See “Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995” on page 4 and “Risk Factors” beginning on page 22 of the Annual Report on Form 10-K included in this 2015 Annual Report for important 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. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management's views as of the date of this 2015 Annual Report. We cannot guarantee future results, levels of activity, performance or achievements, and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained in this 2015 Annual Report to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based. 4 BROOKDALE ANNUAL REPORTUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015or[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission File Number 001-32641BROOKDALE SENIOR LIVING INC.(Exact name of registrant as specified in its charter)Delaware(State or Other Jurisdiction ofIncorporation or Organization) 20-3068069(I.R.S. Employer Identification No.)111 Westwood Place, Suite 400Brentwood, Tennessee 37027(Address of Principal Executive Offices)(Registrant's telephone number including area code)(615) 221-2250SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of Each ClassCommon Stock, $0.01 Par Value Per Share Name of Each Exchange on Which RegisteredNew York Stock ExchangeSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant 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 and post suchfiles). Yes [X] No [ ]Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the bestof registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "largeaccelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2015, the last business day of the registrant's most recently completed second fiscalquarter, was approximately $6.5 billion. The market value calculation was determined using a per share price of $34.70, the price at which the registrant's common stock was last sold onthe New York Stock Exchange on such date. For purposes of this calculation only, shares held by non-affiliates excludes only those shares beneficially owned by the registrant'sexecutive officers and directors.As of February 10, 2016, 184,890,549 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding unvested restricted shares).DOCUMENTS INCORPORATED BY REFERENCECertain sections of the registrant's Definitive Proxy Statement relating to its 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report onForm 10-K.TABLE OF CONTENTSBROOKDALE SENIOR LIVING INC.FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2015 PAGE PART I Item 1Business5 Executive Officers of the Registrant20Item 1ARisk Factors22Item 1BUnresolved Staff Comments38Item 2Properties39Item 3Legal Proceedings40Item 4Mine Safety Disclosures40 PART II Item 5Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities41Item 6Selected Financial Data42Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations43Item 7AQuantitative and Qualitative Disclosures About Market Risk74Item 8Financial Statements and Supplementary Data75Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure114Item 9AControls and Procedures114Item 9BOther Information114 PART III Item 10Directors, Executive Officers and Corporate Governance115Item 11Executive Compensation116Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters116Item 13Certain Relationships and Related Transactions, and Director Independence117Item 14Principal Accounting Fees and Services117 PART IV Item 15Exhibits, Financial Statement Schedules1183SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995Certain statements in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Thoseforward-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 orexpectations, including, but not limited to, statements relating to our operational, sales, marketing and branding initiatives and growth strategies and our expectations regarding theireffect on our results; our expectations regarding the economy, the senior living industry, occupancy, pricing, revenue, cash flow, operating income, expenses, capital expenditures,Program Max opportunities, the integration of Emeritus, cost savings and synergies, liquidity and leverage, senior housing supply, the demand for senior housing, the home resalemarket, expansion, development and construction activity, acquisition opportunities, asset dispositions, our share repurchase program, taxes, capital deployment, returns on investedcapital and CFFO; our expectations regarding returns to shareholders and our growth prospects; our expectations concerning the future performance of recently acquired communitiesand the effects of acquisitions on our financial results; our ability to secure financing or repay, replace or extend existing debt at or prior to maturity; our ability to remain in compliancewith all of our debt and lease agreements (including the financial covenants contained therein); our expectations regarding financings and refinancings of assets (including the timingthereof) and their effect on our results; our expectations regarding changes in government reimbursement programs and their effect on our results; our plans to generate growthorganically through occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering ofancillary services (therapy, home health, personalized health and hospice); our plans to expand, renovate, redevelop and reposition existing communities; our plans to acquire additionalcommunities, asset portfolios, operating companies and home health agencies; the expected project costs for our expansion, redevelopment and repositioning program; our expectedlevels of expenditures and reimbursements (and the timing thereof); our expectations for the performance of our entrance fee communities; our ability to anticipate, manage and addressindustry trends and their effect on our business; our expectations regarding the payment of dividends; our ability to increase revenues, earnings, Adjusted EBITDA, Cash From FacilityOperations, and/or Facility Operating Income (as such terms are defined in this Annual Report on Form 10-K); and our expectations regarding the integration of Emeritus. 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," "overestimate," "underestimate," "believe," "project," "predict," "continue," "plan," "target" or other similar words or expressions. Although we believethat expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and actual resultsand 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 orcircumstances to differ from the forward-looking statements include, but are not limited to, the risk associated with the current global economic situation and its impact upon capitalmarkets and liquidity; changes in governmental reimbursement programs; our inability to extend (or refinance) debt (including our credit and letter of credit facilities and our outstandingconvertible notes) as it matures; the risk that we may not be able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements;events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees; the conditions of housing markets in certain geographic areas; our ability togenerate sufficient cash flow to cover required interest and long-term operating lease payments; the effect of our indebtedness and long-term operating leases on our liquidity; the riskof loss of property pursuant to our mortgage debt and long-term lease obligations; the possibilities that changes in the capital markets, including changes in interest rates and/or creditspreads, or other factors could make financing more expensive or unavailable to us; our determination from time to time to purchase any shares under the repurchase program; our abilityto fund any repurchases; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; the risk that we maynot be able to expand, redevelop and reposition our communities in accordance with our plans; our ability to complete acquisitions; our ability to successfully integrate acquisitions,including our acquisition of Emeritus; competition for the acquisition of assets; our ability to obtain additional capital on terms acceptable to us; a decrease in the overall demand forsenior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces welease; early terminations or non-renewal of management agreements; increased competition for skilled personnel; increased union activity; departure of our key officers; increases inmarket interest rates; environmental contamination at any of our communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaintsfiled against us; the cost and difficulty of complying with increasing and evolving regulation; and the inability to obtain, or delays in obtaining, cost savings and synergies from theEmeritus acquisition; as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, including those set forth under "Item 1A. Risk Factors"contained in this Annual Report on Form 10-K. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SECfilings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management's views as of the date of this Annual Report onForm 10-K. We cannot guarantee future results, levels of activity, performance or achievements, and we expressly disclaim any obligation to release publicly any updates or revisions toany forward-looking statements contained in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or change in events, conditions orcircumstances on which any statement is based.4PART IItem 1.Business.Unless otherwise specified, references to "Brookdale," "we," "us," "our" or "the Company" in this Annual Report on Form 10-K mean Brookdale Senior Living Inc. together with itsconsolidated subsidiaries.OverviewOur BusinessAs of December 31, 2015, we are the largest operator of senior living communities in the United States based on total capacity, with 1,123 communities in 47 states and the ability to serveapproximately 108,000 residents. We offer our residents access to a full continuum of services across the most attractive sectors of the senior living industry. We operate independentliving, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through our ancillary services programs, we also offer a range of outpatienttherapy, home health, personalized living and hospice services to residents of many of our communities and to seniors living outside of our communities.As of December 31, 2015, we owned or leased 959 communities with 81,067 units and provided management services with respect to 164 communities with 27,353 units for third parties orunconsolidated ventures in which we have an ownership interest. As of December 31, 2015, we operated 130 retirement center communities with 24,486 units, 915 assisted livingcommunities with 62,567 units and 78 CCRCs with 21,367 units. We offer home health services to approximately 66,000 of our units and outpatient therapy services to approximately64,000 of our units. The majority of our units are located in campus settings or communities containing multiple services, including CCRCs. During the year ended December 31, 2015, wegenerated approximately 81.9% of our resident fee revenues from private pay customers. For the year ended December 31, 2015, 38.8% of our resident and management fee revenues weregenerated from owned communities, 48.7% from leased communities, 11.1% from our Brookdale Ancillary Services business and 1.4% from management fees from communities weoperate on behalf of third parties or unconsolidated ventures.We believe that we are positioned to take advantage of favorable demographic trends and future supply-demand dynamics in the senior living industry. We also believe that we operatein the most attractive sectors of the senior living industry with opportunities to increase our revenues through providing a combination of housing, hospitality services, ancillaryservices and health care services. Our senior living communities offer residents a supportive "home-like" setting, assistance with activities of daily living ("ADLs") (such as eating,bathing, dressing, toileting and transferring/walking) and, in certain communities, licensed skilled nursing services. We also provide ancillary services, including therapy and homehealth services, to our residents. Our strategy is to be the leading provider of senior living solutions, built on a large and growing senior housing platform. By providing residents with arange of service options as their needs change, we provide greater continuity of care, enabling seniors to "age-in-place" and thereby maintain residency with us for a longer period oftime. 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.We believe that there are organic growth opportunities inherent in our existing portfolio. We intend to take advantage of those opportunities by growing revenues, while maintainingexpense control, at our existing communities, continuing the expansion and maturation of our ancillary services programs, expanding, renovating, redeveloping and repositioning ourexisting communities, and acquiring additional operating companies and communities.On July 31, 2014, we acquired Emeritus Corporation ("Emeritus"), a senior living service provider focused on operating residential style communities throughout the United States, forapproximately $3.0 billion consisting of the issuance of our stock with a fair value of approximately $1.6 billion and our assumption of approximately $1.4 billion aggregate principalamount of existing mortgage indebtedness. At the closing of the merger, the size of our consolidated portfolio increased by 493 communities, 182 of which were owned and 311 of whichwere subject to leases that we directly or indirectly assumed in the merger. The Emeritus communities provide independent living, assisted living, memory care and, to a lesser extent,skilled nursing care.5The merger significantly increased our scale and provides us the opportunity to leverage this scale to build our national brand and provide greater organic growth, achieve greateroperating efficiencies, and drive new innovations to serve our residents. In addition, the merger provided us entry into 10 new states and significantly increased our presence in manyhigh-population states, especially in the west and northeast. Enhanced geographic coverage and density is a contributing factor to our ability to increase our operating efficiencies andmay provide additional opportunities for growth from markets with clusters of assets. The merger also enables us to expand our therapy, home health and hospice ancillary programs intothe Emeritus communities and accelerate the introduction of Emeritus' Nurse on Call home health services into our major markets. The results of Emeritus' operations have been includedin the consolidated financial statements subsequent to the acquisition date. Revenue and facility operating expenses of legacy Emeritus locations included in the Company'sconsolidated statements of operations for the year ended December 31, 2015 were $1.8 billion and $1.2 billion, respectively. Revenue and facility operating expenses of legacy Emerituslocations included in the Company's consolidated statements of operations for the year ended December 31, 2014 were $785.5 million and $511.9 million, respectively.Since the closing of our acquisition of Emeritus, we have executed on our plans to integrate legacy Emeritus locations into our systems and infrastructure platform as rapidly asprudently possible. In 2015, we completed the final cutover waves of integration activities and have a common system and infrastructure platform in place. We will continue to reinforceand refine our operating model and certain processes during 2016.Developments during 2015During the year ended December 31, 2015, we completed several transactions as part of our long-term objectives to grow our revenues, Adjusted EBITDA, Cash From Facility Operationsand Facility Operating Income. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" below for anexplanation of how we define each of these measures, a detailed description of why we believe such measures are useful and the limitations of each measure, and a reconciliation of eachof the Non-GAAP measures to net income (loss). These transactions include:•Community Acquisitions. During the year ended December 31, 2015, we acquired the underlying real estate associated with 30 communities that were previously leased for anaggregate purchase price of approximately $422.2 million.•Investment in Unconsolidated RIDEA Venture. On June 30, 2015, the Company and HCP, Inc. ("HCP") entered into a RIDEA venture, which acquired 35 senior housingcommunities for $847 million. The Company contributed $30.3 million in cash to the RIDEA venture. The Company owns a 10% ownership interest, and HCP owns a 90%ownership interest, in each of the propco and opco. The Company had operated these communities under a management agreement since 2011 and will continue to manage thecommunities under a market rate long-term management agreement with the venture.•Community Dispositions. During the year ended December 31, 2015, we identified 34 owned communities as assets held for sale, with 17 of these communities being sold for anaggregate selling price of approximately $82.9 million during the year ended December 31, 2015. The communities were identified as non-core assets that do not fit our long-termstrategy. The sale of the remaining 17 communities is expected in 2016, although there can be no assurance that the transactions will close or if they do, when the actual closingwill occur.During the year, we also made additional progress on our Program Max initiative under which we expand, renovate, redevelop and reposition certain of our existing communities whereeconomically advantageous. For the year ended December 31, 2015, we invested $37.5 million on Program Max projects, net of $28.3 million of third party lessor reimbursements, whichincluded the completion of eleven expansion or conversion projects which resulted in 59 additional units. We currently have 13 additional Program Max projects that have beenapproved, most of which have begun construction and are expected to generate 285 net new units.6Growth StrategyOur primary growth objectives are to grow our revenues, Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income. Key elements of our strategy to achieve theseobjectives over time include:•Organic growth in our seniors housing business by increasing occupancy and rates, while controlling operating expenses. We plan to grow our existing operations by increasingrevenues through a combination of occupancy growth and increases in the monthly service fees we receive. We intend to focus on growing occupancy and rates by continuallyimproving our operational, sales and marketing execution. We have created a multi-layered marketing approach, which balances the use of the internet and response mechanisms likecentralized call centers with national, regional and local marketing activities. In particular, our marketing approach leverages the national Brookdale branding initiative that waslaunched in 2013. We also plan to continue our efforts to achieve property-level cost savings through the realization of additional economies of scale and initiatives designed tocapture synergies and improve operational effectiveness following the acquisition of Emeritus in 2014. We will continue to improve our systems and processes to most efficientlymeet the needs of our residents. • Growth through strategic capital allocation. We plan to grow our revenues and cash flows by deploying capital to increase the value of our existing communities and, asopportunities arise, selectively engaging in acquisitions. We have invested significant capital expenditures into our portfolio to renovate and upgrade communities, which weexpect will drive greater occupancy and higher rates in those communities over time. Through our Program Max initiative, we intend to expand, renovate, redevelop and repositioncertain of our existing communities where economically advantageous. Certain of our communities with stabilized occupancies and excess demand in their respective markets maybenefit from additions and expansions (which additions and expansions may be subject to landlord, lender and other third party consents). Additionally, the community, as well asour presence in the market, may benefit from adding a new level of service for residents. Through Program Max, we may also reposition certain communities to meet the evolvingneeds of our customers. This may include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currentlypresent or physical plant modifications. We will continue our capital expenditure programs, including our Program Max initiative, but in the near-term at reduced investment levelscompared to prior years. While our focus will be on executing our business plan post-integration of Emeritus, as opportunities arise, we plan to selectively purchase existingoperating companies, asset portfolios, home health agencies and senior living communities. We may also seek to acquire the fee interest in communities that we currently lease ormanage. Our acquisition strategy will continue to focus primarily on accretive acquisitions of strategic portfolios or select communities that fill a service level need in one of ourmarket continuums.•Growth through development of a market leading Brookdale brand. We plan to continue to build a recognized national brand, which we believe will create market differentiationand value enhancement through higher occupancy and increased rates. Being the sole senior living provider with a national footprint and diverse service offerings, we are bestpositioned to become the leading solutions provider for seniors and their families as they grapple with the issues of aging. We expect that aligning and unifying marketing activitiesand spending within the brand initiative will drive preference for Brookdale among prospects. We expect that creating brand equity will drive loyalty with residents and their familiesand, importantly, with associates, thereby improving recruitment, engagement and retention.•Growth through innovation of product offerings, including our Brookdale Ancillary Services programs. We plan to grow our revenues by innovating our product offerings andproviding new senior living solutions to meet evolving consumer needs and expectations. We plan to provide more solutions for current customers and leverage and expandproducts to serve new customers. We plan to continue to roll out hospice services into selected markets. We also plan to leverage the array of services that are currently offered toresidents in our buildings to seniors who want to remain in their homes. Through the Brookdale Ancillary Services programs, we currently provide therapy, home health, hospiceand other ancillary services, as well as education and wellness programs. We plan to focus on expanding those services outside of our communities to seniors in their homes,initially to those who are short-term patients of skilled nursing centers. We expect that this will not only grow cash flow, but also provide quality service in a person's home that canbecome the entry point into the full continuum of our services. We also believe that there is a significant opportunity to become a player in the post-acute healthcare world as itevolves. We expect to continue our initiatives to link our unique continuum of care with other post-acute care providers to provide the most effective, comprehensive set ofsolutions for seniors.7The Senior Living IndustryThe senior living industry has undergone dramatic growth in the last twenty years, marked by the emergence of the assisted living segment in the mid-1990s. The industry is highlyfragmented and characterized by numerous local and regional operators. We are one of a limited number of large operators that provide a broad range of community locations and servicelevel offerings at varying price levels.Beginning in 2007, the industry was affected by the downturn in the general economy, increased unemployment and a downturn in the housing market. In spite of these factors, industryoccupancy declined only approximately 300 basis points to a cyclic low in early 2010 of 87.0%, while rate growth remained positive at less than 1% per year. This also resulted in a nearhalt in construction of new units. The industry has experienced a slow recovery in occupancy and rate growth since the beginning of 2010 according to the National Investment Centerfor the Seniors Housing & Care Industry ("NIC"). Over the past year, industry occupancy has been rising modestly, as the pace of absorption has been outpacing inventory growth.We believe that a number of trends will contribute to the continued growth of the senior living industry in coming years. The primary market for senior living services is individuals age75 and older. According to U.S. Census data, that group is projected to be the fastest growing age cohort over the next twenty years. As a result of scientific and medical breakthroughsover the past 30 years, seniors are living longer. Due to demographic trends, and continuing advances in science, nutrition and healthcare, the senior population will continue to grow,and we expect the demand for senior living services to continue to increase in future years.We believe the senior living industry has been and will continue to be impacted by several other trends. Increased longevity results in increasing frailty in seniors, soaring rates ofdementia among the elderly, and a growing burden of chronic illness and chronic conditions. As a result of increased mobility in society, a reduction of average family size and increasednumber of two-wage earner couples, families struggle to provide care for seniors and look for alternatives outside of their family for their care. There is a growing consumer awarenessamong seniors and their families concerning the types of services provided by senior living operators, which has further contributed to the demand for senior living services. Also, thecurrent prospective senior customer possesses greater financial resources than in the past, which makes it more likely that they are able to afford to live in market-rate senior housing.Seniors in the demographic cohort that were born between 1925 and 1945 have a significant amount of income generated from savings, pensions, and social security, along with a strongasset base.Challenges in our industry include increased state and local regulation of the assisted living and skilled nursing sectors, which has led to an increase in the cost of doing business. Theregulatory environment continues to intensify in the number and types of laws and regulations affecting us, accompanied by increased enforcement activity by state and local officials.In addition, like other companies, our financial results may be negatively impacted by increasing employment costs including salaries, wages and benefits, such as health care benefitcoverage, for our employees. Increases in the costs of food, utilities, insurance, and real estate taxes may also have a negative impact on our financial results.Beginning October 1, 2011, we were impacted by a reduction in the reimbursement rates for Medicare skilled nursing patients and home health patients, as well as a negative change inthe allowable method for delivering therapy services to skilled nursing patients (resulting in increased therapy labor expense). In addition, certain per person annual limits on Medicarereimbursement for therapy services became effective in 2006, subject to certain exceptions. These exceptions are currently scheduled to expire on December 31, 2017. If these exceptionsare modified or not extended beyond that date, our revenues and net operating income relating to our outpatient therapy services could be materially adversely impacted.Effective October 1, 2012, certain Medicare Part B therapy services exceeding a specified threshold are subject to a prepayment manual medical review process. The review process hashad an adverse effect on the provision and billing of services for patients and could negatively impact therapist productivity. These Medicare Part B therapy cap exception requirements,including the applicable pre-approval requirements, could also negatively impact the revenues and net operating income relating to our outpatient therapy services business. Pursuant tothe Medicare Access and CHIP Reauthorization Act of 2015, which was signed by the President on April 16, 2015, the manual review process will be replaced with a new review programto be developed by the Secretary of Health and Human Services.In addition, there continue to be various federal and state legislative and regulatory proposals to implement cost containment measures that would limit payments to healthcare providersin the future. We cannot predict what action, if any, Congress will take on reimbursement policies of the Medicare program or what future rule changes the CMS will implement. Changesin the reimbursement policies of the Medicare program could have an adverse effect on our results of operations and cash flow.8Our HistoryWe were formed as a Delaware corporation in June 2005 for the purpose of combining two leading senior living operating companies, Brookdale Living Communities, Inc. ("BLC") andAlterra Healthcare Corporation ("Alterra"). BLC and Alterra had been operating independently since 1986 and 1981, respectively. On November 22, 2005, we completed our initial publicoffering of common stock, and on July 25, 2006, we acquired American Retirement Corporation ("ARC"), another leading senior living provider that had been operating independentlysince 1978. On September 1, 2011, we completed the acquisition of Horizon Bay, the then-ninth largest operator of senior living communities in the United States.On July 31, 2014, we completed the merger contemplated by that certain Agreement and Plan of Merger, dated as of February 20, 2014, by and among Emeritus Corporation, aWashington corporation, Brookdale Senior Living Inc., and Broadway Merger Sub Corporation, a Delaware corporation and wholly-owned subsidiary of ours, pursuant to which thesubsidiary merged with and into Emeritus, with Emeritus continuing as the surviving corporation and a wholly-owned subsidiary of ours. At the time of the merger, Emeritus was thesecond largest operator of senior living communities in the United States.Our Communities and Service OfferingsWe offer a variety of senior living housing and service alternatives in communities located across the United States. Our communities consist of retirement center communities, assistedliving communities, rental CCRCs and entry fee CCRCs. We manage certain of our communities for third parties or unconsolidated ventures in which we have an ownership interestpursuant to management agreements. In addition, through our ancillary services programs, we provide outpatient therapy, home health, personalized living and hospice services toresidents of many of our communities and to seniors living outside of our communities.Retirement Centers. Our retirement center communities are primarily designed for middle to upper income seniors generally age 75 and older who desire an upscale residentialenvironment providing the highest quality of service.The majority of our retirement center communities consist of both independent and assisted living units in a single community, which allows residents to "age-in-place" by providingthem with a continuum of senior independent and assisted living services. While the number varies depending upon the particular community, as of December 31, 2015 approximately78.9% of all of the units at our retirement center communities are independent living units, with the balance of units licensed for assisted living.Our retirement center communities are large multi-story buildings containing on average 188 units with extensive common areas and amenities. Residents may choose from studio, one-bedroom and two-bedroom units, depending upon the specific community.Each retirement center community provides residents with basic services such as meal service, 24-hour emergency response, housekeeping, concierge services, transportation andrecreational activities. Most of these communities also offer custom tailored supplemental care services at an additional charge, which may include medication reminders, check-inservices and escort and companion services.In addition to the basic services, our retirement center communities that include assisted living also provide residents with supplemental care service options to provide assistance withADLs. The levels of care provided to residents vary from community to community depending, among other things, upon the licensing requirements and healthcare regulations of thestate in which the community is located.Residents in our retirement center communities are able to maintain their residency for an extended period of time due to the range of service options available to residents (not includingskilled nursing) as their needs change.Residents with cognitive or physical frailties and higher level service needs are accommodated with supplemental services in their own units or, in certain communities, are cared for in amore structured and supervised environment on a separate wing or floor. These communities also generally have a dedicated assisted living staff, including nurses at the majority ofcommunities, and separate assisted living dining rooms and activity areas.9Retirement center communities that we own or lease are included in our Retirement Centers segment, and retirement center communities for which we provide management services forthird parties or unconsolidated ventures in which we have an ownership interest are included in our Management Services segment. As of December 31, 2015, our Retirement Centersegment consisted of 95 retirement center communities with 17,140 units, representing 15.8% of our total senior living capacity, and 35 retirement center communities with 7,346 unitswere included in our Management Services segment, representing 6.8% of our total senior living capacity. In the aggregate, these retirement center communities represented 22.6% of ourtotal senior living capacity.Assisted Living. Our assisted living communities offer housing and 24-hour assistance with ADLs to mid-acuity frail and elderly residents. Our assisted living communities include bothfreestanding, multi-story communities with more than 50 beds and smaller, freestanding single story communities with less than 50 beds. Depending upon the specific location, thecommunity may include (i) private studio, one-bedroom and one-bedroom deluxe apartments, or (ii) individual rooms for one or two residents in wings or "neighborhoods" scaled to asingle-family home, which includes a living room, dining room, patio or enclosed porch, laundry room and personal care area, as well as a caregiver work station.We also operate memory care communities, which are freestanding assisted living communities specially designed for residents with Alzheimer's disease and other dementias requiringthe attention, personal care and services needed to help cognitively impaired residents maintain a higher quality of life. Our memory care communities have from 14 to 69 beds and someare part of a campus setting which includes a freestanding assisted living community.All residents at our assisted living and memory care communities receive the basic care level, which includes ongoing health assessments, three meals per day and snacks, coordinationof special diets planned by a registered dietitian, assistance with coordination of physician care, social and recreational activities, housekeeping and personal laundry services. In somelocations we offer our residents exercise programs and programs designed to address issues associated with early stages of Alzheimer's and other forms of dementia. In addition, weoffer at additional cost, higher levels of personal care services to residents at these communities who are very physically frail or experiencing early stages of Alzheimer's disease or otherdementia and who require more frequent or intensive physical assistance or increased personal care and supervision due to cognitive impairments.As a result of their progressive decline in cognitive abilities, residents at our memory care communities typically require higher levels of personal care and services and therefore payhigher monthly service fees. Specialized services include assistance with ADLs, behavior management and an activities program, the goal of which is to provide a normalizedenvironment that supports residents' remaining functional abilities. Whenever possible, residents participate in all facets of daily life at the residence, such as assisting with meals,laundry and housekeeping.Assisted living communities (including memory care communities) that we own or lease are included in our Assisted Living segment, and assisted living communities for which weprovide management services for third parties or unconsolidated ventures in which we have an ownership interest are included in our Management Services segment. As of December31, 2015, our Assisted Living segment consisted of 820 assisted living communities with 53,504 units, representing 49.3% of our total senior living capacity, and 95 assisted livingcommunities with 9,063 units were included in our Management Services segment, representing 8.4% of our total senior living capacity. In the aggregate, these assisted livingcommunities represented 57.7% of our total senior living capacity.As of December 31, 2015, we provide memory care services at 571 of our communities, aggregating 14,077 memory care units across our segments. These communities include 131freestanding memory care communities with 5,063 units included in our Assisted Living segment.CCRCs. Our CCRCs are large communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health. Most of our CCRCs haveindependent living, assisted living and skilled nursing available on one campus or within the immediate market, and some also include memory care/Alzheimer's service areas.CCRCs that we own or lease are included in our CCRCs - Rental segment, and CCRCs for which we provide management services for third parties or unconsolidated ventures in whichwe have an ownership interest are included in our Management Services segment. As of December 31, 2015, our CCRCs - Rental segment included 44 CCRCs with 10,423 units,representing 9.6% of our total senior living capacity, and 34 CCRCs with 10,944 units were included in our management services segment, representing 10.1% of our total senior livingcapacity. In the aggregate, these CCRCs represented 19.7% of our total senior living capacity.10Twenty of our CCRCs allow for residents in the independent living apartment units to pay a one-time upfront entrance fee, typically $100,000 to $400,000 or more, which is partiallyrefundable in certain circumstances. We refer to these communities as entry fee CCRCs. The amount of the entrance fee varies depending upon the type and size of the dwelling unit, thetype of contract plan selected, whether the contract contains a lifecare benefit (i.e., a healthcare discount) for the resident, the amount and timing of the refund, and other variables.These agreements are subject to regulations in various states. In addition to their initial entrance fee, residents under all of our entrance fee agreements also pay a monthly service fee,which entitles them to the use of certain amenities and services. Since entrance fees are paid upon initial occupancy, the monthly fees are generally less than fees at a comparable rentalcommunity. The refundable portion of a resident's entrance fee is generally refundable within a certain number of months or days following contract termination or upon the sale of theunit, or in some agreements, upon the resale of a comparable unit or 12 months after the resident vacates the unit. In addition, some entrance fee agreements entitle the resident to arefund of the original entrance fee paid plus a percentage of the appreciation of the unit upon resale. As of December 31, 2015, our CCRCs - Rental segment included three entry feeCCRCs with 1,172 units, representing 0.6% of our total senior living capacity, and 17 entry fee CCRCs with 8,152 units were included in our Management Services segment, representing7.5% of our total senior living capacity.Brookdale Ancillary Services. Through our ancillary services programs, we currently provide home health, therapy and other ancillary services, as well as education and wellnessprograms, to residents of many of our communities. These programs are focused on wellness and physical fitness to allow residents to maintain maximum independence. These servicesprovide many continuing education opportunities for residents and their families through health fairs, seminars, and other consultative interactions. The therapy services we provideinclude physical, occupational, speech and other specialized therapy and home health services. The home health services we provide include skilled nursing, physical therapy,occupational therapy, speech language pathology, home health aide services, and social services as needed. In addition to providing these in-house therapy and wellness services at ourcommunities, we also provide these services to other senior living communities that we do not own or operate and to seniors living outside of our communities. These services may bereimbursed under the Medicare program or paid directly by residents from private pay sources and revenues are recognized as services are provided. We have also begun offeringhospice services in certain locations. We believe that our ancillary services offerings are unique in the senior living industry and that we have a significant advantage over ourcompetitors with respect to providing ancillary services because of our established infrastructure and experience.Our Brookdale Ancillary Services segment includes the outpatient therapy, home health and hospice services provided to residents of many of our communities, to other senior livingcommunities that we do not own or operate and to seniors living outside of our communities. The Brookdale Ancillary Services segment does not include the inpatient therapy servicesprovided in our skilled nursing units, which are included in the CCRCs - Rental segment.Management Services. We operate certain of our communities pursuant to management agreements. In some of these cases, the community is owned by third parties and, in other cases,the community is owned in an unconsolidated venture in which we have an ownership interest. Under the management agreements for these communities, we receive management feesas well as reimbursed expenses, which represent the reimbursement of certain expenses we incur on behalf of the owners.As of December 31, 2015, the 164 communities and 27,353 units in our Management Services segment represented 25.3% of our total senior living capacity. As of that date, we operated22 communities, representing 2,211 units, for third parties and 142 communities, representing 25,142 units, for unconsolidated ventures in which we have an ownership interest. As ofDecember 31, 2015, these communities consisted of 35 retirement center communities, 95 assisted living communities and 34 CCRCs.11Competitive StrengthsWe believe our nationwide network of senior living communities is well positioned to benefit from the growth and increasing demand in the industry. Some of our most significantcompetitive strengths are:•Skilled management team with extensive experience. Our senior management team has extensive experience in acquiring, operating and managing a broad range of senior livingassets, including experience in the senior living, healthcare and real estate industries.•Geographically diverse, high-quality, purpose-built communities. Our acquisition of Emeritus expanded our unit capacity by more than two-thirds, provided entry into 10 newstates and significantly increased our presence in high-population states, especially in the west and northeast. As of December 31, 2015, we are the largest operator of senior livingcommunities in the United States based on total capacity, with 1,123 communities in 47 states and the ability to serve approximately 108,000 residents.•Ability to provide a broad spectrum of care. Given our diverse mix of retirement centers, assisted living communities and CCRCs, we are able to meet a wide range of our customers'needs. We believe that we are one of the few companies in the senior living industry with this capability and the only company that does so at scale on a national basis. We believethat our multiple product offerings create marketing synergies and cross-selling opportunities.•The size of our business allows us to realize cost and operating efficiencies. We are the largest operator of senior living communities in the United States based on total capacity.The size of our business allows us to realize cost savings and economies of scale in the procurement of goods and services. Our scale also allows us to achieve increasedefficiencies with respect to various corporate functions. We intend to utilize our expertise and size to capitalize on economies of scale resulting from our national platform. Ourgeographic footprint and centralized infrastructure provide us with a significant operational advantage over local and regional operators of senior living communities. In connectionwith our formation transactions and our acquisitions, we negotiated new contracts for food, insurance and other goods and services. In addition, we have and will continue toconsolidate corporate functions such as accounting, finance, human resources, legal, information technology and marketing.•Significant experience in providing ancillary services. Through our ancillary services programs, we provide a range of education, wellness, therapy, home health and otherancillary services to residents of certain of our retirement centers, assisted living communities, and CCRCs. Having therapy clinics and home health agencies located in our seniorliving communities to provide needed services to our residents is a distinct competitive difference. We have significant experience in providing these ancillary services and expect toreceive additional revenues as we expand our ancillary service offerings to additional communities and to seniors outside of our communities.SegmentsAs of December 31, 2015, we had five reportable segments: Retirement Centers; Assisted Living; CCRCs – Rental; Brookdale Ancillary Services and Management Services. Thesesegments were determined based on the way that our chief operating decision maker organizes our business activities for making operating decisions, assessing performance,developing strategy and allocating capital resources.Operating results from our five business segments are discussed further in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note18 to our consolidated financial statements included in this Annual Report on Form 10-K.12OperationsOperations OverviewWe believe that successful senior living operators must effectively combine the expertise and business disciplines of housing, hospitality, health care, sales, marketing, dining, financeand real estate.We continually review opportunities to expand the types of services we provide to our residents. We seek to increase our average monthly revenue per unit each year and seek toincrease facility operating margins through a combination of the implementation of efficient operating procedures and the economies of scale associated with the size and number of ourcommunities. Our operating procedures include securing national vendor contracts to obtain the lowest possible pricing for certain services such as food, energy and insurance,implementing effective budgeting and financial controls at each community, and establishing standardized training and operations procedures.We have implemented intensive standards, policies and procedures and systems, including detailed staff manuals and training materials, which we believe have contributed to highlevels of customer service. We have centralized accounting, finance and other operating functions in our support centers so that, consistent with our operating philosophy, community-based personnel can focus on resident care, family connections and efficient operations. We have established company-wide policies and procedures relating to, among other things:resident care; community design and community operations; billing and collections; accounts payable; finance and accounting; risk management; development of employee trainingmaterials and programs; marketing activities; the hiring and training of management and other community-based personnel; compliance with applicable local and state regulatoryrequirements; and implementation of our acquisition, development and leasing plans.Consolidated Corporate Operations SupportWe have developed a centralized infrastructure and services platform, which provides us with a significant operational advantage over local and regional operators of senior livingcommunities. The size of our business also allows us to achieve increased efficiencies with respect to various corporate functions such as human resources, finance, accounting, legal,information technology and marketing. We are also able to realize cost efficiencies in the purchasing of food, supplies, insurance, benefits, and other goods and services. In addition, wehave established centralized operations groups to support all of our product lines and communities in areas such as training, regulatory affairs, asset management, dining andprocurement.Since the closing of our acquisition of Emeritus, we have executed on our plans to integrate legacy Emeritus locations into our systems and infrastructure platform as rapidly asprudently possible. In 2015, we completed the final cutover waves of integration activities and have a common system and infrastructure platform in place. We will continue to reinforceand refine our operating model and certain processes during 2016.Community Staffing and TrainingEach community has an Executive Director responsible for the overall day-to-day operations of the community, including quality of care and service, social services and financialperformance. Each Executive Director receives specialized training from us. In addition, a portion of each Executive Director's compensation is directly tied to the operating performanceof the community and key care and service quality measures. We believe that the quality of our communities, coupled with our competitive compensation philosophy, has enabled us toattract high-quality, professional community Executive Directors.Depending upon the size of the community, each Executive Director is supported by a community staff member who is directly responsible for day-to-day care of the residents and eithercommunity staff or regional support to oversee the community's sales, marketing and community outreach programs. Other key positions supporting each community may includeindividuals responsible for food service, healthcare services, therapy services, activities, housekeeping, and engineering.13We believe that quality of care and operating efficiency can be maximized by direct resident and staff contact. Employees involved in resident care, including the administrative staff, aretrained in the support and care needs of the residents and emergency response techniques. We have adopted formal training and evaluation procedures to help ensure quality care forour residents. We have extensive policy and procedure manuals and hold frequent training sessions for management and staff at each site.Quality AssuranceWe maintain quality assurance programs at each of our communities through our corporate and regional staff. Our quality assurance programs are designed to achieve a high degree ofresident and family member satisfaction with the care and services that we provide. Our quality control measures include, among other things, community inspections conducted bycorporate staff on a regular basis. These inspections cover the appearance of the exterior and grounds; the appearance and cleanliness of the interior; the professionalism andfriendliness of staff; quality of resident care (including assisted living services, nursing care, therapy and home health programs); the quality of activities and the dining program;observance of residents in their daily living activities; and compliance with government regulations. Our quality control measures also include the survey of residents and familymembers on a regular basis to monitor their perception of the quality of services provided to residents.In order to foster a sense of community as well as to respond to residents' needs and desires, at many of our communities, we have established a resident council or other residentadvisory committee that meets monthly with the Executive Director of the community. Separate resident committees also exist at many of these communities for food service, activities,marketing and hospitality. These committees promote resident involvement and satisfaction and enable community management to be more responsive to the residents' needs anddesires.Marketing and SalesOur marketing strategy is intended to create awareness of our Brookdale brand, our communities, our products and our services among potential residents and their family members andamong referral sources, including hospital discharge planners, physicians, clergy, area agencies for the elderly, skilled nursing facilities, home health agencies and social workers. Ourmarketing staff develops overall strategies for promoting our communities and monitors the success of our multi-layered marketing efforts, including outreach programs. In addition todirect contacts with prospective referral sources, we also rely on internet inquiries, contact centers, print advertising, e-mail and digital marketing, social media, direct mail, signage andspecial events, health fairs and community receptions. Certain resident referral programs have been established and promoted within the limitations of federal and state laws at manycommunities.In order to mitigate the impact of weakness in certain housing markets and to accelerate move-ins, we have implemented several sales and marketing initiatives designed to increaseentrance fee sales. These include the acceptance of short-term promissory notes in satisfaction of a resident's required entrance fee from certain pre-qualified, prospective residents whoare waiting for their homes to sell. In addition, we have implemented the MyChoice program, which allows new and existing residents in certain communities the option to pay additionalrefundable entrance fee amounts in return for a reduced monthly service fee, thereby offering choices to residents desiring a more affordable ongoing monthly service fee.CompetitionThe senior living industry is highly competitive. We compete with numerous organizations that provide similar senior living alternatives, such as home health care agencies, community-based service programs, retirement communities, convalescent centers and other senior living providers. In addition, over the last several years there has been an increase in theconstruction of new senior housing assets. In general, regulatory and other barriers to competitive entry in the retirement center and assisted living sectors of the senior living industryare not substantial. Consequently, we may encounter competition that could limit our ability to attract residents or expand our business, which could have a material adverse effect onour revenues and earnings. Our major publicly-traded competitors that operate senior living communities are Five Star Quality Care, Inc. and Capital Senior Living Corporation. Our majorprivate competitors include Holiday Retirement, Life Care Services, LLC, and Sunrise Senior Living, LLC, as well as a large number of not-for-profit entities.14In recent years, we have experienced and expect to continue to experience competition in our efforts to acquire and operate senior living communities. Some of our present and potentialsenior living competitors have, or may obtain, greater financial resources than us and may have a lower cost of capital. In addition, several publicly-traded and non-traded real estateinvestment trusts, or REITs, have similar asset acquisition objectives as we do, along with greater financial resources and/or lower costs of capital than we are able to obtain. This mayincrease competition for acquisitions that would be suitable to us, making it more difficult for us to compete and successfully implement our growth strategy. Partially as a result of taxlaw changes enacted through RIDEA, we now compete more directly with the various publicly-traded healthcare REITs for the acquisition of senior housing properties. The largest threeof these publicly-traded healthcare REITs measured on equity market capitalization include HCP, Inc., Ventas, Inc. and Welltower, Inc.CustomersOur target retirement center residents are senior citizens age 75 and older who desire or need a more supportive living environment. The average retirement center resident resides in aretirement center community for approximately 33 months. A number of our retirement center residents relocate to one of our communities in order to be in a metropolitan area that iscloser to their adult children.Our target assisted living residents are predominantly senior citizens age 80 and older who require daily assistance with two or three ADLs. The average assisted living resident residesin an assisted living community for approximately 20 months. Residents typically enter an assisted living community due to a relatively immediate need for services that might have beentriggered by a medical event or need.Our target CCRC residents are senior citizens who are seeking a community that offers a variety of services and a continuum of care so that they can "age in place." These residentsgenerally first enter the community as a resident of an independent living unit and may later move into an assisted living or skilled nursing area as their needs change.We believe our combination of retirement center, assisted living and dementia care operating expertise and the broad base of customers that this enables us to target creates a uniqueopportunity for us to invest in a broad spectrum of assets in the senior living industry, including retirement center, assisted living, CCRC and skilled nursing communities.EmployeesAs of December 31, 2015, we had approximately 53,000 full-time employees and approximately 29,000 part-time employees, of which 630 work in our Brentwood, Tennessee (a suburb ofNashville) headquarters office, 700 work in our Milwaukee, Wisconsin office and 1,030 work in our smaller regional support offices and a variety of field-based management positions.We currently consider our relationship with our employees to be good.Government RegulationThe regulatory environment surrounding the senior living industry continues to intensify in the number and type of laws and regulations affecting it. In addition, federal, state and localofficials are increasingly focusing their efforts on enforcement of these laws and regulations. This is particularly true for large for-profit, multi-community providers like us. Some of thelaws and regulations that impact our industry include: state and local laws impacting licensure, protecting consumers against deceptive practices, and generally affecting thecommunities' management of property and equipment and how we otherwise conduct our operations, such as fire, health and safety laws and regulations and privacy laws; federal andstate laws designed to protect Medicare and Medicaid, which mandate what are allowable costs, pricing, quality of services, quality of care, food service, resident rights (including abuseand neglect) and fraud; federal and state residents' rights statutes and regulations; Anti-Kickback and physicians referral ("Stark") laws; and safety and health standards set by theOccupational Safety and Health Administration. We are unable to predict the future course of federal, state and local legislation or regulation. Changes in the regulatory framework couldhave a material adverse effect on our business.15Many senior living communities are also subject to regulation and licensing by state and local health and social service agencies and other regulatory authorities. Althoughrequirements vary from state to state, these requirements may address, among others, the following: personnel education, training and records; community services, includingadministration of medication, assistance with self-administration of medication and the provision of nursing, home health and therapy services; staffing levels; monitoring of residentwellness; physical plant specifications; furnishing of resident units; food and housekeeping services; emergency evacuation plans; professional licensing and certification of staff priorto beginning employment; and resident rights and responsibilities, including in some states the right to receive health care services from providers of a resident's choice that are not ouremployees. In several of the states in which we operate or may operate, we are prohibited from providing certain higher levels of senior care services without first obtaining theappropriate licenses. In addition, in several of the states in which we operate or intend to operate, assisted living communities, home health agencies and/or skilled nursing facilitiesrequire a certificate of need before the community can be opened or the services at an existing community can be expanded. Senior living communities may also be subject to state and/orlocal building, zoning, fire and food service codes and must be in compliance with these local codes before licensing or certification may be granted. These laws and regulatoryrequirements could affect our ability to expand into new markets and to expand our services and communities in existing markets. In addition, if any of our presently licensedcommunities operates outside of its licensing authority, it may be subject to penalties, including closure of the community.The intensified regulatory and enforcement environment impacts providers like us because of the increase in the number of inspections or surveys by governmental authorities andconsequent citations for failure to comply with regulatory requirements. Unannounced surveys or inspections may occur annually or bi-annually, or following a regulator's receipt of acomplaint about the community. From time to time in the ordinary course of business, we receive deficiency reports from state regulatory bodies resulting from such inspections orsurveys. Most inspection deficiencies are resolved through an agreed-to plan of corrective action relating to the community's operations, but the reviewing agency typically has theauthority to take further action against a licensed or certified community, which could result in the imposition of fines, imposition of a provisional or conditional license, suspension orrevocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminalpenalties. Loss, suspension or modification of a license may also cause us to default under our loan or lease agreements and/or trigger cross-defaults. Sanctions may be taken againstproviders or facilities without regard to the providers' or facilities' history of compliance. We may also expend considerable resources to respond to federal and state investigations orother enforcement action under applicable laws or regulations. To date, none of the deficiency reports received by us has resulted in a suspension, fine or other disposition that has hada material adverse effect on our revenues. However, any future substantial failure to comply with any applicable legal and regulatory requirements could result in a material adverse effectto our business as a whole. In addition, states Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. State Medicaid Fraudand Abuse Units may also investigate assisted living communities even if the community or any of its residents do not receive federal or state funds.Regulation of the senior living industry is evolving at least partly because of the growing interests of a variety of advocacy organizations and political movements attempting tostandardize regulations for certain segments of the industry, particularly assisted living. Our operations could suffer if future regulatory developments, such as federal assisted livinglaws and regulations, as well as mandatory increases in the scope and severity of deficiencies determined by survey or inspection officials or increase the number of citations that canresult in civil or criminal penalties. Certain current state laws and regulations allow enforcement officials to make determinations on whether the care provided by one or more of ourcommunities exceeds the level of care for which the community is licensed. A finding that a community is delivering care beyond its license might result in the immediate transfer anddischarge of residents, which may create market instability and other adverse consequences. Furthermore, certain states may allow citations in one community to impact othercommunities in the state. Revocation or suspension of a license, or a citation, at a given community could therefore impact our ability to obtain new licenses or to renew existing licensesat other communities, which may also cause us to be in default under our loan or lease agreements and trigger cross-defaults or may also trigger defaults under certain of our creditagreements, or adversely affect our ability to operate and/or obtain financing in the future. If a state were to find that one community's citation will impact another of our communities,this will also increase costs and result in increased surveillance by the state survey agency. If regulatory requirements increase, whether through enactment of new laws or regulations orchanges in the enforcement of existing rules, including increased enforcement brought about by advocacy groups, in addition to federal and state regulators, our operations could beadversely affected. In addition, any adverse finding by survey and inspection officials may serve as the basis for false claims lawsuits by private plaintiffs and may lead to investigationsunder federal and state laws, which may result in civil and/or criminal penalties against the community or individual.16There are various extremely complex federal and state laws governing a wide array of referrals, relationships and arrangements and prohibiting fraud by health care providers, includingthose in the senior living industry, and governmental agencies are devoting increasing attention and resources to such anti-fraud initiatives. The Health Insurance Portability andAccountability Act of 1996, or HIPAA, and the Balanced Budget Act of 1997 expanded the penalties for health care fraud. In addition, with respect to our participation in federal healthcare reimbursement programs, the government or private individuals acting on behalf of the government may bring an action under the False Claims Act alleging that a health careprovider has defrauded the government and seek treble damages for false claims and the payment of additional monetary civil penalties. Recently, other health care providers have facedenforcement action under the False Claims Act. The False Claims Act allows a private individual with knowledge of fraud to bring a claim on behalf of the federal government and earn apercentage of the federal government's recovery. Because of these incentives, so-called "whistleblower" suits have become more frequent. Also, if any of our communities exceeds itslevel of care, we may be subject to private lawsuits alleging "transfer trauma" by residents. Such allegations could also lead to investigations by enforcement officials, which could resultin penalties, including the closure of communities. The violation of any of these regulations may result in the imposition of fines or other penalties that could jeopardize our business.Additionally, we operate communities that participate in federal and/or state health care reimbursement programs, including state Medicaid waiver programs for assisted livingcommunities, the Medicare skilled nursing facility benefit program and other healthcare programs such as therapy and home health services, or other federal and/or state health careprograms. Consequently, we are subject to federal and state laws that prohibit anyone from presenting, or causing to be presented, claims for reimbursement which are false, fraudulentor are for items or services that were not provided as claimed. Similar state laws vary from state to state and we cannot be sure that these laws will be interpreted consistently or inkeeping with past practices. Violation of any of these laws can result in loss of licensure, claims for recoupment, civil or criminal penalties and exclusion of health care providers orsuppliers from furnishing covered items or services to beneficiaries of the applicable federal and/or state health care reimbursement program. Loss of licensure may also cause us todefault under our leases and loan agreements and/or trigger cross-defaults.We are also subject to certain federal and state laws that regulate financial arrangements by health care providers, such as the Federal Anti-Kickback Law, the Stark laws and certain statereferral laws. The Federal Anti-Kickback Law makes it unlawful for any person to offer or pay (or to solicit or receive) "any remuneration ... directly or indirectly, overtly or covertly, incash or in kind" for referring or recommending for purchase any item or service which is eligible for payment under the Medicare and/or Medicaid programs. Authorities have interpretedthis statute very broadly to apply to many practices and relationships between health care providers and sources of patient referral. If we were to violate the Federal Anti-Kickback Law,we may face criminal penalties and civil sanctions, including fines and possible exclusion from government programs such as Medicare and Medicaid, which may also cause us to defaultunder our leases and loan agreements and/or trigger cross-defaults. Adverse consequences may also result if we violate federal Stark laws related to certain Medicare and Medicaidphysician referrals. While we endeavor to comply with all laws that regulate the licensure and operation of our senior living communities, it is difficult to predict how our revenues couldbe affected if we were subject to an action alleging such violations. We are also subject to federal and state laws designed to protect the confidentiality of patient health information. TheU.S. Department of Health and Human Services, or HHS, has issued rules pursuant to HIPAA relating to the privacy of such information. Rules that became effective April 14, 2003govern our use and disclosure of health information at certain HIPAA covered communities. We established procedures to comply with HIPAA privacy requirements at thesecommunities. We were required to be in compliance with the HIPAA rule establishing administrative, physical and technical security standards for health information by April 2005. Tothe best of our knowledge, we are in compliance with these rules.17Environmental MattersUnder various federal, state and local environmental laws, a current or previous owner or operator of real property, such as us, may be held liable in certain circumstances for the costs ofinvestigation, removal or remediation of certain hazardous or toxic substances, including, among others, petroleum and materials containing asbestos, that could be located on, in, at orunder a property, regardless of how such materials came to be located there. Additionally, such an owner or operator of real property may incur costs relating to the release of hazardousor toxic substances, including government fines and payments for personal injuries or damage to adjacent property. The cost of any required investigation, remediation, removal,mitigation, compliance, fines or personal or property damages and our liability therefore could exceed the property's value and/or our assets' value. In addition, the presence of suchsubstances, or the failure to properly dispose of or remediate the damage caused by such substances, may adversely affect our ability to sell such property, to attract additionalresidents and retain existing residents, to borrow using such property as collateral or to develop or redevelop such property. In addition, such laws impose liability for investigation,remediation, removal and mitigation costs on persons who disposed of or arranged for the disposal of hazardous substances at third-party sites. Such laws and regulations often imposeliability without regard to whether the owner or operator knew of, or was responsible for, the presence, release or disposal of such substances as well as without regard to whether suchrelease or disposal was in compliance with law at the time it occurred. Moreover, the imposition of such liability upon us could be joint and several, which means we could be required topay for the cost of cleaning up contamination caused by others who have become insolvent or otherwise judgment proof.We do not believe that we have incurred such liabilities that would have a material adverse effect on our business, financial condition and results of operations.Our operations are subject to regulation under various federal, state and local environmental laws, including those relating to: the handling, storage, transportation, treatment anddisposal of medical waste products generated at our communities; identification and warning of the presence of asbestos-containing materials in buildings, as well as removal of suchmaterials; the presence of other substances in the indoor environment; and protection of the environment and natural resources in connection with development or construction of ourproperties.Some of our communities generate infectious or other hazardous medical waste due to the illness or physical condition of the residents, including, for example, blood-contaminatedbandages, swabs and other medical waste products and incontinence products of those residents diagnosed with an infectious disease. The management of infectious medical waste,including its handling, storage, transportation, treatment and disposal, is subject to regulation under various federal, state and local environmental laws. These environmental laws setforth the management requirements for such waste, as well as related permit, record-keeping, notice and reporting obligations. Each of our communities has an agreement with a wastemanagement company for the proper disposal of all infectious medical waste. The use of such waste management companies does not immunize us from alleged violations of suchmedical waste laws for operations for which we are responsible even if carried out by such waste management companies, nor does it immunize us from third-party claims for the cost tocleanup disposal sites at which such wastes have been disposed. Any finding that we are not in compliance with environmental laws could adversely affect our business operations andfinancial condition.Federal regulations require building owners and those exercising control over a building's management to identify and warn, via signs and labels, their employees and certain otheremployers operating in the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in theirbuildings. The regulations also set forth employee training, record-keeping requirements and sampling protocols pertaining to asbestos-containing materials and potential asbestos-containing materials. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a building's management may be subject toan increased risk of personal injury lawsuits by workers and others exposed to asbestos-containing materials and potential asbestos-containing materials. The regulations may affect thevalue of a building containing asbestos-containing materials and potential asbestos-containing materials in which we have invested. Federal, state and local laws and regulations alsogovern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potential asbestos-containing materials when such materials are in poorcondition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for improper handling or a release to the environment ofasbestos-containing materials and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or operators of real propertiesfor personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials.18The presence of mold, lead-based paint, contaminants in drinking water, radon and/or other substances at any of the communities we own or may acquire may lead to the incurrence ofcosts for remediation, mitigation or the implementation of an operations and maintenance plan. Furthermore, the presence of mold, lead-based paint, contaminants in drinking water,radon and/or other substances at any of the communities we own or may acquire may present a risk that third parties will seek recovery from the owners, operators or tenants of suchproperties for personal injury or property damage. In some circumstances, areas affected by mold may be unusable for periods of time for repairs, and even after successful remediation,the known prior presence of extensive mold could adversely affect the ability of a community to retain or attract residents and could adversely affect a community's market value.We believe that we are in material compliance with applicable environmental laws.We are unable to predict the future course of federal, state and local environmental regulation and legislation. Changes in the environmental regulatory framework (including legislativeor regulatory efforts designed to address climate change, such as the proposed "cap and trade" legislation) could have a material adverse effect on our business. In addition, becauseenvironmental laws vary from state to state, expansion of our operations to states where we do not currently operate may subject us to additional restrictions on the manner in which weoperate our communities.Available InformationOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports, are available free of charge through our web site assoon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, at the following address: www.brookdale.com. Theinformation within, or that can be accessed through, the web site is not part of this report.We have posted our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of our Audit, Compensation, Investment and Nominating and CorporateGovernance Committees on our web site at www.brookdale.com. In addition, our Code of Ethics for Chief Executive and Senior Financial Officers, which applies to our Chief ExecutiveOfficer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller is also available on our website. Our corporate governance materials are available in printfree of charge to any stockholder upon request to our Corporate Secretary, Brookdale Senior Living Inc., 111 Westwood Place, Suite 400, Brentwood, Tennessee 37027.19Executive Officers of the RegistrantThe following table sets forth certain information concerning our executive officers as of February 12, 2016:Name Age PositionT. Andrew Smith 55 Chief Executive Officer and DirectorMark W. Ohlendorf 55 PresidentLabeed S. Diab 46 Chief Operating OfficerLucinda M. Baier 51 Chief Financial OfficerBryan D. Richardson 57 Executive Vice President and Chief Administrative OfficerGlenn O. Maul 61 Executive Vice President and Chief People OfficerKristin A. Ferge 42 Executive Vice PresidentGeorge T. Hicks 58 Executive Vice President – Finance and TreasurerH. Todd Kaestner 60 Executive Vice President – Corporate DevelopmentMary Sue Patchett 53 Executive Vice President – Community and Field OperationsT. Andrew Smith has served as our Chief Executive Officer since February 2013 and a member of our Board of Directors since June 2014. He has over 25 years of experience in seniorshousing, mergers and acquisitions, real estate and capital markets transactions, corporate finance and healthcare. From October 2006 to February 2013, Mr. Smith served as our ExecutiveVice President, General Counsel and Secretary. In addition to his role in managing our legal affairs, Mr. Smith was responsible for the management and oversight of our corporatedevelopment functions (including acquisitions and expansion and development activity); corporate finance (including capital structure, debt and lease transactions and lender/lessorrelations); strategic planning; and risk management. Prior to joining Brookdale, Mr. Smith served as a member of Bass, Berry & Sims PLC's corporate and securities group and as chair ofthe firm's healthcare group. During his tenure at Bass, Berry & Sims (1985 to 2006), Mr. Smith represented American Retirement Corporation as outside General Counsel. He currentlyserves as a member of the board of directors of the Nashville Health Care Council and the National Investment Center for the Seniors Housing & Care Industry (NIC) and as a member ofthe executive board of the American Seniors Housing Association (ASHA).Mark W. Ohlendorf has served as our President since June 2013. He previously served as our Chief Financial Officer from March 2007 until November 2015 and Co-President fromAugust 2005 to May 2013. Mr. Ohlendorf previously served as Chief Executive Officer and President of Alterra from December 2003 until August 2005. From January 2003 throughDecember 2003, Mr. Ohlendorf served as Chief Financial Officer and President of Alterra, and from 1999 through 2002 he served as Senior Vice President and Chief Financial Officer ofAlterra. Mr. Ohlendorf has over 30 years of experience in the health care and long-term care industries, having held leadership positions with such companies as Sterling HouseCorporation, Vitas Healthcare Corporation and Horizon/CMS Healthcare Corporation. He is on the board of directors of and is past chairman of the board of directors of Argentum(formerly known as the Assisted Living Federation of America).Labeed S. Diab joined Brookdale as Chief Operating Officer in November 2015. Prior to joining Brookdale, Mr. Diab served in operational leadership roles for the Walmart US division ofWal-Mart Stores, Inc. since 2009, most recently serving as its President of Health and Wellness since 2014, its President of Midwest Division from 2011 to 2014, and its Vice President andGeneral Manager from 2009 to 2011. Prior to that, Mr. Diab served as Regional Vice President of Aramark's Health Care Division from 2006 to 2009 and as Regional Vice President for RiteAid Corporation from 2003 to 2006. Mr. Diab began his career as a Pharmacy Manager with American Stores Company and later in regional roles with CVS Caremark. Mr. Diab is aRegistered Pharmacist.Lucinda M. Baier joined Brookdale as Chief Financial Officer in December 2015. Ms. Baier has more than fifteen years of executive leadership experience in accounting, taxation, financeand treasury functions, having most recently served as Chief Financial Officer of Navigant Consulting, Inc., a specialized global expert services firm, since March 2013 and its ExecutiveVice President since February 2013. Prior to that, she was Executive Vice President, Chief Financial Officer and Chief Administrative Officer of Central Parking System, Inc., a leading firmin parking management and marketing, from August 2011 to October 2012, having previously served as its Senior Vice President and Chief Financial Officer since September 2010. Ms.Baier served from July 2008 to February 2010 as Executive Vice President and Chief Financial Officer of Movie Gallery, Inc., and served from 2006 until July 2008 as Chief Financial Officerof World Kitchen, LLC. In addition, Ms. Baier serves as a member of the Board of Directors and Audit Committee of The Bon-Ton Stores, Inc., one of the largest regional departmentstore operators in the United States. Ms. Baier is a Certified Public Accountant.20Bryan D. Richardson became our Executive Vice President in July 2006 and our Chief Administrative Officer in January 2008. Mr. Richardson also served as our Chief AccountingOfficer from September 2006 through April 2008. Previously, Mr. Richardson served as Executive Vice President – Finance and Chief Financial Officer of ARC since April 2003 andpreviously served as its Senior Vice President – Finance since April 2000. Mr. Richardson was formerly with a national graphic arts company from 1984 to 1999 serving in variouscapacities, including Senior Vice President of Finance of a digital prepress division from May 1994 to October 1999, and Senior Vice President of Finance and Chief Financial Officer from1989 to 1994. Mr. Richardson was previously with the national public accounting firm PricewaterhouseCoopers.Glenn O. Maul became our Executive Vice President and Chief People Officer in March 2013. Previously, Mr. Maul served as Senior Vice President – Human Resources since joiningBrookdale in April 2006. Prior to joining Brookdale, he served as Vice President – Human Resources for Sunrise Senior Living. While Mr. Maul has spent most of his career focusing onhuman resources, his early career included roles in finance and operations. Mr. Maul is certified as a Senior Professional in Human Resources (SPHR).Kristin A. Ferge became our Executive Vice President in August 2005. She previously served as our Chief Accounting Officer from July 2014 through January 2016, our Treasurer fromAugust 2005 through January 2016, and as our Chief Administrative Officer from March 2007 through December 2007. Ms. Ferge also previously served as Vice President, ChiefFinancial Officer and Treasurer of Alterra from December 2003 until August 2005. From April 2000 through December 2003, Ms. Ferge served as Alterra's Vice President of Finance andTreasurer. Prior to joining Alterra, she worked in the audit division of KPMG LLP. Ms. Ferge is a certified public accountant.George T. Hicks became our Executive Vice President – Finance in July 2006 and our Treasurer in January 2016. Prior to July 2006, Mr. Hicks served as Executive Vice President –Finance and Internal Audit, Secretary and Treasurer of ARC since September 1993. Mr. Hicks had served in various capacities for ARC's predecessors since 1985, including ChiefFinancial Officer from September 1993 to April 2003 and Vice President – Finance and Treasurer from November 1989 to September 1993.H. Todd Kaestner became our Executive Vice President – Corporate Development in July 2006. Previously, Mr. Kaestner served as Executive Vice President – Corporate Development ofARC since September 1993. Mr. Kaestner served in various capacities for ARC's predecessors since 1985, including Vice President – Development from 1988 to 1993 and Chief FinancialOfficer from 1985 to 1988.Mary Sue Patchett became our Executive Vice President – Community and Field Operations in November 2015 after having served as Division President since February 2013 and asDivisional Vice President since joining Brookdale in September 2011 in connection with our Horizon Bay acquisition. Ms. Patchett has over 30 years of senior care and housingexperience serving in leadership roles. Previously, Ms. Patchett served as Chief Operating Officer of Horizon Bay from January 2011 through August 2011 and as Senior Vice President ofOperations from March 2008 through December 2011. Prior to joining Horizon Bay, she was President and owner of Patchett & Associates, Inc., a management consulting firm for seniorhousing and other healthcare companies, from 2005 until March 2008. Ms. Patchett had previously served as Divisional Vice President for Alterra for over six years and started in seniorliving with nine years in numerous leadership positions at Sunrise Senior Living. Ms. Patchett has served on numerous industry boards and is serving on the board of Florida AssistedLiving Federation of America as its past chair.21Item 1A.Risk Factors.Risks Related to Our BusinessDue to the dependency of our revenues on private pay sources, events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees (includingdownturns in the economy, housing market, consumer confidence or the equity markets and unemployment among resident family members) could cause our occupancy rates,revenues and results of operations to decline.Costs to seniors associated with independent and assisted living services are not generally reimbursable under government reimbursement programs such as Medicare and Medicaid.Only seniors with income or assets meeting or exceeding the comparable median in the regions where our communities are located typically can afford to pay our monthly resident fees.Economic downturns, softness in the housing market, higher levels of unemployment among resident family members, lower levels of consumer confidence, stock market volatility and/orchanges in demographics could adversely affect the ability of seniors to afford our resident fees or entrance fees. If we are unable to retain and/or attract seniors with sufficient income,assets or other resources required to pay the fees associated with independent and assisted living services and other service offerings, our occupancy rates, revenues and results ofoperations could decline.The inability of seniors to sell real estate may delay their moving into our communities, which could negatively impact our occupancy rates, revenues, cash flows and results ofoperations.Downturns in the housing markets, such as the one we experienced beginning in 2007, could adversely affect the ability (or perceived ability) of seniors to afford our entrance fees andresident fees as our customers frequently use the proceeds from the sale of their homes to cover the cost of our fees. Specifically, if seniors have a difficult time selling their homes, thesedifficulties could impact their ability to relocate into our communities or finance their stays at our communities with private resources. If volatility in the housing market continues for aprotracted period, our occupancy rates, revenues, cash flows and results of operations could be negatively impacted.We rely on reimbursement from governmental programs for a portion of our revenues, and will be subject to changes in reimbursement levels, which could adversely affect ourresults of operations and cash flow.We rely on reimbursement from governmental programs for a portion of our revenues, and we cannot assure you that reimbursement levels will not decrease in the future, which couldadversely affect our results of operations and cash flow. Beginning October 1, 2011, we were impacted by a reduction in the reimbursement rates for Medicare skilled nursing patients andhome health patients, as well as a negative change in the allowable method for delivering therapy services to skilled nursing patients (resulting in increased therapy labor expense). Inaddition, certain per person annual limits on Medicare reimbursement for therapy services became effective in 2006, subject to certain exceptions. These exceptions are currentlyscheduled to expire on December 31, 2017. If these exceptions are modified or not extended beyond that date, our revenues and net operating income relating to our outpatient therapyservices could be materially adversely impacted.Effective October 1, 2012, certain Medicare Part B therapy services exceeding a specified threshold are subject to a pre-payment manual medical review process. The review process hashad an adverse effect on the provision and billing of services for patients and could negatively impact therapist productivity. These Medicare Part B therapy cap exception requirements,including the applicable pre-approval requirements, could also negatively impact the revenues and net operating income relating to our outpatient therapy services business. Pursuant tothe Medicare Access and CHIP Reauthorization Act of 2015, which was signed by the President on April 16, 2015, the manual review process will be replaced with a new review programto be developed by the Secretary of Health and Human Services.In addition, there continue to be various federal and state legislative and regulatory proposals to implement cost containment measures that would limit payments to healthcare providersin the future. We cannot predict what action, if any, Congress will take on reimbursement policies of the Medicare program or what future rule changes the CMS will implement. Changesin the reimbursement policies of the Medicare program could have an adverse effect on our results of operations and cash flow.22The impact of ongoing health care reform efforts on our business cannot accurately be predicted.The health care industry in the United States is subject to fundamental changes due to ongoing health care reform efforts and related political, economic and regulatory influences.Notably, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act") resulted in expandedhealth care coverage to millions of previously uninsured people beginning in 2014 and has resulted in significant changes to the U.S. health care system. To help fund this expansion, theAffordable Care Act outlines certain reductions in Medicare reimbursements for various health care providers, including skilled nursing facilities, as well as certain other changes toMedicare payment methodologies. This comprehensive health care legislation has resulted and will continue to result in extensive rulemaking by regulatory authorities, and also may bealtered or amended. It is difficult to predict the full impact of the Affordable Care Act due to the complexity of the law and implementing regulations, as well our inability to foresee howCMS and other participants in the health care industry will respond to the choices available to them under the law. We also cannot accurately predict whether any new or pendinglegislative proposals will be adopted or, if adopted, what effect, if any, these proposals would have on our business. Similarly, while we can anticipate that some of the rulemaking thatwill be promulgated by regulatory authorities will affect us and the manner in which we are reimbursed by the federal health care programs, we cannot accurately predict today the impactof those regulations on our business. The provisions of the legislation and other regulations implementing the provisions of the Affordable Care Act may increase our costs, decreaseour revenues, expose us to expanded liability or require us to revise the ways in which we conduct our business.In addition to its impact on the delivery and payment for health care, the Affordable Care Act and the implementing regulations have resulted and may continue to result in increases toour costs to provide health care benefits to our employees. We also may be required to make additional employee-related changes to our business as a result of provisions in theAffordable Care Act impacting the provision of health insurance by employers, which could result in additional expense and adversely affect our results of operations.Disruptions in the financial markets could affect our ability to obtain financing or to extend or refinance debt as it matures, which could negatively impact our liquidity, financialcondition and the market price of our common stock.In recent years, the United States stock and credit markets have experienced significant price volatility, dislocations and liquidity disruptions, which caused market prices of many stocksto fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances materially impacted liquidity in the financial markets, making termsfor certain financings less attractive, and in some cases resulted in the unavailability of financing. Continued uncertainty in the stock and credit markets may negatively impact our abilityto access additional financing (including any refinancing or extension of our existing debt) on reasonable terms, which may negatively affect our business.As of December 31, 2015, we had three principal corporate-level debt obligations: our $500.0 million secured credit facility, our $316.3 million 2.75% convertible senior notes due 2018 andseparate secured and unsecured letter of credit facilities providing for up to $80.2 million of letters of credit in the aggregate. If we are unable to extend (or refinance, as applicable) any ofour debt or credit or letter of credit facilities prior to their scheduled maturity dates, our liquidity and financial condition could be adversely impacted. In addition, even if we are able toextend or refinance our other maturing debt or credit or letter of credit facilities, the terms of the new financing may not be as favorable to us as the terms of the existing financing.A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to further adjust our business planaccordingly. These events also may make it more difficult or costly for us to raise capital, including through the issuance of common stock. Disruptions in the financial markets couldhave an adverse effect on us and our business. If we are not able to obtain additional financing on favorable terms, we also may have to delay or abandon some or all of our growthstrategies, which could adversely affect our revenues and results of operations.23General economic factors could adversely affect our financial performance and other aspects of our business.General economic conditions, such as inflation, commodity costs, fuel and other energy costs, costs of labor, insurance and healthcare, interest rates, and tax rates, affect our communityoperating and general and administrative expenses, and we have no control or limited ability to control such factors. In addition, current global economic conditions and uncertainties,the potential for failures or realignments of financial institutions, and the related impact on available credit may affect us and our business partners, landlords, counterparties andresidents or prospective residents in an adverse manner including, but not limited to, reducing access to liquid funds or credit, increasing the cost of credit, limiting our ability to manageinterest rate risk, increasing the risk that certain of our business partners, landlords or counterparties would be unable to fulfill their obligations to us, and other impacts which we areunable to fully anticipate.If we do not effectively manage our growth and successfully integrate new or recently-acquired or initiated operations into our existing operations, our business and financialresults could be adversely affected.Our growth has and will continue to place significant demands on our current management resources. Our ability to manage our growth effectively and to successfully integrate new orrecently-acquired or initiated operations (including expansions, developments, acquisitions and the expansion of our ancillary services programs) into our existing business will requireus to continue to expand our operational, financial and management information systems and to continue to retain, attract, train, motivate and manage key employees. There can be noassurance that we will be successful in attracting qualified individuals to the extent necessary, and management may expend significant time and energy attracting the appropriatepersonnel to manage assets we purchase in the future and our expansion and development activities. Also, the additional communities and expansion activities will require us to maintainconsistent quality control measures that allow our management to effectively identify deviations that result in delivering care and services that are substandard, which may result inlitigation and/or loss of licensure or certification. If we are unable to manage our growth effectively, successfully integrate new or recently-acquired or initiated operations into ourexisting business, or maintain consistent quality control measures, our business, financial condition and results of operations could be adversely affected.Delays in obtaining regulatory approvals could hinder our plans to expand our ancillary services programs, which could negatively impact our anticipated revenues, results ofoperations and cash flows.We plan to continue to expand our offering of ancillary services (including therapy, home health and hospice) to additional markets. In the current environment, it is difficult to obtaincertain required regulatory approvals. Delays in obtaining required regulatory approvals could impede our ability to expand to additional markets in accordance with our plans, whichcould negatively impact our anticipated revenues, results of operations and cash flows.If we are unable to generate sufficient cash flow to cover required interest and lease payments, this would result in defaults of the related debt or leases and cross-defaults underour other debt or lease documents, which would adversely affect our ability to continue to generate income.We have significant indebtedness and lease obligations, and we intend to continue financing our communities through mortgage financing, long-term leases and other types offinancing, including borrowings under our line of credit and future credit facilities we may obtain. We cannot give any assurance that we will generate sufficient cash flow fromoperations to cover required interest, principal and lease payments. Any non-payment or other default under our financing arrangements could, subject to cure provisions, cause thelender to foreclose upon the community or communities securing such indebtedness or, in the case of a lease, cause the lessor to terminate the lease, each with a consequent loss ofincome and asset value to us. Furthermore, in some cases, indebtedness is secured by both a mortgage on a community (or communities) and a guaranty by us and/or one or more of oursubsidiaries. In the event of a default under one of these scenarios, the lender could avoid judicial procedures required to foreclose on real property by declaring all amountsoutstanding under the guaranty immediately due and payable, and requiring the respective guarantor to fulfill its obligations to make such payments. The realization of any of thesescenarios would have an adverse effect on our financial condition and capital structure. Additionally, a foreclosure on any of our properties could cause us to recognize taxable income,even if we did not receive any cash proceeds in connection with such foreclosure. Further, because many of our outstanding debt and lease documents contain cross-default and cross-collateralization provisions, a default by us related to one community could affect a significant number of our communities and their corresponding financing arrangements and leases. Inthe event of such a default, we may not be able to obtain a waiver from the lender or lessor on terms acceptable or favorable to us, or at all, which would have a negative impact on ourcapital structure and financial condition.24Our indebtedness and long-term leases could adversely affect our liquidity and our ability to operate our business and our ability to execute our growth strategy.Our level of indebtedness and our long-term leases could adversely affect our future operations and/or impact our stockholders for several reasons, including, without limitation:•We may have little or no cash flow apart from cash flow that is dedicated to the payment of any interest, principal or amortization required with respect to outstandingindebtedness and lease payments with respect to our long-term leases;•Increases in our outstanding indebtedness, leverage and long-term leases will increase our vulnerability to adverse changes in general economic and industry conditions, aswell as to competitive pressure;•Increases in our outstanding indebtedness may limit our ability to obtain additional financing for working capital, capital expenditures, expansions, repositionings, newdevelopments, acquisitions, general corporate and other purposes; and•Our ability to pay dividends to our stockholders may be limited.Our ability to make payments of principal and interest on our indebtedness and to make lease payments on our leases depends upon our future performance, which will be subject togeneral economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. Our business might not continueto generate cash flow at or above current levels. If we are unable to generate sufficient cash flow from operations in the future to service our debt or to make lease payments on ourleases, we may be required, among other things, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selectedassets, reduce or delay planned capital expenditures or delay or abandon desirable acquisitions. These measures might not be sufficient to enable us to service our debt or to make leasepayments on our leases. The failure to make required payments on our debt or leases or the delay or abandonment of our planned growth strategy could result in an adverse effect onour future ability to generate revenues and sustain profitability. Any contemplated financing, refinancing or sale of assets might not be available on economically favorable terms to us.In addition, certain of our debt agreements contain extension options. If we are not able to satisfy the conditions precedent to exercising these extension options our liquidity andfinancial condition could be negatively impacted.Our existing credit facilities, mortgage loans and lease arrangements contain covenants that limit or restrict our operations and activities (including our ability to borrowadditional funds and engage in certain transactions without consent of the applicable lender or lessor), and any default under such facilities, loans or arrangements could result inthe acceleration of indebtedness, termination of the leases or cross-defaults under our other debt or lease documents, any of which would negatively impact our liquidity andinhibit our ability to grow our business and increase revenues.Our outstanding indebtedness and leases contain restrictions and covenants and require us to maintain or satisfy specified financial ratios and coverage tests, including maintainingprescribed net worth levels, leverage ratios and debt service and lease coverage ratios on a consolidated basis, and on a community or communities basis based on the debt or leasesecuring the communities. In addition, certain of our leases require us to maintain lease coverage ratios on a lease portfolio basis (each as defined in the leases) and maintainstockholders' equity or tangible net worth amounts. The debt service coverage ratios are generally calculated as revenues less operating expenses, including an implied management feeand a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. Net worth is generally calculated as stockholders' equity as calculated in accordancewith 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.These restrictions and covenants may interfere with our ability to obtain financing or to engage in other business activities, which may inhibit our ability to grow our business andincrease revenues. If we fail to comply with any of these requirements, then the related indebtedness could become immediately due and payable. We cannot assure you that we couldpay this debt if it became due. In addition, certain of our outstanding indebtedness and leases limit or restrict, among other things, our ability and our subsidiaries' ability to borrowadditional funds, engage in a change in control transaction, dispose of all or substantially all of our or their assets, or engage in mergers or other business combinations without consentof the applicable lender or lessor.25Our credit facilities, mortgage loans and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, an event ofdefault under the outstanding indebtedness or leases, subject to cure provisions in certain instances, would give the respective lenders or lessors, as applicable, the right to declare allamounts outstanding to be immediately due and payable, terminate the lease, foreclose on collateral securing the outstanding indebtedness and leases, and restrict our ability to makeadditional borrowings under the outstanding indebtedness or continue to operate the properties subject to the lease. Many of our outstanding debt and lease documents contain cross-default provisions so that a default under one of these instruments would cause a default under other debt and lease documents.The substantial majority of our lease arrangements are structured as master leases. Under a master lease, we may lease a large number of geographically dispersed properties through anindivisible lease. As a result, it is difficult to restructure the composition of the portfolio or economic terms of the lease without the consent of the landlord. Failure to comply withMedicare or Medicaid provider requirements is a default under several of our master lease and debt financing instruments. In addition, an event of default related to an individualproperty or limited number of properties within a master lease portfolio would result in a default on the entire master lease portfolio and could further trigger cross-default provisions inother outstanding debt and lease documents. In the event of such a default, we may not be able to obtain a waiver from the lessor on terms acceptable or favorable to us, or at all, whichwould have a negative impact on our capital structure and financial condition and our ability to generate future revenues, and could interfere with our ability to pursue our growthstrategy.Certain of our master leases and management agreements also contain radius restrictions, which limit our ability to own, develop or acquire new communities within a specified distancefrom certain existing communities covered by such agreements. These radius restrictions could negatively affect our expansion, development and acquisition plans.Mortgage debt and lease obligations expose us to increased risk of loss of property, which could harm our ability to generate future revenues and could have an adverse tax effect.Mortgage debt and lease obligations increase our risk of loss because defaults on indebtedness secured by properties or pursuant to the terms of the lease may result in foreclosureactions initiated by lenders or lessors and ultimately our loss of the property securing any loans for which we are in default or cause the lessor to terminate the lease. For tax purposes, aforeclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If theoutstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cashproceeds, which could negatively impact our earnings and liquidity. Further, our mortgage debt and leases generally contain cross-default and cross-collateralization provisions and adefault on one community could affect a significant number of our communities, financing arrangements and leases.In addition, our leases generally provide for renewal or extension options and, in certain cases, purchase options. These options generally are based upon prescribed formulas but, incertain cases, may be at fair market value. We expect to renew, extend or exercise purchase options with respect to our leases in the normal course of business; however, there can be noassurance that these rights will be exercised in the future or that we will be able to satisfy the conditions precedent to exercising any such renewal, extension or purchase options.Furthermore, the terms of any such options that are based on fair market value are inherently uncertain and could be unacceptable or unfavorable to us depending on the circumstancesat the time of exercise. If we are not able to renew or extend our existing leases, or purchase the communities subject to such leases, at or prior to the end of the existing lease terms, or ifthe terms of such options are unfavorable or unacceptable to us, our business, financial condition and results of operations could be adversely affected.Increases in market interest rates could significantly increase the costs of our unhedged debt and lease obligations, which could adversely affect our liquidity and earnings.Our unhedged floating-rate debt and lease payment obligations and any unhedged floating-rate debt incurred in the future, exposes us to interest rate risk. Therefore, increases inprevailing interest rates could increase our payment obligations, which would negatively impact our liquidity and earnings.26Increases in the cost and availability of labor, including increased competition for or a shortage of skilled personnel or increased union activity, would have an adverse effect onour profitability and/or our ability to conduct our business operations.Our success depends on our ability to retain and attract skilled management personnel who are responsible for the day-to-day operations of each of our communities. Each communityhas an Executive Director responsible for the overall day-to-day operations of the community, including quality of care, social services and financial performance. Depending upon thesize of the community, each Executive Director is supported by a community staff member who is directly responsible for day-to-day care of the residents and either community staff orregional support to oversee the community's sales, marketing and community outreach programs. Other key positions supporting each community may include individuals responsiblefor food service, healthcare services, therapy services, activities, housekeeping and engineering. We compete with various health care service providers, including other senior livingproviders, in retaining and attracting qualified and skilled personnel. Increased competition for or a shortage of nurses, therapists or other trained personnel, or general inflationarypressures may require that we enhance our pay and benefits package to compete effectively for such personnel. We may not be able to offset such added costs by increasing the rateswe charge to our residents or our service charges, which would negatively impact our results of operations. Turnover rates and the magnitude of the shortage of nurses, therapists orother trained personnel varies substantially from market to market. If we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operationseffectively, our ability to implement our growth strategy, and our overall operating results could be harmed.In addition, efforts by labor unions to unionize any of our community personnel could divert management attention, lead to increases in our labor costs and/or reduce our flexibility withrespect to certain workplace rules. New election rules promulgated by the National Labor Relations Board went into effect in April 2015 and will substantially change – and expedite – theunion election process, thereby limiting the time available for us to attempt to persuade employees to vote against representation. If we experience an increase in organizing activity, ifonerous collective bargaining agreement terms are imposed upon us, or if we otherwise experience an increase in our staffing and labor costs, our profitability and cash flows fromoperations would be negatively affected.We have a history of losses and we may not be able to achieve profitability.We have incurred net losses in every year since our formation in June 2005. Given our history of losses, there can be no assurance that we will be able to achieve and/or maintainprofitability in the future. If we do not effectively manage our cash flow and combined business operations going forward or otherwise achieve profitability, our stock price could beadversely affected.If we are unable to expand, renovate, reposition or redevelop our communities in accordance with our plans, our anticipated revenues and results of operations could be adverselyaffected.We are currently working on projects that will expand, renovate, reposition or redevelop a number of our existing senior living communities over the next several years. These projectsare in various stages of development and are subject to a number of factors over which we have little or no control. These factors include the necessity of arranging separate leases,mortgage loans or other financings to provide the capital required to complete these projects; difficulties or delays in obtaining zoning, land use, building, occupancy, licensing,certificate of need and other required governmental permits and approvals; failure to complete construction of the projects on budget and on schedule; failure of third-party contractorsand subcontractors to perform under their contracts; shortages of labor or materials that could delay projects or make them more expensive; adverse weather conditions that could delaycompletion of projects; increased costs resulting from general economic conditions or increases in the cost of materials; and increased costs as a result of changes in laws andregulations. We cannot assure you that we will elect to undertake or complete all of our proposed expansion, renovation, repositioning and redevelopment projects, or that we will notexperience delays in completing those projects. In addition, we may incur substantial costs prior to achieving stabilized occupancy for each such project and cannot assure you thatthese costs will not be greater than we have anticipated. We also cannot assure you that any of our expansion, renovation, repositioning or redevelopment projects will be economicallysuccessful. Our failure to achieve our expansion, renovation, repositioning and redevelopment plans could adversely impact our growth objectives, and our anticipated revenues andresults of operations.27We may encounter difficulties in acquiring communities at attractive prices or integrating acquisitions, including our acquisition of Emeritus Corporation, with our operations,which may adversely affect our operations and financial condition.We will continue to selectively target strategic acquisitions as opportunities arise. To the extent we do identify and complete any future acquisition opportunities, the process ofidentifying potential acquisition candidates, completing acquisition transactions and integrating acquired communities into our existing operations may result in unforeseen operatingdifficulties, divert managerial attention or require significant financial or other resources. These acquisitions and other future acquisitions may require us to incur additionalindebtedness and contingent liabilities, and may result in unforeseen expenses or compliance issues, which may limit our revenue growth, cash flows, and our ability to achieveprofitability. Moreover, any future acquisitions may not generate any additional income for us or provide any benefit to our business. In addition, we cannot assure you that we will beable to locate and acquire communities at attractive prices in locations that are compatible with our strategy or that competition for the acquisition of communities will not increase.Finally, when we are able to locate communities and enter into definitive agreements to acquire or lease them, we cannot assure you that the transactions will be completed. Failure tocomplete transactions after we have entered into definitive agreements may result in significant expenses to us.In addition, we continue to integrate the operations of Emeritus Corporation, which we acquired in July 2014. The failure to integrate successfully and to manage successfully thechallenges presented in the remaining integration process may result in us not achieving the anticipated benefits of the acquisition. Furthermore, we may incur substantial additionalunanticipated costs in connection with the remaining integration process.Unforeseen costs associated with the acquisition of communities could reduce our future profitability.Our growth strategy contemplates selected future acquisitions of existing senior living operating companies and communities. Despite our extensive underwriting and due diligenceprocedures, communities that we have previously acquired or may acquire in the future may generate unexpectedly low or no returns or may not meet a risk profile that our investors findacceptable. In addition, we might encounter unanticipated difficulties and expenditures relating to any of the acquired communities, including contingent liabilities, or newly acquiredcommunities might require significant management attention that would otherwise be devoted to our ongoing business. For example, a community may require capital expenditures inexcess of budgeted amounts, or it may experience management turnover that is higher than we project. These costs may negatively affect our future profitability.Competition for the acquisition of strategic assets from buyers with greater financial resources or lower costs of capital than us or that have lower return expectations than we docould limit our ability to compete for strategic acquisitions and therefore to grow our business effectively.Several publicly-traded and non-traded real estate investment trusts, or REITs, have similar asset acquisition objectives as we do, along with greater financial resources and/or lowercosts of capital than we are able to obtain. This may increase competition for acquisitions that would be suitable to us, making it more difficult for us to compete and successfullyimplement our growth strategy. There is significant competition among potential acquirers in the senior living industry, including publicly-traded and non-traded REITs, and there can beno assurance that we will be able to successfully implement our growth strategy or complete acquisitions, which could limit our ability to grow our business effectively. Partially as aresult of tax law changes enacted through RIDEA, we now compete more directly with the various publicly-traded healthcare REITs for the acquisition of senior housing properties.28We may need additional capital to fund our operations and finance our growth, and we may not be able to obtain it on terms acceptable to us, or at all, which may limit our abilityto grow.Continued expansion of our business through the expansion, renovation, redevelopment and repositioning of our existing communities, the development of new communities and theacquisition of existing senior living operating companies and communities will require additional capital, particularly if we were to accelerate our expansion and acquisition plans.Financing may not be available to us or may be available to us only on terms that are not favorable. In addition, certain of our outstanding indebtedness and long-term leases restrict,among other things, our ability to incur additional debt. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon some or allof our growth strategies. Further, if additional funds are raised through the issuance of additional equity securities, the percentage ownership of our stockholders would be diluted. Anynewly issued equity securities may have rights, preferences or privileges senior to those of our common stock.In addition, we are heavily dependent on mortgage financing provided by Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation("Freddie Mac") (collectively, the "Agency Lenders"). The Agency Lenders are currently operating under a conservatorship begun in 2008, conducting business under the direction ofthe Federal Housing Finance Agency. Reform efforts related to the Agency Lenders may make such financing sources less available or unavailable in the future and may cause us toseek alternative sources of potentially less attractive financing. There can be no assurance that such alternative sources will be available.Our investment in our entrance fee CCRC venture with HCP is susceptible to risks associated with the lifecare benefits offered to the residents of the venture's lifecare entrance feecommunities, and we are also susceptible to such risks for our owned and/or operated entrance fee CCRCs.As of December 31, 2015, we managed lifecare entrance fee communities as part of our entrance fee CCRC venture with HCP, and we owned and/or operated five other lifecarecommunities. Residents of these communities typically receive a limited lifecare benefit and pay an upfront entrance fee upon occupancy, of which a portion is generally refundable, withan additional monthly service fee while living in the community. This limited lifecare benefit is typically (a) a certain number of free days in the community's health center during theresident's lifetime, (b) a discounted rate for such services, or (c) a combination of the two. The lifecare benefit varies based upon the extent to which the resident's entrance fee isrefundable. The pricing of entrance fees, refundability provisions, monthly service fees, and lifecare benefits are determined utilizing actuarial projections of the expected morbidity andmortality of the resident population. In the event the entrance fees and monthly service payments established for these communities are not sufficient to cover the cost of lifecarebenefits granted to residents, our interest in the results of operations and financial condition of these communities and the venture could be adversely affected.Residents of these entrance fee communities are guaranteed a living unit and nursing care at the community during their lifetime, even if the resident exhausts his or her financialresources and becomes unable to satisfy his or her obligations to the community. In addition, in the event a resident requires nursing care and there is insufficient capacity for theresident in the nursing facility at the community where the resident lives, the community must contract with a third party to provide such care. Although we screen potential residents toensure that they have adequate assets, income, and reimbursements from government programs and third parties to pay their obligations to the entrance fee communities during theirlifetime, we cannot assure you that such assets, income, and reimbursements will be sufficient in all cases. If insufficient, we or the entrance fee CCRC venture, as applicable, would haverights of set-off against the refundable portions of the residents' deposits, and would also seek available reimbursement under Medicaid or other available programs. To the extent thatthe financial resources of some of the residents are not sufficient to pay for the cost of facilities and services provided to them, or in the event that these communities must pay thirdparties to provide nursing care to residents of these communities, our interest in the results of operations and financial condition of these communities and the venture would beadversely affected.29Early termination or non-renewal of our management agreements could cause a loss in revenues.We operate certain of our communities pursuant to management agreements. In some of these cases, the controlling financial interest in the community is held by third parties and, inother cases, the community is owned by an unconsolidated venture in which we have an ownership interest. At December 31, 2015, we managed 164 communities, representingapproximately 25% of our capacity, for third parties or unconsolidated ventures. The majority of our management agreements are long-term agreements. In most cases, either party to theagreements may terminate upon the occurrence of an event of default caused by the other party. In addition, in some cases, subject to our rights, if any, to cure deficiencies, communityowners may terminate us as manager if any licenses or certificates necessary for operation are revoked, if we do not satisfy certain designated performance thresholds or if thecommunity is sold to an unrelated third party (in which case we may be entitled to receive a contractual termination fee). Also, in some instances, a community owner may terminate themanagement agreement relating to a particular community if we are in default under other management agreements relating to other communities owned by the same owner or itsaffiliates. Certain of our management agreements, both with unconsolidated ventures and with entities owned by third parties, provide that an event of default under the debtinstruments applicable to the ventures or the entities owned by third parties that is caused by us may also be considered an event of default by us under the relevant managementagreement, giving the non-Brookdale party to the management agreement the right to pursue the remedies provided for in the management agreement, potentially including terminationof the management agreement. Further, in the event of default on a loan, the lender may have the ability to terminate us as manager. With respect to communities held in unconsolidatedventures, in some cases, the management agreement can be terminated in connection with the sale by the venture partner of its interest in the venture or the sale of properties by theventure. Early termination of our management agreements or non-renewal or renewal on less-favorable terms could cause a loss in revenues and could negatively impact our results ofoperations and cash flows.The geographic concentration of our communities could leave us vulnerable to an economic downturn, regulatory changes or acts of nature in those areas, resulting in a decreasein our revenues or an increase in our costs, or otherwise negatively impacting our results of operations.We have a high concentration of communities in various geographic areas, including the states of California, Florida, North Carolina, Ohio, Texas and Washington. As a result of thisconcentration, the conditions of local economies and real estate markets, changes in governmental rules and regulations, particularly with respect to assisted living communities, acts ofnature and other factors that may result in a decrease in demand for senior living services in these states could have an adverse effect on our revenues, costs and results of operations.In addition, given the location of our communities, we are particularly susceptible to revenue loss, cost increase or damage caused by other severe weather conditions or naturaldisasters such as hurricanes, earthquakes or tornados. Any significant loss due to a natural disaster may not be covered by insurance and may lead to an increase in the cost ofinsurance.Termination of our resident agreements and vacancies in the living spaces we lease could adversely affect our revenues, earnings and occupancy levels.State regulations governing assisted living communities require written resident agreements with each resident. Several of these regulations also require that each resident have the rightto terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, many of our assisted living resident agreements allow residents to terminatetheir agreements upon 0 to 30 days' notice. Unlike typical apartment leasing or independent living arrangements that involve lease agreements with specified leasing periods of up to ayear or longer, in many instances we cannot contract with our assisted living residents to stay in those living spaces for longer periods of time. Our retirement center resident agreementsgenerally provide for termination of the lease upon death or allow a resident to terminate his or her lease upon the need for a higher level of care not provided at the community. Ifmultiple residents terminate their resident agreements at or around the same time, our revenues, earnings and occupancy levels could be adversely affected. In addition, because of thedemographics of our typical residents, including age and health, resident turnover rates in our communities are difficult to predict. As a result, the living spaces we lease may beunoccupied for a period of time, which could adversely affect our revenues and earnings.30Departure of our key officers could harm our business.We are dependent on the efforts of our executive officers. The unforeseen loss or limited availability of the services of any of our executive officers, or our inability to recruit and retainqualified personnel in the future, could, at least temporarily, have an adverse effect on our business, results of operations and financial condition and be negatively perceived in thecapital markets.Environmental contamination at any of our communities could result in substantial liabilities to us, which may exceed the value of the underlying assets and which couldmaterially and adversely affect our liquidity and earnings.Under various federal, state and local environmental laws, a current or previous owner or operator of real property, such as us, may be held liable in certain circumstances for the costs ofinvestigation, removal or remediation of, or related to the release of, certain hazardous or toxic substances, that could be located on, in, at or under a property, regardless of how suchmaterials came to be located there. The cost of any required investigation, remediation, removal, mitigation, compliance, fines or personal or property damages and our liability thereforecould exceed the property's value and/or our assets' value. In addition, the presence of such substances, or the failure to properly dispose of or remediate the damage caused by suchsubstances, may adversely affect our ability to sell such property, to attract additional residents and retain existing residents, to borrow using such property as collateral or to develop orredevelop such property. In addition, such laws impose liability, which may be joint and several, for investigation, remediation, removal and mitigation costs on persons who disposed ofor arranged for the disposal of hazardous substances at third party sites. Such laws and regulations often impose liability without regard to whether the owner or operator knew of, orwas responsible for, the presence, release or disposal of such substances as well as without regard to whether such release or disposal was in compliance with law at the time it occurred.Although we do not believe that we have incurred such liabilities as would have a material adverse effect on our business, financial condition and results of operations, we could besubject to substantial future liability for environmental contamination that we have no knowledge about as of the date of this report and/or for which we may not be at fault.Failure to comply with existing environmental laws could result in increased expenditures, litigation and potential loss to our business and in our asset value, which would havean adverse effect on our earnings and financial condition.Our operations are subject to regulation under various federal, state and local environmental laws, including those relating to: the handling, storage, transportation, treatment anddisposal of medical waste products generated at our communities; identification and warning of the presence of asbestos-containing materials in buildings, as well as removal of suchmaterials; the presence of other substances in the indoor environment; and protection of the environment and natural resources in connection with development or construction of ourproperties.Some of our communities generate infectious or other hazardous medical waste due to the illness or physical condition of the residents. Each of our communities has an agreement with awaste management company for the proper disposal of all infectious medical waste, but the use of such waste management companies does not immunize us from alleged violations ofsuch laws for operations for which we are responsible even if carried out by such waste management companies, nor does it immunize us from third-party claims for the cost to cleanupdisposal sites at which such wastes have been disposed.Federal regulations require building owners and those exercising control over a building's management to identify and warn their employees and certain other employers operating in thebuilding of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings. Significant fines canbe assessed for violation of these regulations. Building owners and those exercising control over a building's management may be subject to an increased risk of personal injurylawsuits. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potentialasbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may imposeliability for improper handling or a release to the environment of asbestos-containing materials and potential asbestos-containing materials and may provide for fines to, and for thirdparties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials.31The presence of mold, lead-based paint, contaminants in drinking water, radon and/or other substances at any of the communities we own or may acquire may lead to the incurrence ofcosts for remediation, mitigation or the implementation of an operations and maintenance plan and may result in third party litigation for personal injury or property damage. Furthermore,in some circumstances, areas affected by mold may be unusable for periods of time for repairs, and even after successful remediation, the known prior presence of extensive mold couldadversely affect the ability of a community to retain or attract residents and could adversely affect a community's market value.Although we believe that we are currently in material compliance with applicable environmental laws, if we fail to comply with such laws in the future, we would face increasedexpenditures both in terms of fines and remediation of the underlying problem(s), potential litigation relating to exposure to such materials, and potential decrease in value to ourbusiness and in the value of our underlying assets. Therefore, our failure to comply with existing environmental laws would have an adverse effect on our earnings, our financialcondition and our ability to pursue our growth strategy.We are unable to predict the future course of federal, state and local environmental regulation and legislation. Changes in the environmental regulatory framework (including legislativeor regulatory efforts designed to address climate change, such as the proposed "cap and trade" legislation) could have a material adverse effect on our business. In addition, becauseenvironmental laws vary from state to state, expansion of our operations to states where we do not currently operate may subject us to additional restrictions on the manner in which weoperate our communities.Risks Related to Pending LitigationComplaints filed against us could, if adversely determined, subject us to a material loss.We have been and are currently involved in litigation and claims incidental to the conduct of our business that are comparable to other companies in the senior living and healthcareindustries. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. Similarly, the senior living and healthcare industries arecontinuously subject to scrutiny by governmental regulators, which could result in litigation related to regulatory compliance matters. As a result, we maintain general liability andprofessional liability insurance policies in amounts and with coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience andindustry standards. Our current policies are written on a claims-made basis and provide for deductibles for each claim. Accordingly, we are, in effect, self-insured for claims that are lessthan the deductible amounts. If we experience a greater number of losses than we anticipate, or if certain claims are not ultimately covered by insurance, our results of operation andfinancial condition could be adversely affected.Risks Related to Our IndustryWe face periodic and routine reviews, audits and investigations under our contracts with government agencies, and these audits could have adverse findings that may negativelyimpact our business.As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with theseprograms and applicable laws and regulations. We also are subject to audits under various government programs, including but not limited to the RAC and ZPIC programs, in which thirdparty firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare program. Our costs torespond to and defend reviews, audits and investigations may be significant and could have a material adverse effect on our business and consolidated financial condition, results ofoperations and cash flows. Moreover, an adverse review, audit or investigation could result in:•required refunding or retroactive adjustment of amounts we have been paid pursuant to the federal or state programs;•state or federal agencies imposing fines, penalties and other sanctions on us;•loss of our right to participate in the Medicare program or state programs;•damage to our business and reputation in various markets; or•significant investment of time and money even if eventually favorably determined.These results could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.32The cost and difficulty of complying with increasing and evolving regulation and enforcement could have an adverse effect on our business operations and profits.The regulatory environment surrounding the senior living industry continues to evolve and intensify in the amount and type of laws and regulations affecting it, many of which varyfrom state to state. In addition, many senior living communities are subject to regulation and licensing by state and local health and social service agencies and other regulatoryauthorities. In several of the states in which we operate or may operate, we are prohibited from providing certain higher levels of senior care services without first obtaining theappropriate licenses. Also, in several of the states in which we operate or intend to operate, assisted living communities and/or skilled nursing facilities require a certificate of needbefore the community can be opened or the services at an existing community can be expanded. Furthermore, federal, state and local officials are increasingly focusing their efforts onenforcement of these laws, particularly with respect to large for-profit, multi-community providers like us. These requirements and the increased enforcement thereof, could affect ourability to expand into new markets, to expand our services and communities in existing markets and, if any of our presently licensed communities were to operate outside of its licensingauthority, may subject us to penalties including closure of the community. Future regulatory developments as well as mandatory increases in the scope and severity of deficienciesdetermined by survey or inspection officials could cause our operations to suffer. We are unable to predict the future course of federal, state and local legislation or regulation. Ifregulatory requirements increase, whether through enactment of new laws or regulations or changes in the enforcement of existing rules, our earnings and operations could be adverselyaffected.The intensified regulatory and enforcement environment impacts providers like us because of the increase in the number of inspections or surveys by governmental authorities andconsequent citations for failure to comply with regulatory requirements. We also expend considerable resources to respond to federal and state investigations or other enforcementaction. From time to time in the ordinary course of business, we receive deficiency reports from state and federal regulatory bodies resulting from such inspections or surveys. Althoughmost inspection deficiencies are resolved through an agreed-to plan of corrective action, the reviewing agency typically has the authority to take further action against a licensed orcertified facility, which could result in the imposition of fines, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial ofadmissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. Furthermore, certain states may allowcitations in one community to impact other communities in the state. Revocation of a license at a given community could therefore impact our ability to obtain new licenses or to renewexisting licenses at other communities, which may also cause us to be in default under our leases, trigger cross-defaults, trigger defaults under certain of our credit agreements oradversely affect our ability to operate and/or obtain financing in the future. If a state were to find that one community's citation would impact another of our communities, this would alsoincrease costs and result in increased surveillance by the state survey agency. To date, none of the deficiency reports received by us has resulted in a suspension, fine or otherdisposition that has had a material adverse effect on our revenues. However, the failure to comply with applicable legal and regulatory requirements in the future could result in a materialadverse effect to our business as a whole.There are various extremely complex federal and state laws governing a wide array of referral relationships and arrangements and prohibiting fraud by health care providers, includingthose in the senior living industry, and governmental agencies are devoting increasing attention and resources to such anti-fraud initiatives. Some examples are the Health InsurancePortability and Accountability Act of 1996, or HIPAA, the Balanced Budget Act of 1997, and the False Claims Act, which gives private individuals the ability to bring an action on behalfof the federal government. The violation of any of these laws or regulations may result in the imposition of fines or other penalties that could increase our costs and otherwise jeopardizeour business. Under the Deficit Reduction Act of 2005, or DRA 2005, every entity that receives at least $5.0 million annually in Medicaid payments must have established written policiesfor all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including thefederal False Claims Act, and similar state laws. Failure to comply with this new compliance requirement may potentially give rise to potential liability. DRA 2005 also creates an incentivefor states to enact false claims laws that are comparable to the federal False Claims Act.33Additionally, we provide services and operate communities that participate in federal and/or state health care reimbursement programs, which makes us subject to federal and state lawsthat prohibit anyone from presenting, or causing to be presented, claims for reimbursement which are false, fraudulent or are for items or services that were not provided as claimed.Similar state laws vary from state to state and we cannot be sure that these laws will be interpreted consistently or in keeping with past practice. Violation of any of these laws can resultin loss of licensure, civil or criminal penalties and exclusion of health care providers or suppliers from furnishing covered items or services to beneficiaries of the applicable federal and/orstate health care reimbursement program. Loss of licensure may also cause us to default under our leases and/or trigger cross-defaults.We are also subject to certain federal and state laws that regulate financial arrangements by health care providers, such as the Federal Anti-Kickback Law, the Stark laws and certain statereferral laws. Authorities have interpreted the Federal Anti-Kickback Law very broadly to apply to many practices and relationships between health care providers and sources of patientreferral. This could result in criminal penalties and civil sanctions, including fines and possible exclusion from government programs such as Medicare and Medicaid, which may alsocause us to default under our leases and/or trigger cross-defaults. Adverse consequences may also result if we violate federal Stark laws related to certain Medicare and Medicaidphysician referrals. While we endeavor to comply with all laws that regulate the licensure and operation of our business, it is difficult to predict how our revenues could be affected if wewere subject to an action alleging such violations.Compliance with the Americans with Disabilities Act, Fair Housing Act and fire, safety and other regulations may require us to make unanticipated expenditures, which couldincrease our costs and therefore adversely affect our earnings and financial condition.All of our communities are required to comply with the Americans with Disabilities Act, or ADA. The ADA has separate compliance requirements for "public accommodations" and"commercial properties," but generally requires that buildings be made accessible to people with disabilities. Compliance with ADA requirements could require removal of access barriersand non-compliance could result in imposition of government fines or an award of damages to private litigants.We must also comply with the Fair Housing Act, which prohibits us from discriminating against individuals on certain bases in any of our practices if it would cause such individuals toface barriers in gaining residency in any of our communities. Additionally, the Fair Housing Act and other state laws require that we advertise our services in such a way that we promotediversity and not limit it. We may be required, among other things, to change our marketing techniques to comply with these requirements.In addition, we are required to operate our communities in compliance with applicable fire and safety regulations, building codes and other land use regulations and food licensing orcertification requirements as they may be adopted by governmental agencies and bodies from time to time. Like other health care facilities, senior living communities are subject toperiodic survey or inspection by governmental authorities to assess and assure compliance with regulatory requirements. Surveys occur on a regular (often annual or bi-annual)schedule, and special surveys may result from a specific complaint filed by a resident, a family member or one of our competitors. We may be required to make substantial capitalexpenditures to comply with those requirements.Capital expenditures we have made to comply with any of the above to date have been immaterial, however, the increased costs and capital expenditures that we may incur in order tocomply with any of the above would result in a negative effect on our earnings and financial condition.34Significant legal actions and liability claims against us in excess of insurance limits could subject us to increased operating costs and substantial uninsured liabilities, which mayadversely affect our financial condition and operating results.The senior living and healthcare services businesses entails an inherent risk of liability, particularly given the demographics of our residents, including age and health, and the serviceswe 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 inresident injury or other adverse effects. Many of these lawsuits involve large damage claims and significant legal costs. Many states continue to consider tort reform and how it willapply 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 healthcareproviders. We maintain liability insurance policies in amounts and with the coverage and deductibles we believe are adequate based on the nature and risks of our business, historicalexperience and industry standards. We have formed a wholly-owned "captive" insurance company for the purpose of insuring certain portions of our risk retention under our generaland professional liability insurance programs. There can be no guarantee that we will not have any claims that exceed our policy limits in the future.If a successful claim is made against us and it is not covered by our insurance or exceeds the policy limits, our financial condition and results of operations could be materially andadversely 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/orlitigation. As a result, we may be liable for punitive damage awards in these states that either are not covered or are in excess of our insurance policy limits. Also, the above deductibles,or self-insured retention, are accrued based on an actuarial projection of future liabilities. If these projections are inaccurate and if there are an unexpectedly large number of successfulclaims that result in liabilities in excess of our self-insured retention, our operating results could be negatively affected. Claims against us, regardless of their merit or eventual outcome,also could have a material adverse effect on our ability to attract residents or expand our business and could require our management to devote time to matters unrelated to the day-to-day operation of our business. We also have to renew our policies every year and negotiate acceptable terms for coverage, exposing us to the volatility of the insurance markets,including the possibility of rate increases. There can be no assurance that we will be able to obtain liability insurance in the future or, if available, that such coverage will be available onacceptable terms.Overbuilding and increased competition may adversely affect our ability to generate and increase our revenues and profits and to pursue our business strategy.The senior living industry is highly competitive, and we expect that it may become more competitive in the future. We compete with numerous other companies that provide long-termcare alternatives such as home healthcare agencies, therapy services, life care at home, community-based service programs, retirement communities, convalescent centers and otherindependent living, assisted living and skilled nursing providers, including not-for-profit entities. In addition, over the last several years there has been an increase in the construction ofnew senior housing assets. In general, regulatory and other barriers to competitive entry in the independent living and assisted living sectors of the senior living industry are notsubstantial. We have experienced and expect to continue to experience increased competition in our efforts to acquire and operate senior living communities. Consequently, we mayencounter increased competition that could limit our ability to attract new residents, raise resident fees or expand our business, which could have a material adverse effect on ourrevenues and earnings.As evidenced during the overbuilding in the late 1990's in the senior living industry, newly constructed buildings may reduce the occupancy rates and, in some cases, reduce themonthly rate previously existing communities are able to obtain for their services. This might result in lower revenues for certain of our communities if faced with new supply. While webelieve that many of our markets are stable and should continue to be stable for the immediate future, we cannot be certain that the effects of a period of overbuilding will not affect ouroccupancy and resident fee rate levels in the future, nor can we be certain that another period of overbuilding in the future will not have the same effects. Moreover, while we believe thatthe new construction dynamics and the competitive environments in the states in which we operate are substantially similar to the national market, taken as a whole, if the dynamics orenvironment were to be significantly adverse in one or more of those states, it would have a disproportionate effect on our revenues (due to the large portion of our revenues that aregenerated in those states).35Risks Related to Our Organization and StructureAnti-takeover provisions in our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisitionthat you may consider favorable or prevent the removal of our current board of directors and management.Certain provisions of our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisition that you mayconsider favorable or prevent the removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts,including:•a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms;•removal of directors only for cause, and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote;•blank-check preferred stock;•provisions preventing stockholders from calling special meetings;•advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; and•no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of theoutstanding shares of our common stock can elect all the directors standing for election.Additionally, our amended and restated certificate of incorporation provides that Section 203 of the Delaware General Corporation Law, which restricts certain business combinationswith interested stockholders in certain situations, will not apply to us.We are a holding company with no operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations.We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries. As a result, we aredependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our subsidiaries are legally distinct from usand have no obligation to make funds available to us.Risks Related to Our Common StockThe market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and causesignificant price variations to occur. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above your purchase price. We cannotassure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result influctuations in the price or trading volume of our common stock include:36•variations in our quarterly operating results;•changes in our earnings estimates;•the contents of published research reports about us or the senior living industry or the failure of securities analysts to cover our common stock;•additions or departures of key management personnel;•any increased indebtedness we may incur or lease obligations we may enter into in the future;•actions by institutional stockholders;•changes in market valuations of similar companies;•announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;•speculation or reports by the press or investment community with respect to us or the senior living industry in general;•increases in market interest rates that may lead purchasers of our shares to demand a higher yield;•downturns in the real estate market or changes in market valuations of senior living communities;•changes or proposed changes in laws or regulations affecting the senior living industry or enforcement of these laws and regulations, or announcements relating to thesematters; and•general market and economic conditions.Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.In the future, we may attempt to increase our capital resources by offering additional debt or equity securities, including commercial paper, medium-term notes, senior or subordinatednotes, convertible securities, series of preferred shares or shares of our common stock. Upon liquidation, holders of our debt securities and preferred stock, and lenders with respect toother borrowings, would receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the economic and voting rights ofour existing stockholders or reduce the market price of our common stock, or both. Shares of our preferred stock, if issued, could have a preference with respect to liquidatingdistributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Because our decision to issue securitiesin any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus,holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their share holdings in us.We may issue all of the shares of our common stock that are authorized but unissued (and not otherwise reserved for issuance under our stock incentive or purchase plans or pursuantto the conversion or exercise features of our convertible senior notes and warrants) without any action or approval by our stockholders. We intend to continue to pursue selectedacquisitions of senior living communities and may issue shares of common stock in connection with these acquisitions. Any shares issued in connection with our acquisitions orotherwise would dilute the holdings of our current stockholders.37The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.At December 31, 2015, approximately 184.9 million shares of our common stock were outstanding (excluding unvested restricted shares). All of the shares of our common stock are freelytransferable, except for any shares held by our "affiliates," as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, or any shares otherwisesubject to the limitations of Rule 144.In addition, as of December 31, 2015, approximately 3.5 million shares of restricted common stock were outstanding under our 2014 Omnibus Incentive Plan and our Omnibus StockIncentive Plan, and we had availability to issue approximately 7.2 million additional shares under our 2014 Omnibus Incentive Plan, our Associate Stock Purchase Plan, and our DirectorStock Purchase Plan. The shares of our common stock issued or issuable pursuant to these plans are or will be registered under the Securities Act, and once any restrictions imposed onthe shares and options granted under these plans expire, such shares of common stock will be available for sale into the public markets.Our ability to use net operating loss carryovers to reduce future tax payments will be limited.Section 382 of the Internal Revenue code contains rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of 50% ofits stock over a three-year period, to utilize its net operating loss carryforward and certain built-in losses recognized in years after the ownership change. These rules generally operateby focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuanceof stock by the company. We have determined that an ownership change occurred within the second quarter of 2010, and, therefore, losses carried into the change period have beensubject to an annual limitation. The annual limitation is equal to the product of the applicable long term tax exempt rate and the value of our stock immediately before the ownershipchange, adjusted for certain items. The annual limitation may be increased by certain built-in gains existing at the time of change. The acquisition of Emeritus Corporation also resulted inan ownership change and created an annual limitation on Emeritus' net operating losses.Item 1B.Unresolved Staff Comments.None.38Item 2.Properties.FacilitiesAt December 31, 2015, we operated 1,123 communities across 47 states, with the capacity to serve approximately 108,000 residents. Of the communities we operated at December 31, 2015,we owned 413, we leased 546 pursuant to operating, capital and financing leases, and 164 were managed by us for third parties or unconsolidated ventures in which we have anownership interest.The following table sets forth certain information regarding our communities at December 31, 2015: Occupancy Ownership StatusState Units Rate(1)(2) Owned Leased Managed TotalFlorida 17,495 85% 53 48 35 136Texas 13,718 86% 62 37 28 127California 10,827 88% 27 53 11 91Washington 4,899 91% 17 35 2 54Ohio 4,829 85% 29 23 6 58Colorado 4,636 86% 11 19 9 39Arizona 3,956 86% 17 15 4 36Illinois 3,932 89% 5 10 6 21North Carolina 3,848 86% 10 52 1 63Oregon 3,280 94% 10 30 5 45Virginia 2,625 86% 9 7 3 19New York 2,554 89% 17 15 3 35Michigan 2,534 88% 9 23 3 35Tennessee 2,327 92% 16 14 5 35South Carolina 1,944 90% 5 20 0 25Georgia 1,880 86% 9 12 6 27Oklahoma 1,735 88% 10 21 2 33Kansas 1,634 90% 11 12 2 25Massachusetts 1,585 80% 3 5 5 13New Jersey 1,545 84% 7 10 2 19Indiana 1,418 84% 10 8 1 19Pennsylvania 1,379 85% 10 3 1 14Alabama 1,365 94% 7 2 1 10Rhode Island 1,186 85% 1 4 4 9Missouri 1,182 95% 2 1 2 5Minnesota 943 82% 2 15 2 19Kentucky 905 80% 1 4 1 6Connecticut 893 81% 2 7 1 10Wisconsin 832 85% 6 12 2 20New Mexico 793 72% 2 4 1 7Mississippi 682 87% 5 3 1 9Maryland 614 92% 1 3 3 7Louisiana 610 84% 6 1 0 7Idaho 605 85% 7 1 0 8Nevada 602 86% 4 3 0 7Arkansas 494 94% 4 0 1 5Nebraska 456 87% 0 5 0 5Utah 368 85% 0 2 2 4Montana 238 92% 1 2 0 3West Virginia 220 88% 1 1 0 2Delaware 200 88% 2 1 0 3Iowa 182 73% 0 0 2 2Wyoming 113 87% 0 2 0 2Vermont 101 83% 1 0 0 1New Hampshire 90 96% 1 0 0 1North Dakota 85 93% 0 1 0 1Maine 81 37% 0 0 1 1Total 108,420 87% 413 546 164 1,12339(1)Includes the impact of managed properties.(2)Represents occupancy at December 31, 2015.Substantially all of our owned properties are subject to mortgages.Corporate OfficesOur main corporate offices are all leased, including our 143,065 square foot headquarters facility in Brentwood, Tennessee (a suburb of Nashville) and our 185,366 square foot sharedservice facility in Milwaukee, Wisconsin. We also lease smaller regional support offices in Chicago and Tampa.Item 3.Legal Proceedings.The information contained in Note 17 to the consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.Item 4.Mine Safety Disclosures.Not applicable.40PART IIItem 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol "BKD". The following table sets forth the range of high and low sales prices of ourcommon stock for each quarter for the last two fiscal years. Fiscal 2015 High Low First Quarter $38.96 $31.33 Second Quarter $39.89 $34.60 Third Quarter $35.35 $22.00 Fourth Quarter $25.48 $16.58 Fiscal 2014 High Low First Quarter $34.37 $26.11 Second Quarter $34.80 $29.50 Third Quarter $36.18 $32.02 Fourth Quarter $37.03 $30.12 The closing sale price of our common stock as reported on the NYSE on February 10, 2016 was $13.35 per share. As of that date, there were approximately 386 holders of record of ourcommon stock.Dividend PolicyOn December 30, 2008, our Board of Directors voted to suspend our quarterly cash dividend indefinitely and no dividends were declared since that time. Although we anticipate that, inthe longer-term, we may pay regular quarterly dividends to the holders of our common stock, over the near term we are focused on deploying capital in the growth of our business.Accordingly, we do not expect to pay cash dividends on our common stock for the foreseeable future.Our ability to pay and maintain cash dividends in the future will be based on many factors, including then-existing contractual restrictions or limitations, our ability to execute our growthstrategy, our ability to negotiate favorable lease and other contractual terms, anticipated operating expense levels, the level of demand for our units, occupancy rates, entrance fee salesresults, the rates we charge, our liquidity position and actual results that may vary substantially from estimates. Some of the factors are beyond our control and a change in any suchfactor could affect our ability to pay or maintain dividends. We can give no assurance as to our ability to pay or maintain dividends in the future. We also cannot assure you that thelevel of dividends will be maintained or increase over time or that increases in demand for our units and monthly resident fees will increase our actual cash available for dividends tostockholders. As we have done in the past, we may also pay dividends in the future that exceed our net income for the relevant period as calculated in accordance with U.S. GAAP.Recent Sales of Unregistered SecuritiesNone.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone.41Item 6.Selected Financial Data.This selected financial data should be read in conjunction with the information contained in "Item 7. Management's Discussion and Analysis of Financial Condition and Results ofOperations" and our historical consolidated financial statements and related notes included in "Item 8. Financial Statements and Supplementary Data." Our historical statement ofoperations data and balance sheet data as of and for each of the years in the five-year period ended December 31, 2015 have been derived from our audited financial statements.Our results reflect our acquisition of Emeritus subsequent to July 31, 2014, the closing date of the merger. In addition, with respect to the communities contributed to the CCRC Ventureand HCP 49 Venture and communities subject to the Master Lease, our results reflect our previously existing ownership, lease and/or management interests through August 29, 2014, andreflect our venture and management interests and amended lease terms for the remainder of the period, each as described in Note 4 to the consolidated financial statements. Wecontributed all but two of our legacy Brookdale entry fee CCRCs to the CCRC Venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated. For the Years Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except per share and other operating data) Total revenue $4,960,608 $3,831,706 $2,891,966 $2,768,738 $2,456,483 Facility operating expense 2,788,862 2,210,368 1,671,945 1,630,919 1,508,571 General and administrative expense 370,579 280,267 180,627 178,829 148,327 Transaction costs 8,252 66,949 3,921 ― ― Facility lease expense 367,574 323,830 276,729 284,025 274,858 Depreciation and amortization 733,165 537,035 268,757 252,281 268,506 Loss (gain) on facility lease termination 76,143 ― ― (11,584) ― Loss (gain) on acquisition ― ― ― 636 (1,982)Asset impairment 57,941 9,992 12,891 27,677 16,892 Costs incurred on behalf of managed communities 723,298 488,170 345,808 325,016 152,566 Total operating expense 5,125,814 3,916,611 2,760,678 2,687,799 2,367,738 Income (loss) from operations (165,206) (84,905) 131,288 80,939 88,745 Interest income 1,603 1,343 1,339 4,012 3,538 Interest expense: Debt (173,484) (128,002) (96,131) (98,183) (93,229)Capital and financing lease obligations (211,132) (109,998) (25,194) (30,155) (31,644)Amortization of deferred financing costs and debt premium (discount) (3,351) (7,477) (17,054) (18,081) (13,427)Change in fair value of derivatives (797) (2,711) 980 (364) (3,878)Debt modification and extinguishment costs (7,020) (6,387) (1,265) (221) (18,863)Equity in (loss) earnings of unconsolidated ventures (804) 171 1,484 (3,488) 1,432 Other non-operating income 9,827 7,235 2,725 593 56 Income (loss) before income taxes (550,364) (330,731) (1,828) (64,948) (67,270)Benefit (provision) for income taxes 92,209 181,305 (1,756) (1,519) (1,780)Net income (loss) (458,155) (149,426) (3,584) (66,467) (69,050)Net (income) loss attributable to noncontrolling interest 678 436 ― ― ― Net income (loss) attributable to Brookdale Senior Living Inc. commonstockholders $(457,477) $(148,990) $(3,584) $(66,467) $(69,050)Basic and diluted net income (loss) per share attributable to BrookdaleSenior Living Inc. common stockholders $(2.48) $(1.01) $(0.03) $(0.54) $(0.57)Weighted average shares of common stock used in computing basic anddiluted net income (loss) per share 184,333 148,185 123,671 121,991 121,161 Other Operating Data: Total number of communities (at end of period) 1,123 1,143 649 647 647 Total units operated(1) Period end 107,786 110,219 66,832 65,936 66,183 Weighted average 109,342 84,299 66,173 66,102 55,548 Owned/leased communities occupancy rate (weighted average) 86.8% 88.3% 88.7% 88.0% 87.3%Senior Housing average monthly revenue per unit(2) $4,310 $4,357 $4,383 $4,271 $4,193 42 As of December 31, 2015 2014 2013 2012 2011 (in millions) Cash and cash equivalents $88.0 $104.1 $58.5 $69.2 $30.8 Total assets $10,048.6 $10,417.5 $4,695.6 $4,672.8 $4,469.8 Total long-term debt and line of credit $3,942.8 $3,597.0 $2,342.3 $2,339.0 $2,093.6 Total capital and financing lease obligations $2,489.6 $2,649.2 $299.8 $319.8 $348.2 Total equity $2,458.7 $2,882.2 $1,020.9 $997.0 $1,035.3 (1)Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.(2)Senior Housing average monthly revenue per unit represents the average of the total monthly resident fee revenues, excluding amortization of entrance fees and BrookdaleAncillary Services segment revenue, divided by average occupied units.Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations.This discussion and analysis should be read in conjunction with the information contained in "Item 6. Selected Financial Data" and our historical consolidated financial statementsand related notes included in "Item 8. Financial Statements and Supplementary Data." In addition to historical information, this discussion and analysis may contain forward-looking statconveriements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management's expectations. Please seeadditional risks and uncertainties described in "Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995" for more information. Factors that could causesuch differences include those described in "Item 1A. Risk Factors" of this Annual Report on Form 10-K.Executive Overview and Recent DevelopmentsAs of December 31, 2015, we are the largest operator of senior living communities in the United States based on total capacity, with 1,123 communities in 47 states and the ability to serveapproximately 108,000 residents. We offer our residents access to a full continuum of services across the most attractive sectors of the senior living industry. As of December 31, 2015,we operated in five business segments: Retirement Centers, Assisted Living, Continuing Care Retirement Centers ("CCRCs") - Rental, Brookdale Ancillary Services and ManagementServices.As of December 31, 2015, we owned or leased 959 communities with 81,067 units and provided management services with respect to 164 communities with 27,353 units for third parties orunconsolidated ventures in which we have an ownership interest. As of December 31, 2015, we operated 130 retirement center communities with 24,486 units, 915 assisted livingcommunities with 62,567 units and 78 CCRCs with 21,367 units. We offer home health services to approximately 66,000 of our units and outpatient therapy services to approximately64,000 of our units. The majority of our units are located in campus settings or communities containing multiple services, including CCRCs. During the year ended December 31, 2015, wegenerated approximately 81.9% of our resident fee revenues from private pay customers. For the year ended December 31, 2015, 38.8% of our resident and management fee revenues weregenerated from owned communities, 48.7% from leased communities, 11.1% from our Brookdale Ancillary Services business and 1.4% from management fees from communities weoperate on behalf of third parties or unconsolidated ventures.We believe that we are positioned to take advantage of favorable demographic trends and future supply-demand dynamics in the senior living industry. We also believe that we operatein the most attractive sectors of the senior living industry with opportunities to increase our revenues through providing a combination of housing, hospitality services, ancillaryservices and health care 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 ancillary services, including therapy and home healthservices, to our residents. Our strategy is to be the leading provider of senior living solutions, built on a large and growing senior housing platform. By providing residents with a rangeof service options as their needs change, we provide greater continuity of care, enabling seniors to "age-in-place" and thereby maintain residency with us for a longer period of time. Theability 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.We believe that there are organic growth opportunities inherent in our existing portfolio. We intend to take advantage of those opportunities by growing revenues, while maintainingexpense control, at our existing communities, continuing the expansion and maturation of our ancillary services programs, expanding, renovating, redeveloping and repositioning ourexisting communities, and acquiring additional operating companies and communities.43On July 31, 2014, we acquired Emeritus, a senior living service provider focused on operating residential style communities throughout the United States, for approximately $3.0 billionconsisting of the issuance of our stock with a fair value of approximately $1.6 billion and our assumption of approximately $1.4 billion aggregate principal amount of existing mortgageindebtedness. At the closing of the merger, the size of our consolidated portfolio increased by 493 communities, 182 of which were owned and 311 of which were subject to leases that wedirectly or indirectly assumed in the merger. The Emeritus communities provide independent living, assisted living, memory care and, to a lesser extent, skilled nursing care. The mergersignificantly increased our scale and provides us the opportunity to leverage this scale to build our national brand and provide greater organic growth, achieve greater operatingefficiencies, and drive new innovations to serve our residents. In addition, the merger provided us entry into 10 new states and significantly increased our presence in many high-population states, especially in the west and northeast. Enhanced geographic coverage and density is a contributing factor to our ability to increase our operating efficiencies and mayprovide additional opportunities for growth from markets with clusters of assets. The merger also enables us to expand our therapy, home health and hospice ancillary programs into theEmeritus communities and accelerate the introduction of Emeritus' Nurse on Call home health services into our major markets. The results of Emeritus' operations have been included inthe consolidated financial statements subsequent to the acquisition date. Revenue and facility operating expenses of legacy Emeritus locations included in the Company's consolidatedstatements of operations for the year ended December 31, 2015 were $1.8 billion and $1.2 billion, respectively. Revenue and facility operating expenses of legacy Emeritus locationsincluded in the Company's consolidated statements of operations for the year ended December 31, 2014 were $785.5 million and $511.9 million, respectively.Since the closing of our acquisition of Emeritus, we have executed on our plans to integrate legacy Emeritus locations into our systems and infrastructure platform as rapidly asprudently possible. In 2015, we completed the final cutover waves of integration activities and have a common system and infrastructure platform in place. We will continue to reinforceand refine our operating model and certain processes during 2016.Developments during 2015During the year ended December 31, 2015, we completed several transactions as part of our long-term objectives to grow our revenues, Adjusted EBITDA, Cash From Facility Operationsand Facility Operating Income. See "Non-GAAP Financial Measures" below for an explanation of how we define each of these measures, a detailed description of why we believe suchmeasures are useful and the limitations of each measure and a reconciliation of each of the Non-GAAP measures to net income (loss). These transactions include:•Community Acquisitions. During the year ended December 31, 2015, we acquired the underlying real estate associated with 30 communities that were previously leased for anaggregate purchase price of approximately $422.2 million.•Investment in Unconsolidated RIDEA Venture. On June 30, 2015, the Company and HCP entered into a RIDEA venture, which acquired 35 senior housing communities for $847million. The Company contributed $30.3 million in cash to the RIDEA venture. The Company owns a 10% ownership interest, and HCP owns a 90% ownership interest, in eachof the propco and opco. The Company had operated these communities under a management agreement since 2011 and will continue to manage the communities under a marketrate long-term management agreement with the venture.•Community Dispositions. During the year ended December 31, 2015, we identified 34 owned communities as assets held for sale, with 17 of these communities being sold for anaggregate selling price of approximately $82.9 million during the year ended December 31, 2015. The communities were identified as non-core assets that do not fit our long-termstrategy. The sale of the remaining 17 communities is expected in 2016, although there can be no assurance that the transactions will close or if they do, when the actual closingwill occur.During the year, we also made additional progress on our Program Max initiative under which we expand, renovate, redevelop and reposition certain of our existing communities whereeconomically advantageous. For the year ended December 31, 2015, we invested $37.5 million on Program Max projects, net of $28.3 million of third party lessor reimbursements, whichincluded the completion of eleven expansion or conversion projects which resulted in 59 additional units. We currently have 13 additional Program Max projects that have beenapproved, most of which have begun construction and are expected to generate 285 net new units.44The table below presents a summary of our operating results and certain other financial metrics for the years ended December 31, 2015 and 2014 and the amount and percentage ofincrease or decrease of each applicable item (dollars in millions). Years EndedDecember 31, Increase(Decrease) 2015 2014 Amount Percent Total revenue $4,960.6 $3,831.7 $1,128.9 29.5%Facility Operating Expense $2,788.9 $2,210.4 $578.5 26.2%Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $(457.5) $(149.0) $308.5 NM Adjusted EBITDA $793.4 $516.0 $277.4 53.8%Cash From Facility Operations $317.1 $218.3 $98.8 45.3%Facility Operating Income $1,384.1 $1,070.4 $313.7 29.3%Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income are non-GAAP financial measures we use in evaluating our financial and operating performance. See"Non-GAAP Financial Measures" below for an explanation of how we define each of these measures, a detailed description of why we believe such measures are useful and thelimitations of each measure, and a reconciliation of each of the Non-GAAP measures to net income (loss).During 2015, total revenues were $5.0 billion, an increase of $1.1 billion, or 29.5%, over our total revenues for the prior year. The inclusion of Emeritus' operations contributed $1.0 billionto the increase in revenue. Aside from the effects of the Emeritus merger, our revenues increased $124.1 million, or 3.2%, over our total revenues from the prior year. Resident fees for2015 increased $875.8 million, or 26.5%, from the prior year. Management fees increased $17.9 million, or 42.5%, from the prior year, and reimbursed costs incurred on behalf of managedcommunities increased $235.1 million, or 48.2%. The increase in resident fees during 2015 was primarily due to the inclusion of Emeritus' operating results since July 31, 2014. Theincrease in management fees and reimbursed costs incurred on behalf of managed communities is primarily due to our assumption of management agreements as part of our acquisitionof Emeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture, each as described in Note 4 to the consolidated financial statements.During 2015, facility operating expenses were $2.8 billion, an increase of $578.5 million, or 26.2%, as compared to the prior year. Facility operating expenses increased $669.2 million due tothe inclusion of Emeritus' operations. Excluding the effects of the Emeritus merger, facility operating expenses decreased $90.7 million, or 3.3%, primarily due to the contribution ofcommunities to the CCRC Venture.Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders for 2015 was ($457.5) million, or ($2.48) per basic and diluted common share, compared to net income(loss) attributable to Brookdale Senior Living Inc. common stockholders of ($149.0) million, or ($1.01) per basic and diluted common share, for 2014.During 2015, our Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income increased by 53.8%, 45.3% and 29.3%, respectively, when compared to the prior year.Adjusted EBITDA includes integration, transaction, transaction-related and electronic medical records ("EMR") roll-out costs of $116.8 million for the year ended December 31, 2015 and$146.4 million for the year ended December 31, 2014. Cash From Facility Operations includes integration, transaction, transaction-related and EMR roll-out costs of $123.7 million(including $6.9 million of debt modification costs excluded from Adjusted EBITDA) for the year ended December 31, 2015 and $146.4 million for the year ended December 31, 2014.Consolidated Results of OperationsYear Ended December 31, 2015 and 2014The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for anyparticular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and therelated notes, which are included in "Item 8. Financial Statements and Supplementary Data."Our results reflect our acquisition of Emeritus subsequent to July 31, 2014, the closing date of the merger. In addition, with respect to the communities contributed to the CCRC Ventureand HCP 49 Venture and communities subject to amended lease terms, our results reflect our previously existing ownership, lease and/or management interests through August 29, 2014,and reflect our venture and management interests and amended lease terms for the subsequent periods, each as described in Note 4 to the consolidated financial statements. Wecontributed all but two of our legacy Brookdale entry fee CCRCs to the CCRC Venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated. The results of theentry fee CCRCs contributed to the CCRC Venture are reported in the CCRCs - Entry Fee segment for the time periods prior to being contributed to the CCRC Venture. The results of thetwo legacy Brookdale entry fee CCRCs that were not contributed to the CCRC Venture are included in the CCRCs - Entry Fee segment for the six month period ended June 30, 2014 andthe CCRC - Rental segment for the periods subsequent to June 30, 2014.During 2014, one community was moved from the Retirement Centers segment to the CCRCs - Rental segment to more accurately reflect the underlying product offering of thecommunity. The movement did not change our reportable segments, but it did impact the revenues and expenses reported within the Retirement Centers and CCRCs - Rental segments.45At December 31, 2015 our total operations included 1,123 communities with a capacity to serve 108,420 residents.(dollars in thousands, except average monthly revenue per unit) Years EndedDecember 31, Increase(Decrease) 2015 2014 Amount Percent Statement of Operations Data: Revenue Resident fees Retirement Centers $657,940 $582,312 $75,628 13.0%Assisted Living 2,445,457 1,685,563 759,894 45.1%CCRCs - Rental 604,572 493,173 111,399 22.6%CCRCs - Entry Fee — 202,414 (202,414) (100.0)%Brookdale Ancillary Services 469,158 337,835 131,323 38.9%Total resident fees 4,177,127 3,301,297 875,830 26.5%Management services(1) 783,481 530,409 253,072 47.7%Total revenue 4,960,608 3,831,706 1,128,902 29.5%Expense Facility operating expense Retirement Centers 372,683 333,429 39,254 11.8%Assisted Living 1,568,154 1,077,074 491,080 45.6%CCRCs - Rental 454,077 371,512 82,565 22.2%CCRCs - Entry Fee — 153,981 (153,981) (100.0)%Brookdale Ancillary Services 393,948 274,372 119,576 43.6%Total facility operating expense 2,788,862 2,210,368 578,494 26.2%General and administrative expense 370,579 280,267 90,312 32.2%Transaction costs 8,252 66,949 (58,697) NM Facility lease expense 367,574 323,830 43,744 13.5%Depreciation and amortization 733,165 537,035 196,130 36.5%Asset impairment 57,941 9,992 47,949 479.9%Loss on facility lease termination 76,143 — 76,143 100.0%Costs incurred on behalf of managed communities 723,298 488,170 235,128 48.2%Total operating expense 5,125,814 3,916,611 1,209,203 30.9%Income (loss) from operations (165,206) (84,905) 80,301 (94.6)%Interest income 1,603 1,343 260 19.4%Interest expense: Debt (173,484) (128,002) 45,482 35.5%Capital and financing lease obligations (211,132) (109,998) 101,134 91.9%Amortization of deferred financing costs and debt premium (discount) (3,351) (7,477) (4,126) (55.2)%Change in fair value of derivatives (797) (2,711) (1,914) (70.6)%Debt modification and extinguishment costs (7,020) (6,387) 633 9.9%Equity in (loss) earnings of unconsolidated ventures (804) 171 (975) (570.2)%Other non-operating income 9,827 7,235 2,592 35.8%Income (loss) before income taxes (550,364) (330,731) 219,633 NM Benefit for income taxes 92,209 181,305 (89,096) NM Net income (loss) (458,155) (149,426) 308,729 NM Net (income) loss attributable to noncontrolling interest 678 436 242 55.5%Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $(457,477) $(148,990) $308,487 NM Selected Operating and Other Data: Total number of communities operated (period end) 1,123 1,143 (20) (1.7)%Total units operated(2) Period end 107,786 110,219 (2,433) (2.2)%Weighted average 109,342 84,299 25,043 29.7%Owned/leased communities units(2) Period end 80,917 82,984 (2,067) (2.5)%Weighted average 82,508 63,710 18,798 29.5%Weighted average 82,508 63,710 18,798 29.5%Owned/leased communities occupancy rate (weighted average) 86.8% 88.3% (1.5)% (1.7)%Senior Housing average monthly revenue per unit(3) $4,310 $4,357 $(47) (1.1)%46(dollars in thousands, except average monthly revenue per unit) Years EndedDecember 31, Increase(Decrease) 2015 2014 Amount Percent Selected Segment Operating and Other Data: Retirement Centers Number of communities (period end) 95 99 (4) (4.0)%Total units(2) Period end 17,093 17,315 (222) (1.3)%Weighted average 17,308 15,558 1,750 11.2%Occupancy rate (weighted average) 88.8% 89.5% (0.7)% (0.8)%Senior Housing average monthly revenue per unit(3) $3,570 $3,485 $85 2.4%Assisted Living Number of communities (period end) 820 838 (18) (2.1)%Total units(2) Period end 53,500 55,189 (1,689) (3.1)%Weighted average 54,714 36,350 18,364 50.5%Occupancy rate (weighted average) 86.7% 88.7% (2.0)% (2.3)%Senior Housing average monthly revenue per unit(3) $4,297 $4,356 $(59) (1.4)%CCRCs - Rental Number of communities (period end) 44 45 (1) (2.2)%Total units(2) Period end 10,324 10,480 (156) (1.5)%Weighted average 10,486 8,298 2,188 26.4%Occupancy rate (weighted average) 84.4% 85.8% (1.4)% (1.6)%Senior Housing average monthly revenue per unit(3) $5,668 $5,757 $(89) (1.5)%CCRCs - Entry Fee Number of communities (period end) — — — — Total units(2) Period end — — — — Weighted average — 3,504 (3,504) (100.0)%Occupancy rate (weighted average) — 85.2% (85.2)% (100.0)%Senior Housing average monthly revenue per unit(3) $— $5,103 $(5,103) (100.0)%Management Services Number of communities (period end) 164 161 3 1.9%Total units(2) Period end 26,869 27,235 (366) (1.3)%Weighted average 26,834 20,589 6,245 30.3%Occupancy rate (weighted average) 86.0% 86.5% (0.5)% (0.6)% Brookdale Ancillary Services Outpatient Therapy treatment codes 2,506,203 3,053,436 (547,233) (17.9)%Home Health average census 14,211 8,345 5,866 70.3% 47(1)Management services segment revenue includes management fees and reimbursements for which we are the primary obligor of costs incurred on behalf of managed communities.(2)Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.(3)Senior Housing average monthly revenue per unit represents the average of the total monthly resident fee revenues, excluding amortization of entrance fees and BrookdaleAncillary Services segment revenue, divided by average occupied units.Resident Fee RevenueResident fee revenue increased $875.8 million in 2015, or 26.5%, over the prior year primarily due to the inclusion of revenue from communities acquired (including communities acquiredas part of the Emeritus transaction) and new units added to existing communities since the beginning of 2014, partially offset by the effect of the contribution of entry fee CCRCs to theCCRC Venture. During 2015, revenues grew 1.4% at the 505 communities we owned or leased during both full years, with a 3.4% increase in the average monthly revenue per unit(excluding amortization of entrance fees in both instances). Occupancy in these 505 communities decreased 170 basis points over the prior year.Retirement Centers segment revenue increased $75.6 million in 2015, or 13.0%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $66.3 million to the increase in revenue. Additionally, revenues increased at the communities we operated duringboth full periods, primarily due to an increase in average monthly revenue per unit. The increase was partially offset by the reclassification of one community from this segment to theCCRCs - Rental segment subsequent to the beginning of the prior year period and by a decrease in occupancy at the communities we operated during both full periods.Assisted Living segment revenue increased $759.9 million in 2015, or 45.1%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $744.8 million to the increase in revenue. Additionally, revenues increased at the communities we operated duringboth full periods, primarily due to an increase in average monthly revenue per unit. The increase was partially offset by a decrease in occupancy at the communities we operated duringboth full periods.CCRCs - Rental segment revenue increased $111.4 million in 2015, or 22.6%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $70.5 million to the increase in revenue. Additionally, revenues increased due to the reclassification of threecommunities into this segment subsequent to the beginning of the prior year period and revenues increased at the communities we operated during both full periods, primarily due to anincrease in average monthly revenue per unit. The increase was partially offset by a decrease in occupancy at the communities we operated during both full periods.Brookdale Ancillary Services segment revenue increased $131.3 million in 2015, or 38.9%, over the prior year primarily due to the inclusion of revenue related to Nurse on Call, which weacquired as part of our acquisition of Emeritus. The inclusion of Nurse on Call revenue since July 31, 2014 contributed $107.6 million to the increase in revenue. Additionally, revenueincreased due to an increase in home health average census and the roll-out of our home health and hospice services to additional units subsequent to the prior year period. Theincrease was partially offset by a decrease in therapy service volume.48Management Services RevenueManagement Services segment revenue, including management fees and reimbursed costs incurred on behalf of managed communities, increased $253.1 million in 2015, or 47.7%,primarily due to our assumption of management agreements as part of our acquisition of Emeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture.Facility Operating ExpenseFacility operating expense increased $578.5 million in 2015, or 26.2%, over the prior year primarily due to the impact of our acquisition of Emeritus, partially offset by the effect of thecontribution of entry fee CCRCs to the CCRC Venture.Retirement Centers segment operating expenses increased $39.3 million in 2015, or 11.8%, primarily due to the inclusion of operating expenses from communities acquired during 2014.The inclusion of Emeritus' operating results since July 31, 2014 contributed $35.3 million to the increase in operating expense. Additionally, operating expenses increased at thecommunities we operated during both full periods, driven by an increase in salaries and wages due to wage rate increases. The increase was partially offset by the reclassification of onecommunity from this segment to the CCRCs - Rental segment subsequent to the beginning of the prior year period.Assisted Living segment operating expenses increased $491.1 million in 2015, or 45.6%, primarily due to the inclusion of operating expenses from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $491.7 million to the increase in operating expense. Additionally, operating expenses decreased at the communitieswe operated during both full periods, driven by a decrease in food costs, primarily due to the impact of increased rebates received. The decrease in operating expenses at thecommunities we operated during both full periods was partially offset by an increase in salaries and wages due to wage rate increases and an increase in advertising costs.CCRCs - Rental segment operating expenses increased $82.6 million in 2015, or 22.2%, primarily due to the inclusion of operating expenses from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $53.5 million to the increase in operating expense. Additionally, operating expenses increased due to thereclassification of three communities into this segment subsequent to the beginning of the prior year period and operating expenses increased at the communities we operated duringboth full periods, primarily due to an increase in salaries and wages due to wage rate increases.Brookdale Ancillary Services segment operating expenses increased $119.6 million in 2015, or 43.6%, primarily due to the inclusion of expenses related to Nurse on Call, which weacquired as part of our acquisition of Emeritus. The inclusion of Nurse on Call expenses since July 31, 2014 contributed $88.8 million to the increase in expenses. Additionally, expenseincreased in connection with higher census and increased salaries and wage expense as additional employees are hired to roll out services to communities acquired as part of theEmeritus transaction.General and Administrative ExpenseGeneral and administrative expense increased $90.3 million in 2015, or 32.2%, over the prior year primarily as a result of an increase in integration and transaction-related costs and theaddition of employees associated with our acquisition of Emeritus. Integration costs include transition costs associated with the Emeritus merger and organizational restructuring (suchas severance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration of Emeritus (in areas such as cost savings and synergyrealization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities andprojects. Transaction-related costs include third party costs directly related to the acquisition of Emeritus, other acquisition and disposition activity, community financing and leasingactivity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professionalfees and other third party costs.Transaction CostsTransaction costs for 2015 were $8.3 million, a decrease from $66.9 million in the prior year period. Transaction costs in the prior year period are primarily comprised of transaction feesand direct acquisition costs related to the acquisition of Emeritus and the completion of the transactions with HCP during 2014 and include expenses such as lender costs and legal,banking, accounting and consulting fees. Transaction costs in the current year period primarily relate to direct costs related to community acquisition and leasing activity.49Facility Lease ExpenseFacility lease expense increased $43.7 million in 2015, or 13.5%, over the prior year primarily due to the inclusion of lease expense from leases assumed as part of our acquisition ofEmeritus.Depreciation and AmortizationDepreciation and amortization expense increased $196.1 million in 2015, or 36.5%, primarily due to the acquisition of communities since the beginning of the prior year period, driven byamortization of in-place lease intangibles acquired as part of our acquisition of Emeritus, partially offset by the contribution of previously owned communities to the CCRC Venture inAugust 2014. Additionally, depreciation expense increased in 2015 as a result of increased capital expenditures compared to the prior year.Asset ImpairmentDuring 2015 and 2014, we recorded impairment charges of $57.9 million and $10.0 million, respectively, related to asset impairment for property, plant and equipment and leaseholdintangibles for certain communities. During 2015, we sold 17 communities for an aggregate selling price of $82.9 million and recorded $18.4 million of impairment charges related to thecommunities sold, inclusive of the allocation of $8.1 million of goodwill to the disposed communities. During 2015, we recorded $15.2 million of impairment charges related to 17communities identified as held for sale as of December 31, 2015, inclusive of the allocation of $12.2 million of goodwill to the disposal groups. Additionally, during 2015, we recorded$24.3 million of non-cash impairment charges for property, plant and equipment and leasehold intangibles for communities to be held and used. These impairment charges are primarilydue to lower than expected operating performance of the underlying communities. For the communities identified as held for sale during the year, we compared the estimated selling priceof the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimated selling price less costs to dispose. For communities that we planto operate for the long-term, we compared the estimated fair value of the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimatedfair value. The $10.0 million impairment charge recorded during 2014 related to asset impairment for property, plant and equipment and leasehold intangibles for certain communities.These impairment charges were primarily due to lower than expected performance of the underlying communities.Loss on Facility Lease TerminationA loss on facility lease termination of $76.1 million was recognized during 2015 for the difference between the amount paid to acquire the underlying real estate associated with 15communities that were previously leased and the estimated fair value of the communities, net of the deferred lease liabilities previously recognized.Costs Incurred on Behalf of Managed CommunitiesCosts incurred on behalf of managed communities increased $235.1 million, or 48.2%, primarily due to our assumption of new management agreements as part of our acquisition ofEmeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture.Interest ExpenseInterest expense increased $140.6 million in 2015, or 56.6%, primarily due to our assumption of Emeritus debt and capital and financing lease obligations, which increased interest expenseby $28.6 million and $102.7 million, respectively (including the impact of non-cash interest expense related to debt discounts and premiums recorded).50Income TaxesIncome tax benefit decreased $89.1 million in 2015, or 49.1%, over the prior year. The difference in our effective tax rates for the years ended December 31, 2015 and 2014 was primarily dueto an increase in the valuation allowance against our deferred tax assets in 2015 as compared to the reversal of the valuation allowance that occurred in 2014. We determined that thevaluation allowance was required due to the loss before income taxes in 2015, and in consideration of our estimated future reversal of existing timing differences as of December 31, 2015.This determination was made based primarily on the future reversal of our existing timing differences as we are not permitted under generally accepted accounting principles to considerfuture estimates of taxable income at this time. As a result, we recorded a valuation allowance of $112.4 million for the year ended December 31, 2015 of which $0.6 million was recorded asan adjustment to the purchase price allocation for Emeritus and $111.8 million was recorded within the provision for income taxes in the statement of operations in the fourth quarter of2015. We recorded this valuation allowance against a deferred income tax benefit of $207.0 million as a result of the loss before income taxes for the year ended December 31, 2015 andadditional tax credits. The valuation allowance reflects that our net operating losses will begin to expire in 2027, however, we would anticipate using tax planning strategies available tous in order to avoid a true expiration of those losses, should that issue arise. If we continue our trend of increasing losses before income taxes, the valuation allowance may be increasedin future periods. Our valuation allowance as of December 31, 2015 is $121.6 million. We do not expect that we will become a federal cash income tax payer until 2020, at the earliest.As a result of the acquisition of Emeritus, we recorded deferred tax liabilities in excess of deferred tax assets that reflect the difference between the fair market value of the acquired assetsover the historical basis of the acquired assets. During the year ended December 31, 2014, we determined that it was more likely than not that our federal net operating loss carryforwardsand a majority of our state net operating loss carryforwards and tax credits would be utilized in the future, based on the future reversal of these deferred tax liabilities. As a result, duringthe year ended December 31, 2014 we recorded an aggregate deferred federal, state and local income tax benefit of $64.2 million from the release of the valuation allowance against certaindeferred tax assets. Additionally, we recorded an aggregate deferred federal, state and local tax benefit of $94.1 million as a result of the operating loss for the year ended December 31,2014. Our 2014 effective rate was also impacted by certain transaction expenses that were incurred as part of acquisition of Emeritus that are required to be capitalized for income taxpurposes.Year Ended December 31, 2014 and 2013The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for anyparticular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our consolidated financial statements and the notesthereto, which are included in "Item 8. Financial Statements and Supplementary Data."Our 2014 results reflect our acquisition of Emeritus subsequent to July 31, 2014, the closing date of the merger. In addition, with respect to the communities contributed to the CCRCVenture and HCP 49 Venture and communities subject to the amended lease terms, our results reflect our previously existing ownership, lease and/or management interests throughAugust 29, 2014, and reflect our venture and management interests and amended lease terms for the remainder of the period, each as described in Note 4 to the consolidated financialstatements. We contributed all but two of our legacy Brookdale entry fee CCRCs to the CCRC Venture on August 29, 2014, at which time the contributed CCRCs were deconsolidated.The results of the entry fee CCRCs contributed to the CCRC Venture are reported in the CCRCs - Entry Fee segment for the time periods prior to being contributed to the CCRC Venture.The results of the two legacy Brookdale CCRCs that were not contributed to the CCRC Venture are included in the CCRCs - Entry Fee segment for the six month period ended June 30,2014 and the CCRCs - Rental segment for the six month period ended December 31, 2014 based on how operating results are being reviewed by the chief operating decision makerfollowing the creation of the CCRC Venture.51During 2014, two communities were moved from the Retirement Centers segment to the Assisted Living segment and one community was moved from the Retirement Centers segment tothe CCRCs - Rental segment to more accurately reflect the underlying product offering of the communities. The movement did not change our reportable segments, but it did impact therevenues and expenses reported within the Retirement Centers, Assisted Living and CCRCs - Rental segments. Revenue and expenses for the year ended December 31, 2013 have notbeen recast.(dollars in thousands, except average monthly revenue per unit) Years EndedDecember 31, Increase(Decrease) 2014 2013 Amount Percent Statement of Operations Data: Revenue Resident fees Retirement Centers $582,312 $526,284 $56,028 10.6%Assisted Living 1,685,563 1,051,868 633,695 60.2%CCRCs - Rental 493,173 396,975 96,198 24.2%CCRCs - Entry Fee 202,414 297,756 (95,342) (32.0)%Brookdale Ancillary Services 337,835 242,150 95,685 39.5%Total resident fees 3,301,297 2,515,033 786,264 31.3%Management services(1) 530,409 376,933 153,476 40.7%Total revenue 3,831,706 2,891,966 939,740 32.5%Expense Facility operating expense Retirement Centers 333,429 304,002 29,427 9.7%Assisted Living 1,077,074 662,190 414,884 62.7%CCRCs - Rental 371,512 287,949 83,563 29.0%CCRCs - Entry Fee 153,981 221,363 (67,382) (30.4)%Brookdale Ancillary Services 274,372 196,441 77,931 39.7%Total facility operating expense 2,210,368 1,671,945 538,423 32.2%General and administrative expense 280,267 180,627 99,640 55.2%Transaction costs 66,949 3,921 63,028 NM Facility lease expense 323,830 276,729 47,101 17.0%Depreciation and amortization 537,035 268,757 268,278 99.8%Asset impairment 9,992 12,891 (2,899) (22.5)%Costs incurred on behalf of managed communities 488,170 345,808 142,362 41.2%Total operating expense 3,916,611 2,760,678 1,155,933 41.9%Income (loss) from operations (84,905) 131,288 (216,193) (164.7)%Interest income 1,343 1,339 4 0.3%Interest expense: Debt (128,002) (96,131) 31,871 33.2%Capital and financing lease obligations (109,998) (25,194) 84,804 336.6%Amortization of deferred financing costs and debt premium (discount) (7,477) (17,054) (9,577) (56.2)%Change in fair value of derivatives (2,711) 980 3,691 376.6%Debt modification and extinguishment costs (6,387) (1,265) 5,122 404.9%Equity in earnings of unconsolidated ventures 171 1,484 (1,313) (88.5)%Other non-operating income 7,235 2,725 4,510 165.5%Income (loss) before income taxes (330,731) (1,828) 328,903 NM Benefit (provision) for income taxes 181,305 (1,756) 183,061 NM Net income (loss) (149,426) (3,584) 145,842 NM Net (income) loss attributable to noncontrolling interest 436 — 436 100.0%Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $(148,990) $(3,584) $146,278 NM Selected Operating and Other Data: Total number of communities operated (period end) 1,143 649 494 76.1%Total units operated(2) Period end 110,219 65,832 44,387 67.4%Weighted average 84,299 66,173 18,126 27.4%Owned/leased communities units(2) Period end 82,984 48,422 34,562 71.4%Weighted average 63,710 48,090 15,620 32.5%Owned/leased communities occupancy rate (weighted average) 88.3% 88.7% (0.4)% (0.5)%Senior Housing average monthly revenue per unit(3) $4,357 $4,383 $(26) (0.6)%52(dollars in thousands, except average monthly revenue per unit) Years EndedDecember 31, Increase(Decrease) 2014 2013 Amount Percent Selected Segment Operating and Other Data: Retirement Centers Number of communities (period end) 99 76 23 30.3%Total units(2) Period end 17,315 14,454 2,861 19.8%Weighted average 15,558 14,439 1,119 7.7%Occupancy rate (weighted average) 89.5% 89.8% (0.3)% (0.3)%Senior Housing average monthly revenue per unit(3) $3,485 $3,381 $104 3.1%Assisted Living Number of communities (period end) 838 438 400 91.3%Total units(2) Period end 55,189 22,158 33,031 149.1%Weighted average 36,350 21,679 14,671 67.7%Occupancy rate (weighted average) 88.7% 89.7% (1.0)% (1.1)%Senior Housing average monthly revenue per unit(3) $4,356 $4,510 $(154) (3.4)%CCRCs - Rental Number of communities (period end) 45 26 19 73.1%Total units(2) Period end 10,480 6,478 4,002 61.8%Weighted average 8,298 6,669 1,629 24.4%Occupancy rate (weighted average) 85.8% 86.8% (1.0)% (1.2)%Senior Housing average monthly revenue per unit(3) $5,757 $5,715 $42 0.7%CCRCs - Entry Fee Number of communities (period end) — 14 (14) (100.0)%Total units(2) Period end — 5,332 (5,332) (100.0)%Weighted average 3,504 5,303 (1,799) (33.9)%Occupancy rate (weighted average) 85.2% 84.2% 1.0% 1.2%Senior Housing average monthly revenue per unit(3) $5,103 $5,013 $90 1.8%Other Entry Fee Data Non-refundable entrance fees sales $32,704 $44,191 $(11,487) (26.0)%Refundable entrance fees sales(4) 20,342 48,140 (27,798) (57.7)%Total entrance fee receipts 53,046 92,331 (39,285) (42.5)%Refunds (25,865) (35,325) (9,460) (26.8)%Net entrance fees $27,181 $57,006 $(29,825) (52.3)%Management Services Number of communities (period end) 161 95 66 69.5%Total units(2) Period end 27,235 17,410 9,825 56.4%Weighted average 20,589 18,083 2,506 13.9%Occupancy rate (weighted average) 86.5% 85.4% 1.1% 1.3% Brookdale Ancillary Services Outpatient Therapy treatment codes 3,053,436 3,325,129 (271,693) (8.2)%Home Health average census 8,345 4,498 3,847 85.5% 53(1)Management services segment revenue includes management fees and reimbursements for which we are the primary obligor of costs incurred on behalf of managed communities.(2)Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.(3)Senior Housing average monthly revenue per unit represents the average of the total monthly resident fee revenues, excluding amortization of entrance fees and BrookdaleAncillary Services segment revenue, divided by average occupied units.(4)Refundable entrance fee sales for the years ended December 31, 2014 and 2013 include amounts received from residents participating in the MyChoice program, which allows newand existing residents the option to pay additional refundable entrance fee amounts in return for a reduced monthly service fee. MyChoice amounts received from residentstotaled $2.9 million and $19.0 million for the years ended December 31, 2014 and 2013, respectively.Resident Fee RevenueResident fee revenue increased $786.3 million in 2014, or 31.3%, over the prior year primarily due to the inclusion of revenue from communities acquired (including communities acquiredas part of the Emeritus transaction) and new units added to existing communities since the end of 2013, partially offset by the effect of the contribution of entry fee CCRCs to the CCRCVenture. During 2014, revenues grew 2.9% at the 500 communities we owned or leased during both years, with a 3.4% increase in the average monthly revenue per unit (excludingamortization of entrance fees in both instances). Occupancy in these 500 communities decreased 0.5% over the prior year.Retirement Centers segment revenue increased $56.0 million in 2014, or 10.6%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $49.5 million to the increase in revenue. Excluding the effects of our acquisition of Emeritus, Retirement Centerssegment revenue increased $6.5 million in 2014, or 1.2%, over the prior year primarily due to an increase in average monthly revenue per unit at the communities we operated during bothyears, offset in part by the reclassification of two communities from this segment into the Assisted Living segment and one community from this segment to the CCRCs - Rental segmentduring 2014.Assisted Living segment revenue increased $633.7 million in 2014, or 60.2%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $573.3 million to the increase in revenue. Excluding the effects of our acquisition of Emeritus, Assisted Livingsegment revenue increased $60.4 million in 2014, or 5.7%, over the prior year primarily due to an increase in average monthly revenue per unit at the communities we operated during bothyears. Additionally, Assisted Living segment revenue increased due to the impact of the reclassification of two communities from the Retirement Centers segment into this segmentduring 2014. The increase was partially offset by a decrease in occupancy at the communities we operated during both periods.CCRCs - Rental segment revenue increased $96.2 million in 2014, or 24.2%, over the prior year primarily due to the inclusion of revenue from communities acquired during 2014. Theinclusion of Emeritus' operating results since July 31, 2014 contributed $70.3 million to the increase in revenue. Excluding the effects of our acquisition of Emeritus, revenue increased$25.9 million in 2014, or 6.5%, over the prior year primarily due to the reclassification of two communities into this segment from the CCRCs - Entry Fee segment beginning with the thirdquarter of 2014 and an increase in average monthly revenue per unit at the communities we operated during both years. The increase was partially offset by a decrease in occupancy atthe communities we operated during both periods.CCRCs - Entry Fee segment revenue decreased $95.3 million in 2014, or 32.0%, over the prior year primarily due to the contribution of all but two of our legacy Brookdale entry fee CCRCsto the CCRC Venture and the reclassification of the two remaining legacy Brookdale CCRCs from this segment into the CCRCs - Rental segment beginning with the third quarter of 2014.Brookdale Ancillary Services segment revenue increased $95.7 million in 2014, or 39.5%, over the prior year primarily due to the inclusion of $76.8 million of revenues related to Nurse onCall, which we acquired as part of our acquisition of Emeritus. Excluding the effects of our acquisition of Emeritus, Brookdale Ancillary Services segment revenue increased $18.9 millionin 2014, or 7.8%, over the prior year driven by an increase in home health average census and the roll-out of our hospice services to additional units in 2014. The increase was partiallyoffset by a decrease in therapy service volume during 2014.54Management Services RevenueManagement Services segment revenue, including reimbursed costs incurred on behalf of managed communities, increased $153.5 million in 2014, or 40.7%, over the prior year. Theincrease in management fees and reimbursed costs on behalf of managed communities is primarily due to our assumption of management agreements as part of our acquisition ofEmeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture.Facility Operating ExpenseFacility operating expense increased $538.4 million in 2014, or 32.2%, over the prior year primarily due to the impact of our acquisition of Emeritus.Retirement Centers segment operating expenses increased $29.4 million in 2014, or 9.7%, over the prior year primarily due to the inclusion of operating expenses from communitiesacquired during 2014. Of the increase, $25.9 million was attributable to the inclusion of the operating results of Emeritus since July 31, 2014. Excluding the effects of our acquisition ofEmeritus, operating expenses increased $3.5 million driven by an increase in salaries and wages due to wage rate increases and an increase in advertising expense. The increase wasoffset in part by the reclassification of two communities from this segment into the Assisted Living segment and one community from this segment to the CCRCs - Rental segment during2014.Assisted Living segment operating expenses increased $414.9 million in 2014, or 62.7%, over the prior year primarily due to the inclusion of operating expenses from communitiesacquired during 2014. Of the increase, $370.7 million was attributable to the inclusion of the operating results of Emeritus since July 31, 2014. Excluding the effects of our acquisition ofEmeritus, operating expenses increased by $44.2 million driven by an increase in salaries and wages due to wage rate increases, an increase in insurance expense and an increase inadvertising expense. Additionally, Assisted Living segment operating expenses increased due to the impact of the reclassification of two communities from the Retirement Centerssegment into this segment during 2014.CCRCs - Rental segment operating expenses increased $83.6 million in 2014, or 29.0%, over the prior year primarily due to the inclusion of operating expenses from communities acquiredduring 2014. Of the increase, $52.9 million was attributable to the inclusion of the operating results of Emeritus since July 31, 2014. The remaining $30.7 million increase was primarily dueto the reclassification of two communities into this segment from the CCRCs - Entry Fee segment beginning with the third quarter of 2014.CCRCs - Entry Fee segment operating expenses decreased $67.4 million in 2014, or 30.4%, over the prior year primarily due to the contribution of all but two of our legacy Brookdale entryfee CCRCs to the CCRC Venture and the reclassification of the two remaining legacy Brookdale CCRCs from this segment into the CCRCs - Rental segment beginning with the thirdquarter of 2014.Brookdale Ancillary Services segment operating expenses increased $77.9 million in 2014, or 39.7%, over the prior year primarily due to the inclusion of expenses related to Nurse on Call(which we acquired in connection with our acquisition of Emeritus) and an increase in expenses incurred in connection with higher census and the continued expansion of our ancillaryservices programs, partially offset by a decrease in bad debt expense.General and Administrative ExpenseGeneral and administrative expense increased $99.6 million in 2014, or 55.2%, over the prior year primarily as a result of an increase in integration costs and the addition of employeesassociated with our acquisition of Emeritus. Integration costs include third-party expenses directly related to the integration of Emeritus as well as internal costs such as labor, reflectingtime spent by our personnel on integration and transaction activity. Transaction costs relating to our acquisition of Emeritus (and the completion of the transactions during 2014 withHCP) are reported separately from general and administrative expense, as further discussed below.55Transaction CostsTransaction costs for 2014 were $66.9 million, an increase from $4.0 million in the prior year. The increase is a result of transaction fees and direct acquisition costs related to ouracquisition of Emeritus and the completion of the transactions with HCP during 2014, including expenses such as lender costs and legal, banking, accounting and consulting fees.Facility Lease ExpenseFacility lease expense increased $47.1 million in 2014, or 17.0%, over the prior year primarily due to the inclusion of lease expense from leases assumed as part of our acquisition ofEmeritus.Depreciation and AmortizationDepreciation and amortization expense increased $268.3 million in 2014, or 99.8%, over the prior year primarily due to the acquisition of communities in 2014, driven by amortization of in-place lease intangibles acquired as part of our acquisition of Emeritus, partially offset by the contribution of previously owned communities to the CCRC Venture in August 2014.Additionally, depreciation expense increased in 2014 as a result of increased capital expenditures compared to the prior year.Asset ImpairmentDuring 2014 and 2013, we recorded impairment charges of $10.0 million and $12.9 million, respectively, related to asset impairment for property, plant and equipment and leaseholdintangibles for certain communities. These impairment charges are primarily due to lower than expected performance of the underlying communities. We compared the estimated fair valueof the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimated fair value.Costs Incurred on Behalf of Managed CommunitiesCosts incurred on behalf of managed communities increased $142.4 million, or 41.2%, primarily due to the our assumption of management agreements as part of our acquisition ofEmeritus and our entry into management agreements with the CCRC Venture and HCP 49 Venture.Interest ExpenseInterest expense increased $110.8 million in 2014, or 80.6%, over the prior year primarily due to our assumption of Emeritus' debt and capital and financing lease obligations, whichincreased interest expense by $25.0 million and $85.1 million, respectively (including the impact of non-cash interest expense related to the amortization of debt discounts and premiumsrecorded).Income TaxesThe difference in our effective tax rates for the years ended December 31, 2014 and 2013 was primarily due to the reversal in 2014 of the valuation allowance that had been recordedagainst our deferred tax assets. As a result of the acquisition of Emeritus, we recorded deferred tax liabilities in excess of deferred tax assets that reflect the difference between the fairmarket value of the acquired assets over the historical basis of the acquired assets. In 2014, we determined that it was more likely than not that our federal net operating losscarryforwards and a majority of our state net operating loss carryforwards and tax credits would be utilized in the future, based on the future reversal of these deferred tax liabilities. As aresult, during 2014 we recorded an aggregate deferred federal, state and local income tax benefit of $64.2 million from the release of the valuation allowance against certain deferred taxassets. Additionally, we recorded an aggregate deferred federal, state and local tax benefit of $94.1 million as a result of the operating loss for the year ended December 31, 2014. Our 2014effective rate was also impacted by certain transaction expenses that were incurred as part of acquisition of Emeritus that are required to be capitalized for income tax purposes.56Critical Accounting Policies and EstimatesThe preparation of our financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates and judgments thataffect our reported amounts of assets and liabilities, revenues and expenses. We consider an accounting estimate to be critical if it requires assumptions to be made that were uncertainat the time the estimate was made and changes in the estimate, or different estimates that could have been selected, could have a material impact on our consolidated results ofoperations or financial condition. We have identified the following critical accounting policies that affect significant estimates and judgments.Self-Insurance Liability AccrualsWe are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain general liability and professional liability insurancepolicies for our 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, we are effectively self-insured for claims that are less than the deductible amounts. In addition, we maintain a large-deductible workers compensation program and a self-insured employee medical program. We have secured our obligations related to general liability, professional liability and workers compensation programs with cash aggregating $15.6million, deposits aggregating $40.5 million and letters of credit aggregating $49.8 million as of December 31, 2015. Third-party insurers are responsible for claim costs above programdeductibles and retentions.The cost of our employee health and dental benefits, net of employee contributions, is shared by us and our communities based on the respective number of participants workingdirectly either at our corporate offices or at the communities. Cash received is used to pay the actual costs of administering the program which include paid claims, third-partyadministrative fees, network provider fees, communication costs, and other related administrative costs incurred by us. Claims are paid as they are submitted to the plan administrator.Outstanding losses and expenses for general liability and professional liability and workers compensation are estimated based on the recommendations of independent actuaries andmanagement's estimates. Outstanding losses and expenses for our self-insured medical program are estimated based on the recommendation of our third party administrator andmanagement's estimates.We review the adequacy of our accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates, consultants,advice from legal counsel and industry data, and adjust accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projectedclaims incurred but not yet reported. Subsequent changes in actual experience are monitored and estimates are updated as information is available. Changes in self-insurance reservesare recorded as an increase or decrease to expense in the period that the determination is made.Income TaxesWe account for income taxes under the provisions of Accounting Standards Codification ("ASC") 740, Income Taxes. Under this method, deferred tax assets and liabilities are determinedbased on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to affect taxableincome. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are expected to be realized. As of December 31, 2015 and 2014, we have avaluation allowance against deferred tax assets of approximately $121.6 million and $9.2 million, respectively. When we determine that it is more likely than not that we will be able torealize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would be made and reflected in income. This determination willbe made by considering various factors, including the reversal and timing of existing temporary differences, tax planning strategies and estimates of future taxable income exclusive ofthe reversal of temporary differences, although we are currently precluded under GAAP from considering estimates of future taxable income in our analysis due to our cumulativehistorical operating losses.We have elected the "with-and-without approach" regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year.Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefitspresently available to us.57Lease AccountingWe determine whether to account for our leases as either operating or capital or financing leases depending on the underlying terms. As of December 31, 2015, we operated 546communities under long-term leases with operating, capital and financing lease obligations. The determination of this classification is complex and in certain situations requires asignificant level of judgment. Our classification criteria is based on estimates regarding the fair value of the leased communities, minimum lease payments, effective cost of funds, theeconomic life of the community and certain other terms in the lease agreements. Communities under operating leases are accounted for in our consolidated statements of operations aslease expenses for actual rent paid plus or minus straight-line adjustments for fixed or estimated minimum lease escalators as well as amortization of above/below market rents anddeferred gains. For communities under capital and financing lease obligation arrangements, a liability is established on our balance sheets and a corresponding long-term asset isrecorded. Lease payments are allocated between principal and interest on the remaining base lease obligations. For capital lease assets, the asset is depreciated over the remaining leaseterm unless there is a bargain purchase option in which case the asset is depreciated over the useful life. For financing lease assets, the asset is depreciated over the useful life of theasset. In addition, we amortize leasehold improvements purchased during the term of the lease over the shorter of their economic life or the lease term. Sale-leaseback transactions arerecorded as lease financing obligations when the transactions include a form of continuing involvement, such as purchase options.Allowance for Doubtful Accounts and Contractual AdjustmentsAccounts receivable are reported net of an allowance for doubtful accounts, and represent our estimate of the amount that ultimately will be realized in cash. The allowance for doubtfulaccounts was $26.5 million as of both December 31, 2015 and 2014. The adequacy of our allowance for doubtful accounts is reviewed on an ongoing basis, using historical paymenttrends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to theallowance as necessary. Recent changes in legislation are not expected to have a material impact on the collectability of our accounts receivable; however, changes in economicconditions could have an impact on the collection of existing receivable balances or future allowance calculations.Approximately 81.9% and 80.7% of our resident fee revenues for the years ended December 31, 2015 and 2014, respectively, were derived from private pay customers and 18.1% and19.3% of our resident fee revenues for the years ended December 31, 2015 and 2014, respectively, were derived from services covered by various third-party payor programs, includingMedicare and Medicaid. Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any, under reimbursement programs. Revenuerelated to these billings is recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. We accruecontractual or cost related adjustments from Medicare or Medicaid when assessed (without regard to when the assessment is paid or withheld), even if we have not agreed to or areappealing the assessment. Subsequent positive or negative adjustments to these accrued amounts are recorded in net revenues when known.Long-Lived Assets and GoodwillAs of December 31, 2015 and 2014, our long-lived assets were comprised primarily of $8.0 billion and $8.4 billion of net property, plant and equipment and leasehold intangibles,respectively. In accounting for our property, plant and equipment and leasehold intangibles, we apply the provisions of ASC 360, Property, Plant and Equipment. Acquisitions areaccounted for using the purchase method of accounting and the purchase prices are assigned to acquired assets and liabilities based on their estimated fair values. Goodwill recorded inconnection with business combinations is allocated to the respective reporting unit and included in our application of the provisions of ASC 350, Intangibles – Goodwill and Other("ASC 350"). As of December 31, 2015 and 2014, we had goodwill balances of $725.7 million and $736.8 million, respectively. The decrease in goodwill during the year ended December 31,2015 is attributed to the allocation of goodwill to communities sold or identified as assets held for sale. The decrease was partially offset by the impact of current year changes to theinitial allocation of fair values of the assets acquired and liabilities for the acquisition of Emeritus.58We test long-lived assets other than goodwill and indefinite-lived intangible assets for recoverability annually during our fourth quarter or whenever changes in circumstances indicatethe carrying value may not be recoverable. Recoverability of an asset (group) is estimated by comparing its carrying value to the future net undiscounted cash flows expected to begenerated by the asset (group). If this comparison indicates that the carrying value of an asset (group) is not recoverable, we are required to recognize an impairment loss. Theimpairment loss is measured by the amount by which the carrying amount of the asset (group) exceeds its estimated fair value. When an impairment loss is recognized for assets to beheld and used, the carrying amount of those assets is permanently adjusted and depreciated over its remaining useful life. During 2015, 2014 and 2013 we evaluated long-liveddepreciable assets and determined that the undiscounted cash flows exceeded the carrying value of these assets for all except a small number of communities. Estimated fair values weredetermined for these certain properties and we recorded non-cash asset impairment charges of $57.9 million, $10.0 million and $12.9 million for 2015, 2014 and 2013, respectively. Theseimpairment charges are primarily due to our decision to sell the properties or lower than expected performance of the underlying communities and equal the amount by which the carryingvalues of the assets exceed the estimated fair value or in the case of assets held for sale, fair value less costs to dispose.We test goodwill for impairment annually during our fourth quarter, or whenever indicators exist that suggest that our goodwill may not be recoverable. Factors we consider important inour analysis of whether an indicator of impairment exists, which could trigger an impairment of goodwill in the future, include a significant decline in our stock price for a sustained periodsince the last testing date, a decline in our market capitalization below net book value, significant underperformance relative to historical or projected future operating results andsignificant negative industry or economic trends. We first assess qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. Weare not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less thanits carrying amount. The quantitative goodwill impairment test is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned withthe reporting unit's carrying value.Indefinite-lived intangible assets are tested for impairment annually during our fourth quarter or more frequently as required. The impairment test consists of a comparison of theestimated fair value of the indefinite-lived intangible asset with its carrying value. If the carrying amount exceeds its fair value, an impairment loss is recognized for that difference.In estimating the fair value of long-lived assets (groups) and reporting units for purposes of our goodwill impairment test, we generally use the income approach. The income approachutilizes future cash flow projections that are developed internally. Any estimates of future cash flow projections necessarily involve predicting an unknown future and require significantmanagement judgments and estimates. In arriving at our cash flow projections, we consider our historic operating results, approved budgets and business plans, future demographicfactors, expected growth rates, and other factors. Future events may indicate differences from management's current judgments and estimates which could, in turn, result in futureimpairments. Future events that may result in impairment charges include increases in interest rates, which could impact capitalization and discount rates, differences in the projectedoccupancy rates and changes in the cost structure of existing communities.In using the income approach to estimate the fair value of long-lived assets (groups) and reporting units for purposes of our goodwill impairment test, we make certain key assumptions.Those assumptions include future revenues and future facility operating expenses, and future cash flows that we would receive upon a sale of the communities using estimatedcapitalization rates. We corroborate the capitalization rates we use in these calculations with capitalization rates observable from recent market transactions.Where required, future cash flows are discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The weighted average cost ofcapital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise.As of our annual assessment date on October 1, 2015 and as of December 31, 2015, our estimated fair values of our reporting units exceeded their carrying values and we concluded,based on the first step process, that there was no impairment of goodwill. The fair value exceeded carrying value by more than 50% for each of our reporting units, with the exception ofour Assisted Living reporting unit. The fair value exceeded the carrying value of our Assisted Living reporting unit by approximately 25%. Goodwill allocated to our Assisted Livingreporting unit is approximately $571.5 million as of December 31, 2015. Determining the fair value of a reporting unit or asset group involves the use of significant estimates andassumptions, which we believe to be reasonable, that are unpredictable and inherently uncertain. These estimates and assumptions include revenue growth rates and operating marginsused to calculate projected future cash flows and risk-adjusted discount rates. Significant adverse changes in our future revenues and/or operating margins, significant changes in themarket 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 competitionand changing economic or market conditions, including market control premiums, could result in changes in fair value and the determination that all or a portion of our goodwill isimpaired. The fair value of our Assisted Living reporting unit was estimated utilizing revenue growth rates ranging from 3.0% to 4.5%, expense growth rates from 3.0% to 4.5%, discountrates ranging from 8.5% to 10.0%, and capitalization rates ranging from 6.5% to 8.0%.59Our impairment loss assessment contains uncertainties because it requires us to apply judgment to estimate whether there has been a decline in the fair value of our reporting units,including estimating future cash flows, and if necessary, the fair value of our assets and liabilities. As we periodically perform this assessment, changes in our estimates andassumptions 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 ourreporting units, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.Stock-Based CompensationASC 718, Compensation – Stock Compensation ("ASC 718") requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee's requisite service period. Incremental compensation costsarising from subsequent modifications of awards after the grant date must be recognized when incurred.Certain of our employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement ofperformance conditions is considered probable. Consequently, our determination of the amount of stock compensation expense requires a significant level of judgment in estimating theprobability of achievement of these performance targets. Additionally, we must make estimates regarding employee forfeitures in determining compensation expense. Subsequentchanges in actual experience are monitored and estimates are updated as information is available.LitigationLitigation is inherently uncertain and the outcome of individual litigation matters is not predictable with assurance. As described in Note 17 to the consolidated financial statements, weare involved in various legal actions and claims incidental to the conduct of our business which are comparable to other companies in the senior living and healthcare industries. Wehave established loss provisions for matters in which losses are probable and can be reasonably estimated. In other instances, we may not be able to make a reasonable estimate of anyliability because of uncertainties related to the outcome and/or the amount or range of losses. Changes in our current estimates, due to unanticipated events or otherwise, could have amaterial impact on our financial condition and results of operations.New Accounting PronouncementsSee Note 2 to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data" for a discussion of new accounting pronouncements.Liquidity and Capital ResourcesThe following is a summary of cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows (in thousands): Year EndedDecember 31, 2015 2014 Cash provided by operating activities $292,366 $242,652 Cash used in investing activities (568,977) (314,882)Cash provided by financing activities 260,557 117,802 Net (decrease) increase in cash and cash equivalents (16,054) 45,572 Cash and cash equivalents at beginning of year 104,083 58,511 Cash and cash equivalents at end of year $88,029 $104,083 The increase in cash provided by operating activities of $49.7 million was attributable primarily to the inclusion of Emeritus' operating results.The increase in cash used in investing activities of $254.1 million was primarily attributable to our acquisition of previously leased communities in 2015. Additionally, there was anincrease in spending on property, plant and equipment and leasehold intangibles and an increase in investments in unconsolidated ventures.The increase in cash provided by financing activities of $142.8 million was primarily attributable to the proceeds from draws on our secured credit facility and mortgage debt incurred inconnection with certain acquisitions during 2015. The prior year period included the receipt of $330.4 million of net proceeds from a public equity offering of approximately 10.3 millionshares of common stock.Our principal sources of liquidity have historically been from:•cash balances on hand;•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; and•funds raised in the debt or equity markets and proceeds from the selective disposition of underperforming and/or non-core assets.60Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity.Our liquidity requirements have historically arisen from:•working capital;•operating costs such as employee compensation and related benefits, general and administrative expense and supply costs;•debt service and lease payments;•acquisition consideration and transaction and integration costs;•capital expenditures and improvements, including the expansion, renovation, redevelopment and repositioning of our current communities and the development of newcommunities;•cash collateral required to be posted in connection with our financial instruments;•purchases of common stock under our share repurchase authorizations;•other corporate initiatives (including integration, information systems and branding); 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, general and administrative expense and supply costs;•debt service and lease payments;•acquisition consideration and transaction and integration costs;•capital expenditures and improvements, including the expansion, renovation, redevelopment and repositioning of our existing communities;•cash funding needs of our unconsolidated ventures for operating, capital expenditure and financing needs; and•other corporate initiatives (including integration, information systems and branding).We are highly leveraged and have significant debt and lease obligations. As of December 31, 2015, we have three principal corporate-level debt obligations: our $500.0 million securedcredit facility, our $316.3 million 2.75% convertible senior notes due 2018, and our separate secured and unsecured letter of credit facilities providing for up to $80.2 million of letters ofcredit in the aggregate. The remainder of our indebtedness is generally comprised of approximately $3.3 billion of non-recourse property-level mortgage financings as of December 31,2015.At December 31, 2015, we had $3.9 billion of debt outstanding, including $310.0 million drawn on our secured credit facility and excluding capital and financing lease obligations, at aweighted-average interest rate of 4.7% (calculated using an imputed interest rate of 7.5% for our 2.75% convertible senior notes due 2018). At December 31, 2015, we had $2.5 billion ofcapital and financing lease obligations and $82.4 million of letters of credit had been issued under our letter of credit facilities. Approximately $235.6 million of our debt and capital andfinancing lease obligations are due on or before December 31, 2016. We also have substantial operating lease obligations and capital expenditure requirements. For the year endingDecember 31, 2016 we will be required to make approximately $390.8 million of payments in connection with our existing operating leases.At December 31, 2015, we had $342.2 million of negative working capital. We had $88.0 million of cash and cash equivalents at December 31, 2015, excluding cash and escrow deposits-restricted and lease security deposits of $110.3 million in the aggregate. As of that date, we also had $106.6 million of availability on our secured credit facility. Due to the nature of ourbusiness, 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 payobligations, and we have historically refinanced or extended maturities of debt obligations as they become current liabilities. Our operations result in a very low level of current assetsprimarily stemming from our deployment of cash to pursue strategic business development opportunities or to pay down long-term liabilities. 61Investments in our current portfolio are comprised of recurring capital expenditures and other major projects (including corporate initiatives). These major projects include unusual ornon-recurring capital projects, projects which create new or enhanced economics, such as major renovations or reposition projects at our communities, integration related expenditures(including the cost of developing information systems), and expenditures supporting the expansion of our ancillary services programs.Through our Program Max initiative, we intend to expand, renovate, redevelop and reposition certain of our communities where economically advantageous. Certain of our communitiesmay benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These Program Max projects includeconverting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present or physical plant modifications. In 2015 wecompleted 11 projects which resulted in 59 net new units. We currently have 13 Program Max projects that have been approved, most of which have begun construction and are expectedto generate 285 net new units.The following table summarizes our actual 2015 and anticipated 2016 capital expenditures for our consolidated communities (dollars in millions): Actual 2015 Anticipated 2016Range Recurring $69.7 $74.0 - 81.0 Less: reimbursement (8.8) (9.0 - 11.0) Net recurring(1) 60.9 65.0 - 70.0 Net EBITDA-enhancing / Major Projects(2) 179.7 133.0 - 136.0 Net Program Max(3) 37.5 45.0 - 46.0 Corporate, integration and other(4) 83.8 77.0 - 83.0 Total net capital expenditures $361.9 $320.0 - 335.0 (1)Payments are included in Cash From Facility Operations.(2)Includes EBITDA-enhancing projects (primarily community renovations and apartment upgrades) and other major building infrastructure projects. Amounts shown areamounts invested, net of third party lessor funding received of $49.7 million for the year ended December 31, 2015. For 2016 we anticipate receiving approximately $21.0million to $24.0 million of lessor reimbursements.(3)Includes community expansions and major repositioning or upgrade projects. Also includes de novo community developments. Amounts shown are amounts invested,net of third party lessor funding received of $28.3 million for the year ended December 31, 2015. For 2016 we anticipate receiving approximately $84.0 million to $88.0 millionof lessor reimbursements.(4)Corporate, integration and other includes capital expenditures for information technology systems and equipment and expenditures supporting the expansion of oursupport platform and ancillary services programs. Includes $28.0 million of deferred capital expenditures for the year ended December 31, 2015, related to the Emeritusmerger.During 2016, we anticipate that our capital expenditures will be funded from cash on hand, cash flows from operations, lessor reimbursements in the amount of $114.0 million to $123.0million, amounts drawn on construction loans and amounts drawn on our secured credit facility.As opportunities arise, we plan to selectively purchase existing operating companies, asset portfolios, home health agencies and communities. We may also seek to acquire the feeinterest in communities that we currently lease or manage. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If ourexisting resources are insufficient to satisfy our liquidity requirements, or if we enter into an acquisition or strategic arrangement with another company, we may need to sell additionalequity or debt securities. Any such sale of additional equity securities will dilute the interests of our existing stockholders, and we cannot be certain that additional public or privatefinancing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to delay, reduce the scope of, oreliminate one or more aspects of our business development activities, any of which could reduce the growth of our business.62We currently estimate that our existing cash flows from operations, together with cash on hand, amounts available under our secured credit facility and, to a lesser extent, proceeds fromanticipated 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 macroeconomicenvironment.Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, the actual level of capital expenditures, our expansion, developmentand acquisition activity, general economic conditions and the cost of capital. Shortfalls in cash flows from operating results or other principal sources of liquidity may have an adverseimpact on our ability to execute our business and growth strategies. Volatility in the credit and financial markets may also have an adverse impact on our liquidity by making it moredifficult for us to obtain financing or refinancing. As a result, this may impact our ability to grow our business, maintain capital spending levels, expand certain communities, or executeother aspects of our business strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provideadditional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.Company Indebtedness, Long-Term Leases and Hedging AgreementsIndebtednessAs of December 31, 2015, we have three principal corporate-level debt obligations: our $500.0 million secured credit facility, our $316.3 million 2.75% convertible senior notes due 2018and separate secured and unsecured letter of credit facilities providing for up to $80.2 million of letters of credit in the aggregate. The remainder of our indebtedness is generallycomprised of non-recourse property-level mortgage financings. As of December 31, 2015 our outstanding property-level secured debt was $3.3 billion.During 2015, we incurred $618.4 million of property-level debt primarily related to the financing of acquisitions, the expansion of certain communities, and the refinancing of $341.9 millionof existing debt. Approximately $386.5 million of the new debt was issued at a variable interest rate and the remaining $231.9 million was issued at a fixed interest rate. Refer to Note 8 tothe consolidated financial statements for a detailed discussion of the new mortgage debt instruments and related terms.As of December 31, 2015, we are in compliance with the financial covenants of our outstanding debt agreements.Credit FacilitiesOn December 19, 2014, we entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation, as administrative agent, lender and swingline lender,and the other lenders from time to time parties thereto. The amended credit agreement amended and restated in its entirety our previously existing Third Amended and Restated CreditAgreement dated as of September 20, 2013, which provided a total commitment amount of $250.0 million. The amended agreement provides for a total commitment amount of $500.0million, comprised of a $100.0 million term loan drawn at closing and a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of credit and a $50.0 million swinglinefeature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtaining commitments for the amount of suchincrease from acceptable lenders. In addition, the amended credit agreement extended the maturity date from March 31, 2018 to January 3, 2020 and decreased the interest rate payable ondrawn amounts and the fee payable on the unused portion of the facility. Amounts drawn under the facility will continue to bear interest at 90-day LIBOR plus an applicable margin;however, the amended agreement reduces the applicable margin from a range of 3.25% to 4.25% to a range of 2.50% to 3.50%. The applicable margin varies based on the percentage ofthe total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less than or equal to 50%, and a 3.50%margin at utilization greater than 50%. The amended agreement also eliminates the minimum 0.50% LIBOR rate included in the prior agreement. The amended agreement reduces thequarterly commitment fee on the unused portion of the facility from 0.50% per annum to 0.25% per annum when the outstanding amount of obligations (including revolving credit,swingline and term loans and letter of credit obligations) is greater than or equal to 50% of the total commitment amount or 0.35% per annum when such outstanding amount is less than50% of the total commitment amount.This secured credit facility may be used to finance acquisitions, fund working capital and capital expenditures and for other general corporate purposes.The credit facility will continue to be secured by first priority mortgages on certain of our communities. In addition, the amended agreement permits us to pledge the equity interests insubsidiaries that own other communities (rather than mortgaging such communities), provided that loan availability from pledged assets cannot exceed 10% of loan availability frommortgaged assets. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance of thecommunities securing the facility.63The amended credit agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage andminimum consolidated tangible net worth. A violation of any of these covenants could result in a default under the amended credit agreement, which would result in termination of allcommitments under the amended credit agreement and all amounts owing under the amended credit agreement and certain other loan agreements becoming immediately due and payableand/or trigger cross-default provisions in our other outstanding debt and lease documents.As of December 31, 2015, we had $310.0 million drawn, $19.4 million of letters of credit outstanding and $106.6 million of availability on our secured credit facility. We also had separatesecured and unsecured letter of credit facilities of up to $80.2 million in the aggregate as of December 31, 2015. Letters of credit totaling $63.0 million had been issued under theseseparate facilities as of that date.As of December 31, 2015, we are in compliance with the financial covenants of our outstanding credit facilities.Convertible DebtIn June 2011, we completed a registered offering of $316.3 million aggregate principal amount of 2.75% convertible senior notes (the "Notes"). We received net proceeds of approximately$308.2 million after the deduction of underwriting commissions and offering expenses. We used a portion of the net proceeds to pay our cost of the convertible note hedge transactionsdescribed below, taking into account our proceeds from the warrant transactions described below, and used the balance of the net proceeds to repay existing outstanding debt.The Notes are senior unsecured obligations and rank equally in right of payment to all of our other senior unsecured debt, if any. The Notes will be senior in right of payment to any ofour debt which is subordinated by its terms to the Notes (if any). The Notes are also structurally subordinated to all debt and other liabilities and commitments (including trade payables)of our subsidiaries. The Notes are also effectively subordinated to our secured debt to the extent of the assets securing such debt.The Notes bear interest at 2.75% per annum, payable semi-annually in cash. The Notes are convertible at an initial conversion rate of 34.1006 shares of our common stock per $1,000principal amount of Notes (equivalent to an initial conversion price of approximately $29.325 per share), subject to adjustment. On and after March 15, 2018, until the close of business onthe second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time. In addition, Holders may convert their Notes at their optionunder the following circumstances: (i) during any fiscal quarter if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during aperiod of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on the last day ofsuch preceding fiscal quarter; (ii) during the five business day period after any five consecutive trading day period (the "measurement period"), in which the trading price per $1,000principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicableconversion rate on each such day; or (iii) upon the occurrence of specified corporate events. As of December 31, 2015, the Notes are not convertible. Unconverted Notes mature at par inJune 2018.Upon conversion, we will satisfy our conversion obligation by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of ourcommon stock at our election. It is our current intent and policy to settle the principal amount of the Notes (or, if less, the amount of the conversion obligation) in cash upon conversion.In addition, following certain corporate transactions, we will increase the conversion rate for a holder who elects to convert in connection with such transaction by a number ofadditional shares of common stock as set forth in the supplemental indenture governing the Notes.In connection with the offering of the Notes, in June 2011, we entered into convertible note hedge transactions (the "Convertible Note Hedges") with certain financial institutions (the"Hedge Counterparties"). The Convertible Note Hedges cover, subject to customary anti-dilution adjustments, 10,784,315 shares of common stock. We also entered into warranttransactions with the Hedge Counterparties whereby we sold to the Hedge Counterparties warrants to acquire, subject to customary anti-dilution adjustments, up to 10,784,315 shares ofcommon stock (the "Sold Warrant Transactions"). The warrants have a strike price of $40.25 per share, subject to customary anti-dilution adjustments.64The Convertible Note Hedges are expected to reduce the potential dilution with respect to common stock upon conversion of the Notes in the event that the price per share of commonstock at the time of exercise is greater than the strike price of the Convertible Note Hedges, which corresponds to the initial conversion price of the Notes and is similarly subject tocustomary anti-dilution adjustments. If, however, the price per share of common stock exceeds the strike price of the Sold Warrant Transactions when they expire, there would beadditional dilution from the issuance of common stock pursuant to the warrants.The Convertible Note Hedges and Sold Warrant Transactions are separate transactions (in each case entered into by us and the Hedge Counterparties), are not part of the terms of theNotes and will not affect the holders' rights under the Notes. Holders of the Notes do not have any rights with respect to the Convertible Note Hedges or the Sold Warrant Transactions.These hedging transactions had a net cost of approximately $31.9 million, which was paid from the proceeds of the Notes and recorded as a reduction of additional paid-in capital.Long-Term LeasesAs of December 31, 2015, we have 546 communities operated under long-term leases. The substantial majority of the Company's lease arrangements are structured as master leases.Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees its performance and the lease payments under the master lease.The community leases contain customary terms, including assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions andfinancial performance covenants, such as net worth and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of default and/or trigger cross-default provisions in our outstanding debt and other lease documents. Further, an event of default related to an individual property or limited number of properties within a master leaseportfolio would result in a default on the entire master lease portfolio and could trigger cross-default provisions in our other outstanding debt and lease documents. Certain leasescontain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is not met.The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or tied to changes in leased property revenue or the consumer priceindex. The Company is responsible for all operating costs, including repairs, property taxes and insurance. The initial lease terms primarily vary from 10 to 20 years and generally includerenewal options ranging from 5 to 30 years. The remaining base lease terms vary from one year to 17 years and generally provide for renewal or extension options and in some instances,purchase options.For the year ended December 31, 2015, our minimum annual cash lease payments for our capital and financing leases and operating leases were $238.9 million and $371.8 million,respectively. For the year ending December 31, 2016, we will be required to make approximately $237.8 million and $390.8 million of payments in connection with our existing capital andfinancing leases and operating leases, respectively.As of December 31, 2015, we are in compliance with the financial covenants of our long-term leases.Derivative InstrumentsIn the normal course of business, we have entered into certain interest rate protection agreements to effectively manage the risk above certain interest rates for a portion of our variablerate debt. As of December 31, 2015, we have $983.3 million in aggregate notional amount of interest rate caps and $322.9 million of variable rate debt, excluding our secured credit facilityand capital lease obligations, that is not subject to any cap or swap agreements.65Contractual CommitmentsThe following table presents a summary of our material indebtedness, including the related interest payments, lease and other contractual commitments, as of December 31, 2015. Payments Due during the Year Ending December 31, Total 2016 2017 2018 2019 2020 Thereafter (dollars in millions) Contractual Obligations: Long-term debt and line ofcredit obligations(1) $4,698,851 $353,023 $469,095 $1,303,759 $237,061 $862,843 $1,473,070 Capital and financing leaseobligations(2) 4,884,091 237,810 263,671 282,951 262,800 207,594 3,629,265 Operating leaseobligations(2) 3,100,194 390,816 373,690 358,168 340,747 300,674 1,336,099 Refundable entrance feeobligations(3) 23,284 1,042 1,042 1,042 1,042 1,042 18,074 Total contractual obligations $12,706,420 $982,691 $1,107,498 $1,945,920 $841,650 $1,372,153 $6,456,508 Total commercialconstruction commitments $93,956 $67,912 $26,044 $— $— $— $— (1)Includes line of credit and contractual interest for all fixed-rate obligations and assumes interest on variable rate instruments at the December 31, 2015 rate. Long-term debtobligation payments in 2016 include the following debt instruments with post-2016 scheduled maturity dates: (i) $60.8 million of debt on Assets Held for Sale and (ii) $29.1 millionof demand notes payable to the unconsolidated CCRC Venture, which we utilize in certain states in lieu of cash reserves.(2)Reflects future cash payments after giving effect to non-contingent lease escalators and assumes payments on variable rate instruments at the December 31, 2015 rate.(3)Future refunds of entrance fees are estimated based on historical payment trends. These refund obligations are generally offset by proceeds received from resale of the vacatedapartment units. Historically, proceeds from resales of entrance fee units each year generally offset refunds paid and generate excess cash to us.The foregoing amounts exclude outstanding letters of credit of $82.4 million as of December 31, 2015.Impacts of InflationResident fees from the communities we own or lease and management fees from communities we manage for third parties or unconsolidated ventures in which we have an ownershipinterest are our primary sources of revenue. These revenues are affected by the amount of monthly resident fee rates and community occupancy rates. The rates charged are highlydependent on local market conditions and the competitive environment in which our communities operate. Substantially all of our retirement center, assisted living, and CCRC residencyagreements allow for adjustments in the monthly fee payable not less frequently than every 12 or 13 months which enables us to seek increases in monthly fees due to inflation,increased levels of care or other factors. Any pricing increase would be subject to market and competitive conditions and could result in a decrease in occupancy in the communities. Webelieve, however, that our ability to periodically adjust the monthly fee serves to reduce the adverse effect of inflation. In addition, employee compensation expense is a principal elementof facility operating costs and is also dependent upon local market conditions. There can be no assurance that resident fees will increase or that costs will not increase due to inflation orother causes.At December 31, 2015, approximately $1.3 billion of our indebtedness, excluding our secured credit facility, bears interest at floating rates. We have mitigated our exposure to floatingrates by using interest rate caps under our debt arrangements. Inflation, and its impact on floating interest rates, could affect the amount of interest payments due on our secured creditfacility and other variable rate debt instruments.66Off-Balance Sheet ArrangementsAs of December 31, 2015, 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 acurrent or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that ismaterial to investors.We own interests in certain unconsolidated ventures as described under Note 5 to the consolidated financial statements. Except in limited circumstances, our risk of loss is limited to ourinvestment in each venture. We also own interests in certain other unconsolidated ventures that are not considered variable interest entities. The equity method of accounting has beenapplied in the accompanying financial statements with respect to our investment in unconsolidated ventures.Non-GAAP Financial MeasuresThis Annual Report on Form 10-K contains financial measures utilized by management to evaluate our financial and operating performance that are not calculated in accordance withGAAP. Each of these measures, Adjusted EBITDA, Cash From Facility Operations ("CFFO"), and Facility Operating Income, should not be considered in isolation from or as superior ora substitute for net income (loss), income (loss) from operations, cash flows provided by or used in operations, or other financial measures determined in accordance with GAAP. Weuse these non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business. Westrongly urge you to review the reconciliations of such measures from GAAP net income (loss), along with our consolidated financial statements included herein. We also strongly urgeyou not to rely on any single financial measure to evaluate our business. We caution investors that amounts presented in accordance with our definitions of Adjusted EBITDA, CFFO,and Facility Operating Income may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the samemanner.Adjusted EBITDADefinition of Adjusted EBITDAWe define Adjusted EBITDA as follows:Net income (loss) before:•provision (benefit) for income taxes;•non-operating (income) expense items;•(gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination);•depreciation and amortization (including non-cash impairment charges);•straight-line lease expense (income), net of amortization of (above) below market rents;•amortization of deferred gain;•amortization of deferred entrance fees;•non-cash stock-based compensation expense; and•change in future service obligation;and including:•Cash From Facility Operations ("CFFO" as defined below) from unconsolidated ventures; and•entrance fee receipts and refunds (excluding (i) first generation entrance fee receipts from the sale of units at a recently opened entrance fee CCRC prior to stabilization and (ii)first generation entrance fee refunds not replaced by second generation entrance fee receipts at the recently opened community prior to stabilization).67Management's Use of Adjusted EBITDAWe use Adjusted EBITDA to assess our overall financial and operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in ourday-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses andaffords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. It provides an indicatorfor management to determine if adjustments to current spending decisions are needed.Adjusted EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term, such as the change in theliability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense(income), taxation and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact inthe short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review thefinancial performance of the business on a monthly basis. Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in ourindustry.Limitations of Adjusted EBITDAAdjusted EBITDA has limitations as an analytical tool. Material limitations in making the adjustments to our net income (loss) to calculate Adjusted EBITDA, and using this non-GAAPfinancial measure as compared to GAAP net income (loss), include:•the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activitiesgenerally represent charges (gains), which may significantly affect our financial results; and•depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affectsthe services we provide to our residents and may be indicative of future needs for capital expenditures.We believe Adjusted EBITDA is useful to investors in evaluating our operating performance, results of operations and financial position because it is helpful in identifying trends in ourday-to-day performance since the items excluded have little or no significance to our day-to-day operations and it provides an assessment of our expense management.The definition of Adjusted EBITDA was changed in the first quarter of 2015 to include CFFO from unconsolidated ventures. The prior periods have been recast to conform with the newdefinition.68The table below reconciles Adjusted EBITDA from net income (loss) for the years ended December 31, 2015, 2014 and 2013 (in thousands): Years Ended December 31(1), 2015 2014 2013 Net income (loss) $(458,155) $(149,426) $(3,584)(Benefit) provision for income taxes (92,209) (181,305) 1,756 Equity in loss (earnings) of unconsolidated ventures 804 (171) (1,484)Debt modification and extinguishment costs 7,020 6,387 1,265 Other non-operating income (9,827) (7,235) (2,725)Interest expense: Debt 173,484 128,002 96,131 Capital and financing lease obligations 211,132 109,998 25,194 Amortization of deferred financing costs and debt (premium) discount 3,351 7,477 17,054 Change in fair value of derivatives 797 2,711 (980)Interest income (1,603) (1,343) (1,339)Income (loss) income from operations (165,206) (84,905) 131,288 Depreciation and amortization 733,165 537,035 268,757 Asset impairment 57,941 9,992 12,891 Loss on facility lease termination 76,143 — — Straight-line lease expense (income) 6,956 1,439 2,597 Amortization of deferred gain (4,372) (4,372) (4,372)Amortization of entrance fees (3,204) (21,220) (29,009)Amortization of (above) below market lease, net (7,158) (3,444) — Non-cash stock-based compensation expense 31,651 28,299 25,978 Change in future service obligation (941) 670 (1,917)Entrance fee receipts(2) 13,052 53,046 92,331 Entrance fee disbursements (4,411) (25,865) (35,325)CFFO from unconsolidated ventures 59,767 25,334 7,804 Adjusted EBITDA $793,383 $516,009 $471,023 (1)The calculation of Adjusted EBITDA includes integration, transaction, transaction-related and EMR roll-out costs of $116.8 million, $146.4 million and $14.5 million for the yearsended December 31, 2015, 2014 and 2013, respectively. Integration costs include transition costs associated with the Emeritus merger and organizational restructuring (such asseverance and retention payments and recruiting expenses), third party consulting expenses directly related to the integration of Emeritus (in areas such as cost savings andsynergy realization, branding and technology and systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integrationactivities and projects. EMR roll-out costs include third party consulting expenses and internal costs such as training, travel and labor, reflecting time spent by Company personnelon the EMR roll-out project. Transaction and transaction-related costs include third party costs directly related to the acquisition of Emeritus, other acquisition and dispositionactivity, community financing and leasing activity and corporate capital structure assessment activities (including shareholder relations advisory matters), and are primarilycomprised of legal, finance, consulting, professional fees and other third party costs. (2)Includes the receipt of refundable and non-refundable entrance fees.69Cash From Facility OperationsDefinition of Cash From Facility OperationsWe define Cash From Facility Operations (CFFO) as follows:Net income (loss) before:•deferred income tax provision (benefit);•non-operating (income) expense items;•non-cash financing lease interest expense;•(gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination);•depreciation and amortization (including non-cash impairment charges);•straight-line lease expense (income), net of amortization of (above) below market rents;•amortization of deferred gain;•amortization of deferred entrance fees;•non-cash stock-based compensation expense; and•change in future service obligation;and including:•CFFO from unconsolidated ventures; and•entrance fee receipts and refunds (excluding (i) first generation entrance fee receipts from the sale of units at a recently opened entrance fee CCRC prior to stabilization and (ii)first generation entrance fee refunds not replaced by second generation entrance fee receipts at the recently opened community prior to stabilization);•recurring capital expenditures, net;•lease financing debt amortization with fair market value or no purchase options; and•other.Recurring capital expenditures include routine expenditures capitalized in accordance with GAAP that are funded from current operations. Amounts excluded from recurring capitalexpenditures consist primarily of major projects, renovations, community repositionings, expansions, systems projects or other non-recurring or unusual capital items (includingintegration capital expenditures) or community purchases that are funded using lease or financing proceeds, available cash and/or proceeds from the sale of communities.Management's Use of Cash From Facility OperationsWe use CFFO to assess our overall financial and operating performance. This measure provides an assessment of controllable expenses and affords management the ability to makedecisions which are expected to facilitate meeting current financial and liquidity goals as well as to achieve optimal financial performance. It provides an indicator for management todetermine if adjustments to current spending decisions are needed.This metric measures our financial and operating performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of theorganization. CFFO is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a monthly basis. Managementalso uses CFFO (i) to review our ability to service our outstanding indebtedness (including our credit facilities and long-term leases), (ii) to review our ability to pay dividends tostockholders, (iii) to review our ability to make regular recurring capital expenditures to maintain and improve our communities on a period-to-period basis, (iv) for planning purposes,including preparation of our annual budget, (v) in making compensation determinations for certain of our associates (including our named executive officers) and (vi) in setting variouscovenants in our credit agreements. These agreements generally require us to escrow or spend a minimum of between $250 and $450 per unit per year. Historically, we have spent inexcess of these per unit amounts; however, there is no assurance that we will have funds available to escrow or spend these per unit amounts in the future. If we do not escrow or spendthe required minimum annual amounts, we would be in default of the applicable debt or lease agreement which could trigger cross default provisions in our outstanding indebtednessand lease arrangements. CFFO is also used by research analysts and investors to evaluate the performance of and value companies in our industry.70Limitations of Cash From Facility OperationsCFFO has limitations as an analytical tool. Material limitations in making the adjustment to our net income (loss) to calculate CFFO, and using this non-GAAP financial measure ascompared to GAAP net income (loss), include:•the cash portion of non-recurring charges related to gain (loss) on sale of communities (including gain (loss) on facility lease termination) and extinguishment of debt activitiesgenerally represent charges (gains), which may significantly affect our financial results; and•depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affectsthe services we provide to our residents and may be indicative of future needs for capital expenditures.We believe CFFO is useful to investors in evaluating our operating performance, results of operations and financial position because it is helpful in identifying trends in our day-to-dayperformance since the items excluded have little or no significance to our day-to-day operations and it provides an assessment of our expense management. We further believe CFFO isuseful to investors because it assists their ability to meaningfully evaluate (1) our ability to service our outstanding indebtedness, including our credit facilities and capital and financingleases, (2) our ability to pay dividends to stockholders and (3) our ability to make regular recurring capital expenditures to maintain and improve our communities.Our definition of and method of calculating CFFO as used herein differs from those presented in prior periods. As used herein, CFFO is defined and calculated beginning with netincome (loss). In prior periods we defined and calculated CFFO beginning with net cash provided by (used in) operations. The reconciliations for the prior periods have been recast toconform to the new definition and method of calculating CFFO; however, the change in definition and method of calculating CFFO had no effect on the amount of CFFO for priorperiods. The table below reconciles CFFO from net income (loss) for the years ended December 31, 2015, 2014 and 2013 (in thousands): Years Ended December 31(1), 2015 2014 2013 Net income (loss) $(458,155) $(149,426) $(3,584)Other non-operating income (9,827) (7,235) (2,725)Equity in loss (earnings) of unconsolidated ventures 804 (171) (1,484)Debt modification and extinguishment costs 7,020 6,387 1,265 Interest expense Amortization of deferred financing costs and debt (premium) discount 3,351 7,477 17,054 Change in fair value of derivatives 797 2,711 (980)Loss on facility lease termination 76,143 — — Depreciation and amortization 733,165 537,035 268,757 Asset impairment 57,941 9,992 12,891 Straight-line lease expense (income) 6,956 1,439 2,597 Amortization of (above) below market lease, net (7,158) (3,444) — Amortization of deferred gain (4,372) (4,372) (4,372)Amortization of entrance fees (3,204) (21,220) (29,009)Non-cash stock-based compensation expense 31,651 28,299 25,978 Change in future service obligation (941) 670 (1,917)Entrance fee receipts(2) 13,052 53,046 92,331 Entrance fee disbursements (4,411) (25,865) (35,325)CFFO from unconsolidated ventures 59,767 25,334 7,804 Non-cash interest expense on financing lease obligations 23,472 12,647 — Deferred income tax benefit (95,261) (182,371) (183)Recurring capital expenditures, net (60,937) (50,762) (42,901)Lease financing debt amortization with fair market value or no purchase options (51,296) (28,618) (13,927)Other (1,499) 6,789 1,753 Cash From Facility Operations $317,058 $218,342 $294,023 71(1)The calculation of CFFO includes integration, transaction, transaction-related and EMR roll-out costs of $123.7 million (including $6.9 million of debt modification costs excludedfrom Adjusted EBITDA), $146.4 million and $14.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. Integration costs include transition costs associatedwith the Emeritus merger and organizational restructuring (such as severance and retention payments and recruiting expenses), third party consulting expenses directly related tothe integration of Emeritus (in areas such as cost savings and synergy realization, branding and technology and systems work), and internal costs such as training, travel and labor,reflecting time spent by Company personnel on integration activities and projects. EMR roll-out costs include third party consulting expenses and internal costs such as training,travel and labor, reflecting time spent by Company personnel on the EMR roll-out project. Transaction and transaction-related costs include third party costs directly related to theacquisition of Emeritus, other acquisition and disposition activity, community financing and leasing activity and corporate capital structure assessment activities (includingshareholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional fees and other third party costs.(2)Includes the receipt of refundable and non-refundable entrance fees.Facility Operating IncomeDefinition of Facility Operating IncomeWe define Facility Operating Income as follows:Net income (loss) before:•provision (benefit) for income taxes;•non-operating (income) expense items;•(gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination);•depreciation and amortization (including non-cash impairment charges);•facility lease expense;•general and administrative expense, including non-cash stock-based compensation expense;•transaction costs;•change in future service obligation;•amortization of deferred entrance fee revenue; and•management fees.72Management's Use of Facility Operating IncomeWe use Facility Operating Income to assess our facility operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day facility performance because the items excluded have little or no significance on our day-to-day facility operations. This measure provides an assessment of revenue generation andexpense management and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as to achieve optimal facility financialperformance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.Facility Operating Income provides us with a measure of facility financial performance, independent of items that are beyond the control of management in the short-term, such as thechange in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-linelease expense (income), taxation and interest expense associated with our capital structure. This metric measures our facility financial performance based on operational factors thatmanagement can impact in the short-term, namely the cost structure or expenses of the organization. Facility Operating Income is one of the metrics used by our senior management andboard of directors to review the financial performance of the business on a monthly basis. Facility Operating Income is also used by research analysts and investors to evaluate theperformance of and value companies in our industry by investors, lenders and lessors. In addition, Facility Operating Income is a common measure used in the industry to value theacquisition or sales price of communities and is used as a measure of the returns expected to be generated by a community.A number of our debt and lease agreements contain covenants measuring Facility Operating Income to gauge debt or lease coverages. The debt or lease coverage covenants aregenerally calculated as facility net operating income (defined as total operating revenue less operating expenses, all as determined on an accrual basis in accordance with GAAP). Forpurposes of the coverage calculation, the lender or lessor will further require a pro forma adjustment to facility operating income to include a management fee (generally 4% to 5% ofoperating revenue) and an annual capital reserve (generally $250 to $450 per unit). An investor or potential investor may find this item important in evaluating our performance, results ofoperations and financial position, particularly on a facility-by-facility basis.Limitations of Facility Operating IncomeFacility Operating Income has limitations as an analytical tool. Material limitations in making the adjustments to our net income (loss) to calculate Facility Operating Income, and usingthis non-GAAP financial measure as compared to GAAP net income (loss), include:•interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities and extinguishment of debt activities generally representcharges (gains), which may significantly affect our financial results; and•depreciation and amortization, though not directly affecting our current cash position, represent the wear and tear and/or reduction in value of our communities, which affectsthe services we provide to our residents and may be indicative of future needs for capital expenditures.We believe Facility Operating Income is useful to investors in evaluating our facility operating performance because it is helpful in identifying trends in our day-to-day facilityperformance since the items excluded have little or no significance on our day-to-day facility operations and it provides an assessment of our revenue generation and expensemanagement.73The table below reconciles Facility Operating from net income (loss) for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands): Years Ended December 31, 2015 2014 2013 Net income (loss) $(458,155) $(149,426) $(3,584)(Benefit) provision for income taxes (92,209) (181,305) 1,756 Equity in loss (earnings) of unconsolidated ventures 804 (171) (1,484)Debt modification and extinguishment costs 7,020 6,387 1,265 Other non-operating income (9,827) (7,235) (2,725)Interest expense: Debt 173,484 128,002 96,131 Capital and financing lease obligations 211,132 109,998 25,194 Amortization of deferred financing costs and debt (premium) discount 3,351 7,477 17,054 Change in fair value of derivatives 797 2,711 (980)Interest income (1,603) (1,343) (1,339)Income (loss) from operations (165,206) (84,905) 131,288 Depreciation and amortization 733,165 537,035 268,757 Asset impairment 57,941 9,992 12,891 Facility lease expense 367,574 323,830 276,729 General and administrative (including non-cash stock-based compensation expense) 370,579 280,267 180,627 Transaction costs 8,252 66,949 3,921 Loss on facility lease termination 76,143 — — Change in future service obligation (941) 670 (1,917)Amortization of entrance fees (3,204) (21,220) (29,009)Management fees (60,183) (42,239) (31,125)Facility Operating Income $1,384,120 $1,070,379 $812,162 Item 7A.Quantitative and Qualitative Disclosures About Market Risk.We are subject to market risks from changes in interest rates charged on our credit facilities, other floating-rate indebtedness and lease payments subject to floating rates. The impact onearnings and the value of our long-term debt and lease payments are subject to change as a result of movements in market rates and prices. As of December 31, 2015, we hadapproximately $2.4 billion of long-term fixed rate debt, $1.6 billion of long-term variable rate debt, including our secured credit facility, and $2.5 billion of capital and financing leaseobligations. As of December 31, 2015, our total fixed-rate debt and variable-rate debt outstanding had a weighted-average interest rate of 4.7% (calculated using an imputed interest rateof 7.5% for our $316.3 million 2.75% convertible senior notes due 2018).We enter into certain interest rate cap agreements with major financial institutions to effectively manage our risk above certain interest rates on variable rate debt. As of December 31,2015, $2.4 billion, or 64.9%, of our long-term debt, excluding our capital and financing lease obligations, has fixed rates. As of December 31, 2015, $953.6 million, or 26.3%, of our long-termdebt, excluding capital and financing lease obligations, is subject to interest rate cap agreements. The remaining $322.9 million, or 8.8%, of our debt is variable rate debt, not subject toany interest rate cap or swap agreements. A change in interest rates would have impacted our annual interest expense related to all outstanding variable rate debt, excluding our capitaland financing lease obligations, as follows (after consideration of hedging instruments currently in place): a 100 basis point increase in interest rates would have an impact of $16.0million, a 500 basis point increase in interest rates would have an impact of $70.3 million and a 1,000 basis point increase in interest rates would have an impact of $103.5 million.74Item 8.Financial Statements and Supplementary Data.BROOKDALE SENIOR LIVING INC.INDEX TO FINANCIAL STATEMENTS PAGEReport of Independent Registered Public Accounting Firm76Report of Independent Registered Public Accounting Firm77Consolidated Balance Sheets as of December 31, 2015 and 201478Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 201379Consolidated Statements of Equity for the Years Ended December 31, 2015, 2014 and 201380Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 201381Notes to Consolidated Financial Statements82Schedule II — Valuation and Qualifying Accounts11375Report of Independent Registered Public Accounting FirmThe Board of Directors and Shareholders of Brookdale Senior Living Inc.We have audited the accompanying consolidated balance sheets of Brookdale Senior Living Inc. (the Company) as of December 31, 2015 and 2014, and the related consolidatedstatements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in theaccompanying index to the financial statements. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express anopinion on these financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2015 and 2014, andthe consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accountingprinciples. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting asof December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework) and our report dated February 12, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Chicago, Illinois 12 February 2016 76Report of Independent Registered Public Accounting FirmThe Board of Directors and Shareholders of Brookdale Senior Living Inc.We have audited Brookdale Senior Living Inc.'s (the Company) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company's management isresponsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in theaccompanying Management's Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financialreporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis forour opinion.A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as ofDecember 31, 2015 and 2014 and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2015, and ourreport dated February 12, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Chicago, Illinois 12 February 2016 77BROOKDALE SENIOR LIVING INC.CONSOLIDATED BALANCE SHEETS(In thousands, except stock amounts) December 31, 2015 2014 Assets Current assets Cash and cash equivalents $88,029 $104,083 Cash and escrow deposits – restricted 32,570 38,862 Accounts receivable, net 144,053 149,730 Assets held for sale 110,620 — Prepaid expenses and other current assets, net 122,671 237,915 Total current assets 497,943 530,590 Property, plant and equipment and leasehold intangibles, net 8,031,376 8,389,505 Cash and escrow deposits – restricted 33,382 56,376 Investment in unconsolidated ventures 371,639 312,925 Goodwill 725,696 736,805 Other intangible assets, net 129,186 154,773 Other assets, net 259,342 236,487 Total assets $10,048,564 $10,417,461 Liabilities and Equity Current liabilities Current portion of long-term debt $173,454 $156,056 Current portion of capital and financing lease obligations 62,150 112,343 Trade accounts payable 128,006 76,314 Accrued expenses 372,874 422,654 Refundable entrance fees and deferred revenue 99,277 101,613 Tenant security deposits 4,387 4,916 Total current liabilities 840,148 873,896 Long-term debt, less current portion 3,459,371 3,340,971 Capital and financing lease obligations, less current portion 2,427,438 2,536,883 Line of credit 310,000 100,000 Deferred liabilities 266,537 256,346 Deferred tax liability 69,051 159,275 Other liabilities 217,292 267,849 Total liabilities 7,589,837 7,535,220 Preferred stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2015 and 2014; no shares issued and outstanding — — Common stock, $0.01 par value, 400,000,000 shares authorized at December 31, 2015 and 2014; 190,767,191 and 189,466,395 shares issued and188,338,790 and 187,037,994 shares outstanding (including 3,453,991 and 3,552,143 unvested restricted shares), respectively 1,883 1,870 Additional paid-in-capital 4,069,283 4,034,655 Treasury stock, at cost; 2,428,401 shares at December 31, 2015 and 2014 (46,800) (46,800)Accumulated deficit (1,565,478) (1,108,001)Total Brookdale Senior Living Inc. stockholders' equity 2,458,888 2,881,724 Noncontrolling interest (161) 517 Total equity 2,458,727 2,882,241 Total liabilities and equity $10,048,564 $10,417,461 See accompanying notes to consolidated financial statements.78 BROOKDALE SENIOR LIVING INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) For the Years EndedDecember 31, 2015 2014 2013 Revenue Resident fees $4,177,127 $3,301,297 $2,515,033 Management fees 60,183 42,239 31,125 Reimbursed costs incurred on behalf of managed communities 723,298 488,170 345,808 Total revenue 4,960,608 3,831,706 2,891,966 Expense Facility operating expense (excluding depreciation and amortization of $684,448, $503,662 and $238,153, respectively) 2,788,862 2,210,368 1,671,945 General and administrative expense (including non-cash stock-based compensation expense of $31,651, $28,299 and$25,978, respectively) 370,579 280,267 180,627 Transaction costs 8,252 66,949 3,921 Facility lease expense 367,574 323,830 276,729 Depreciation and amortization 733,165 537,035 268,757 Asset impairment 57,941 9,992 12,891 Loss on facility lease termination 76,143 — — Costs incurred on behalf of managed communities 723,298 488,170 345,808 Total operating expense 5,125,814 3,916,611 2,760,678 Income (loss) from operations (165,206) (84,905) 131,288 Interest income 1,603 1,343 1,339 Interest expense: Debt (173,484) (128,002) (96,131)Capital and financing lease obligations (211,132) (109,998) (25,194)Amortization of deferred financing costs and debt premium (discount) (3,351) (7,477) (17,054)Change in fair value of derivatives (797) (2,711) 980 Debt modification and extinguishment costs (7,020) (6,387) (1,265)Equity in (loss) earnings of unconsolidated ventures (804) 171 1,484 Other non-operating income 9,827 7,235 2,725 Income (loss) before income taxes (550,364) (330,731) (1,828)Benefit (provision) for income taxes 92,209 181,305 (1,756)Net income (loss) (458,155) (149,426) (3,584)Net (income) loss attributable to noncontrolling interest 678 436 — Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders $(457,477) $(148,990) $(3,584) Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders $(2.48) $(1.01) $(0.03) Weighted average shares used in computing basic and diluted net income (loss) per share 184,333 148,185 123,671 See accompanying notes to consolidated financial statements.79BROOKDALE SENIOR LIVING INC.CONSOLIDATED STATEMENTS OF EQUITYFor the Years Ended December 31, 2015, 2014 and 2013(In thousands) Common Stock Shares Amount AdditionalPaid-In-Capital TreasuryStock AccumulatedDeficit Stockholders'Equity NoncontrollingInterest Total Equity Balances at January 1, 2013 126,689 $1,267 $1,997,946 $(46,800) $(955,427) $996,986 $— $996,986 Compensation expense related torestricted stock grants — — 25,978 — — 25,978 — 25,978 Net income (loss) — — — — (3,584) (3,584) — (3,584)Issuance of common stock underAssociate Stock Purchase Plan 62 — 1,503 — — 1,503 — 1,503 Restricted stock, net 976 10 (10) — — — — — Other — — 54 — — 54 — 54 Balances at December 31, 2013 127,727 1,277 2,025,471 (46,800) (959,011) 1,020,937 — 1,020,937 Noncontrolling interest in Emeritusacquisition — — — — — — 953 953 Compensation expense related torestricted stock grants — — 28,299 — — 28,299 — 28,299 Net income (loss) — — — — (148,990) (148,990) (436) (149,426)Common stock issued in connectionwith Emeritus acquisition 47,584 476 1,648,306 — — 1,648,782 — 1,648,782 Issuance of common stock fromequity offering, net 10,299 103 330,283 — — 330,386 — 330,386 Issuance of common stock underAssociate Stock Purchase Plan 64 — 2,004 — — 2,004 — 2,004 Restricted stock, net 1,364 14 (14) — — — — — Other — — 306 — — 306 — 306 Balances at December 31, 2014 187,038 1,870 4,034,655 (46,800) (1,108,001) 2,881,724 517 2,882,241 Compensation expense related torestricted stock grants — — 31,651 — — 31,651 — 31,651 Net income (loss) — — — — (457,477) (457,477) (678) (458,155)Issuance of common stock underAssociate Stock Purchase Plan 122 1 2,869 — — 2,870 — 2,870 Restricted stock, net 1,179 12 (12) — — — — — Other — — 120 — — 120 — 120 Balances at December 31, 2015 188,339 $1,883 $4,069,283 $(46,800) $(1,565,478) $2,458,888 $(161) $2,458,727 See accompanying notes to consolidated financial statements.80 BROOKDALE SENIOR LIVING INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the Years Ended December 31, 2015 2014 2013 Cash Flows from Operating Activities Net income (loss) $(458,155) $(149,426) $(3,584)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on extinguishment of debt, net 121 6,387 1,265 Depreciation and amortization, net 736,516 544,512 285,811 Asset impairment 57,941 9,992 12,891 Equity in loss (earnings) of unconsolidated ventures 804 (171) (1,484)Distributions from unconsolidated ventures from cumulative share of net earnings 7,825 1,840 2,691 Amortization of deferred gain (4,372) (4,372) (4,372)Amortization of entrance fees (3,204) (21,220) (29,009)Proceeds from deferred entrance fee revenue 11,113 32,704 44,191 Deferred income tax benefit (95,261) (182,371) (183)Change in deferred lease liability 6,956 1,439 2,597 Change in fair value of derivatives 797 2,711 (980)Gain on sale of assets (1,270) (446) (972)Change in future service obligation (941) 670 (1,917)Non-cash stock-based compensation 31,651 28,299 25,978 Non-cash interest expense on financing lease obligations 23,472 12,647 — Amortization of (above) below market rents, net (7,158) (3,444) — Other (3,157) — — Changes in operating assets and liabilities: Accounts receivable, net 5,608 3,510 (5,449)Prepaid expenses and other assets, net 51,079 (52,868) 7,483 Accounts payable and accrued expenses (60,564) 16,812 33,837 Tenant refundable fees and security deposits (524) (1,183) (792)Deferred revenue (6,911) (3,370) (1,881)Net cash provided by operating activities 292,366 242,652 366,121 Cash Flows from Investing Activities Decrease (increase) in lease security deposits and lease acquisition deposits, net 10,866 (48,944) (2,051)Decrease in cash and escrow deposits — restricted 29,286 56,935 10,726 Additions to property, plant and equipment, and leasehold intangibles, net (411,051) (304,245) (257,527)Acquisition of assets, net of related payables and cash received (191,216) (40,441) (34,686)Acquisition of Emeritus Corporation, cash acquired — 28,429 — Investment in unconsolidated ventures (69,297) (26,499) (17,172)Distributions received from unconsolidated ventures 9,054 12,275 1,600 Proceeds from sale of assets, net 49,226 4,339 34,136 Other 4,155 3,269 168 Net cash used in investing activities (568,977) (314,882) (264,806)Cash Flows from Financing Activities Proceeds from debt 585,650 326,639 662,934 Repayment of debt and capital and financing lease obligations (485,762) (584,345) (724,133)Proceeds from line of credit 1,175,000 442,000 425,000 Repayment of line of credit (965,000) (372,000) (475,000)Proceeds from public equity offering, net — 330,386 — Payment of financing costs, net of related payables (32,622) (9,393) (11,576)Refundable entrance fees: Proceeds from refundable entrance fees 1,939 20,342 48,140 Refunds of entrance fees (4,411) (25,865) (35,325)Cash portion of loss on extinguishment of debt (44) (4,101) (502)Payment on lease termination (17,000) (7,750) — Other 2,807 1,889 (1,582)Net cash provided by (used in) financing activities 260,557 117,802 (112,044)Net (decrease) increase in cash and cash equivalents (16,054) 45,572 (10,729)Cash and cash equivalents at beginning of year 104,083 58,511 69,240 Cash and cash equivalents at end of year $88,029 $104,083 $58,511 See accompanying notes to consolidated financial statements.81BROOKDALE SENIOR LIVING INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Description of Business and OrganizationBrookdale Senior Living Inc. ("Brookdale" or the "Company") is the leading operator of senior living communities throughout the United States. The Company is committed toproviding senior living solutions primarily within properties that are designed, purpose-built and operated to provide the highest quality service, care and living accommodations forresidents. The Company operates independent living, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through its ancillary servicesprograms, the Company also offers a range of outpatient therapy, home health, personalized living and hospice services.2. Summary of Significant Accounting PoliciesThe consolidated financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles ("GAAP"). Thesignificant accounting policies are summarized below:Principles of ConsolidationThe consolidated financial statements include the accounts of Brookdale and its wholly-owned subsidiaries. All significant intercompany balances and transactions have beeneliminated. Investments in affiliated companies that the Company does not control, but has the ability to exercise significant influence over governance and operation, are accounted forby the equity method.The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board ("FASB")Accounting Standards Codification ("ASC") 810, Consolidation ("ASC 810"). ASC 810 broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lackthe power through voting or similar rights to direct the activities of such entity that most significantly impact such entity's economic performance or (ii) the equity investment at risk isinsufficient to finance that entity's activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both ofthe following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity's economic performance; and (ii) the obligation to absorb losses orreceive benefits of the VIE that could potentially be significant to the entity. The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Companyis determined to be the primary beneficiary. Refer to Note 5 for more information about the Company's VIE relationships.Use of EstimatesThe preparation of the consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, goodwill and asset impairments, self-insurancereserves, performance-based compensation, the allowance for doubtful accounts, depreciation and amortization, income taxes and other contingencies. Although these estimates arebased 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.82Revenue RecognitionResident FeesResident fee revenue is recorded when services are rendered and consists of fees for basic housing, support services and fees associated with additional services such as personalizedhealth and assisted living care. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly in advance. Revenue for certain skilled nursingservices and ancillary charges is recognized as services are provided, and such fees are billed monthly in arrears.Management FeesManagement fee revenue is recorded as services are provided to the owners of the communities. Revenues are determined by an agreed upon percentage of gross revenues (as defined).Reimbursed Costs Incurred on Behalf of Managed CommunitiesThe Company manages certain communities under contracts which provide for payment to the Company of a monthly management fee plus reimbursement of certain operating expenses.Where the Company is the primary obligor with respect to any such operating expenses, the Company recognizes revenue when the goods have been delivered or the service has beenrendered and the Company is due reimbursement. Such revenue is included in "reimbursed costs incurred on behalf of managed communities" on the consolidated statements ofoperations. The related costs are included in "costs incurred on behalf of managed communities" on the consolidated statements of operations.Purchase AccountingIn determining the allocation of the purchase price of companies and communities to net tangible and identified intangible assets acquired and liabilities assumed, the Company makesestimates of fair value using information obtained as a result of pre-acquisition due diligence, marketing, leasing activities and/or independent appraisals. The Company assigned thepurchase prices for companies or communities to assets acquired and liabilities assumed based on their determined fair values in accordance with the provisions of ASC 805, BusinessCombinations ("ASC 805"). The determination of fair value involves the use of significant judgment and estimation. The Company determines fair values as follows:Working capital assets acquired and working capital liabilities assumed are valued on a carryover/cost basis which approximates fair value.Property, plant and equipment are valued utilizing either a discounted cash flow projection of future revenue and costs and capitalization and discount rates using current marketconditions, or a direct capitalization method. The Company allocates the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimatedremaining lives of the buildings, not to exceed 40 years. The Company determines the allocated values of other fixed assets, such as site improvements and furniture, fixtures andequipment, based upon the replacement cost and depreciates such values over the assets' estimated remaining useful lives as determined at the applicable acquisition date. TheCompany determines the value of land either by considering the sales prices of similar properties in recent transactions or based on internal analysis of recently acquired and existingcomparable properties within its portfolio.In connection with a business combination, the Company may assume rights and obligations under certain lease agreements pursuant to which the Company becomes the lessee of agiven property. The Company assumes the lease classification previously determined by the prior lessee absent a modification in the assumed lease agreement. The Company assessesassumed operating leases, including ground leases, to determine whether the lease terms are favorable or unfavorable to the Company given current market conditions on the acquisitiondate. To the extent the lease terms are favorable or unfavorable relative to market conditions on the acquisition date, the Company recognizes an intangible asset or liability at fair value. The Company amortizes any acquired lease-related intangibles to facility lease expense over the remaining life of the associated lease plus any assumed bargain renewal periods.83The fair value of acquired lease-related intangibles associated with the relationship with the Company's residents, if any, reflects the estimated value of in-place leases as represented bythe cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the acquired spacewas vacant. The Company amortizes any acquired in-place lease intangibles to depreciation and amortization expense over the average remaining length of stay of the residents, which isevaluated on an acquisition by acquisition basis but is generally estimated at 12 months.The Company estimates the fair value of purchase option intangible assets by discounting the difference between the applicable property's acquisition date fair value and the stated oranticipated future option price.The Company estimates the fair value of trade names using a royalty rate methodology and amortizes that value over the estimated useful life of the trade name.Management contracts and other acquired contracts are valued at a multiple of management fees and operating income or are valued utilizing discounted cash flow projections thatassume certain future revenues and costs over the remaining contract term. The assets are then amortized over the estimated term of the agreement.The Company calculates the fair value of acquired long-term debt by discounting the remaining contractual cash flows of each instrument at the current market rate for those borrowings,which the Company approximates based on the rate at which the Company would expect to incur a replacement instrument on the date of acquisition, and recognizes any fair valueadjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.Capital lease assets are valued by the Company as a right-to-use asset. Financing lease assets are valued as if the Company owns the assets and thus are recorded at fair value. Capitaland financing lease obligations are valued based on the present value of the estimated lease payments applying a discount rate equal to the Company's estimated incremental borrowingrate at the date of acquisition. Additionally, the valuation of financing lease obligations reflects a residual value component.Preacquisition contingencies are valued when considered probable and reasonably estimable, and estimated legal fees are accrued for in accordance with the Company's existing policy.Self-insurance reserves including incurred but not reported liabilities are estimated by actuary analyses.A deferred tax asset or liability is recognized at statutory rates for the difference between the book and tax bases of the acquired assets and liabilities. The tax bases of assets andliabilities in the Emeritus transaction were carried over at historical values.The excess of the fair value of liabilities assumed and common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill, which is notamortized by the Company.Deferred Financing CostsThird-party fees and costs incurred to obtain long-term debt are recorded as a direct adjustment to the carrying value of debt and amortized on a straight-line basis, which approximatesthe effective yield method, over the term of the related debt. Refer to the New Accounting Pronouncements section of this note for discussion of the Company's adoption of a newaccounting standard related to deferred financing costs during the period. Unamortized deferred financing fees are written-off if the associated debt is retired before the maturity date. Upon the refinancing of mortgage debt or amendment of the line of credit, unamortized deferred financing fees and additional financing costs incurred are accounted for in accordancewith ASC 470-50, Debt Modifications and Extinguishments.Income TaxesIncome 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 reportingand tax bases of assets and liabilities. A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not berealized.The Company has elected the "with-and-without approach" regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in thecurrent year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other taxbenefits presently available.84Fair Value of Financial InstrumentsASC 820, Fair Value Measurements and Disclosures establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon thetransparency 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 issignificant 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, eitherdirectly or indirectly, for substantially the full term of the financial instrument.Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.Cash and cash equivalents and cash and escrow deposits – restricted are reflected in the accompanying consolidated balance sheets at amounts considered by management toreasonably approximate fair value due to the short maturity.The Company's derivative assets include interest rate caps that effectively manage the risk above certain interest rates for a portion of the Company's variable rate debt. The derivativepositions are valued using models developed internally by the respective counterparty that use as their basis readily observable market parameters (such as forward yield curves) andare classified within Level 2 of the valuation hierarchy. The Company considers the credit risk of its counterparties when evaluating the fair value of its derivatives.The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateralsecuring the indebtedness. The Company had outstanding debt with a carrying value of approximately $3.6 billion and $3.5 billion as of December 31, 2015 and 2014, respectively. Fairvalue of the debt approximates carrying value in all periods. The Company's fair value of debt disclosure is classified within Level 2 of the valuation hierarchy.Cash and Cash EquivalentsThe Company defines cash and cash equivalents as cash and investments with maturities of 90 days or less when purchased.Cash and Escrow Deposits – RestrictedCash and escrow deposits – restricted consist principally of deposits required by certain lenders and lessors pursuant to the applicable agreement and consist of the following (dollars inthousands): December 31, 2015 2014 Current: Real estate tax and property insurance escrows $18,862 $17,926 Replacement reserve escrows 8,011 15,535 Resident deposits 862 1,054 Other 4,835 4,347 Subtotal 32,570 38,862 Long term: Insurance deposits 15,318 19,299 CCRC escrows 13,233 13,214 Debt service reserve 3,429 1,728 Letter of credit collateral 1,202 21,935 Other 200 200 Subtotal 33,382 56,376 Total $65,952 $95,238 85Accounts Receivable, netAccounts receivable are reported net of an allowance for doubtful accounts, to represent the Company's estimate of the amount that ultimately will be realized in cash. The allowance fordoubtful accounts was $26.5 million as of both December 31, 2015 and 2014. The adequacy of the Company's allowance for doubtful accounts is reviewed on an ongoing basis, usinghistorical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments aremade to the allowance as necessary.Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any, under reimbursement programs. Retroactive adjustments are accruedon an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments fromMedicare or Medicaid are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent positive or negative adjustments to these accrued amountsare recorded in net revenues when known.Property, Plant and Equipment and Leasehold IntangiblesProperty, plant and equipment and leasehold intangibles, which include amounts recorded under capital and financing leases, are recorded at cost. Depreciation and amortization iscomputed using the straight-line method over the estimated useful lives of the assets, which are as follows:Asset Category EstimatedUseful Life(in years)Buildings and improvements 40Furniture and equipment 3 – 7Resident lease intangibles 1 – 3Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and improvements, which improve and/or extend the useful life of the asset, arecapitalized and depreciated over their estimated useful life or if the renovations or improvements are made with respect to communities subject to an operating lease, over the shorter ofthe estimated useful life of the renovations or improvements, or the term of the operating lease. Assets under capital and financing leases and leasehold improvements are depreciatedover the shorter of the estimated useful life of the assets or the term of the lease. Facility operating expense excludes depreciation and amortization directly attributable to the operationof the facility.Long-lived assets (groups) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of long-lived assets held for use are assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to begenerated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset then the fair value of the asset is estimated. The impairmentexpense is determined by comparing the estimated fair value of the asset to its carrying value, with any amount in excess of fair value recognized as an expense in the current period.Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periodsand estimated capitalization rates.Goodwill and Intangible AssetsThe Company follows ASC 350, Goodwill and Other Intangible Assets, and tests goodwill for impairment annually or whenever indicators of impairment arise. Factors the Companyconsiders important in the analysis of whether an indicator of impairment exists, which could trigger an impairment of goodwill in the future, include a significant decline in theCompany's stock price for a sustained period since the last testing date, a decline in the Company's market capitalization below net book value, significant underperformance relative tohistorical or projected future operating results and significant negative industry or economic trends. The Company first assesses qualitative factors to determine whether it is necessaryto perform a two-step quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless the entity determines, based on aqualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The quantitative goodwill impairment test is based upon a comparison of theestimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit's carrying value. The fair values used in this evaluation are estimated basedupon 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 expensegrowth rates, capitalization rates and discount rates.86Acquired intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definitelives are amortized over their estimated useful lives and all intangible assets are reviewed for impairment if indicators of impairment arise. The evaluation of impairment for definite-livedintangibles is based upon a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimatedfuture 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 theestimated fair value of the intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period.Indefinite-lived intangible assets are not amortized but are tested for impairment annually during the fourth quarter or more frequently as required. The impairment test consists of acomparison of the estimated fair value of the indefinite-lived intangible asset with its carrying value. If the carrying amount exceeds its fair value, an impairment loss is recognized for thatdifference.Amortization of the Company's definite-lived intangible assets is computed using the straight-line method over the estimated useful lives of the assets, which are as follows:Asset Category EstimatedUseful Life(in years)Trade names 2 - 5Other 3 – 9Stock-Based CompensationThe Company follows ASC 718, Compensation - Stock Compensation ("ASC 718") in accounting for its share-based payments. This guidance requires measurement of the cost ofemployee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expenseratably over the employee's requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date are recognized when incurred.Certain of the Company's employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement ofperformance conditions is considered probable. Consequently, the Company's determination of the amount of stock compensation expense requires a significant level of judgment inestimating the probability of achievement of these performance targets. Additionally, the Company must make estimates regarding employee forfeitures in determining compensationexpense. Subsequent changes in actual experience are monitored and estimates are updated as information is available.For all share-based awards with graded vesting other than awards with performance-based vesting conditions, the Company records compensation expense for the entire award on astraight-line basis (or, if applicable, on the accelerated method) over the requisite service period. For graded-vesting awards with performance-based vesting conditions, totalcompensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once theperformance target is deemed probable of achievement. Performance goals are evaluated quarterly. If such goals are not ultimately met or it is not probable the goals will be achieved, nocompensation expense is recognized and any previously recognized compensation expense is reversed.Convertible Debt InstrumentsConvertible debt instruments are accounted for under ASC 470-20, Debt – Debt with Conversion and Other Options. This guidance requires the issuer of certain convertible debtinstruments that may be settled in cash (or other assets) on conversion, including partial cash settlement, to separately account for the liability (debt) and equity (conversion option)components of the instruments in a manner that reflects the issuer's estimated non-convertible debt borrowing rate.Self-Insurance Liability AccrualsThe 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 professionalliability 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 everyclaim. 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 workerscompensation 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 claimsand projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored, and estimates are updated as information becomes available.87Investment in Unconsolidated VenturesIn accordance with ASC 810, the general partner or managing member of a venture consolidates the venture unless the limited partners or other members have either (1) the substantiveability to dissolve the venture or otherwise remove the general partner or managing member without cause or (2) substantive participating rights in significant decisions of the venture,including authorizing operating and capital decisions of the venture, including budgets, in the ordinary course of business. The Company has reviewed all ventures where it is thegeneral partner or managing member and has determined that in all cases the limited partners or other members have substantive participating rights such as those set forth above and,therefore, none of these ventures are consolidated.The Company's reported share of earnings of an unconsolidated venture is adjusted for the impact, if any, of basis differences between its carrying value of the equity investment and itsshare of the venture's underlying assets. The Company generally does not have future requirements to contribute additional capital over and above the original capital commitments, andtherefore, the Company discontinues applying the equity method of accounting when its investment is reduced to zero barring an expectation of an imminent return to profitability. If theventure subsequently reports net income, the equity method of accounting is resumed only after the Company's share of that net income equals the share of net losses not recognizedduring the period the equity method was suspended. The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances indicate that the Company's investment is other thantemporarily impaired.Community LeasesThe Company, as lessee, makes a determination with respect to each of its community leases as to whether each should be accounted for as an operating lease or capital lease. Theclassification criteria is based on estimates regarding the fair value of the leased community, minimum lease payments, effective cost of funds, the economic life of the community andcertain other terms in the lease agreements. In a business combination, the Company assumes the lease classification previously determined by the prior lessee absent a modification, asdetermined by ASC 840, Leases ("ASC 840"), in the assumed lease agreement. Payments made under operating leases are accounted for in the Company's consolidated statements ofoperations as lease expense for actual rent paid plus or minus a straight-line adjustment for estimated minimum lease escalators and amortization of deferred gains in situations wheresale-leaseback transactions have occurred.For communities under capital lease and lease financing obligation arrangements, a liability is established on the Company's consolidated balance sheets representing the present valueof the future minimum lease payments and a residual value for financing leases and a corresponding long-term asset is recorded in property, plant and equipment and leaseholdintangibles in the consolidated balance sheets. For capital lease assets, the asset is depreciated over the remaining lease term unless there is a bargain purchase option in which case theasset is depreciated over the useful life. For financing lease assets, the asset is depreciated over the useful life of the asset. Leasehold improvements purchased during the term of thelease are amortized over the shorter of their economic life or the lease term.All of the Company's leases contain fixed or formula-based rent escalators. To the extent that the escalator increases are tied to a fixed index or rate, lease payments are accounted for ona straight-line basis over the life of the lease. In addition, all rent-free or rent holiday periods are recognized in lease expense on a straight-line basis over the lease term, including the rentholiday period.Sale-leaseback accounting is applied to transactions in which an owned community is sold and leased back from the buyer if certain continuing involvement criteria are met. Under sale-leaseback accounting, the Company removes the community and related liabilities from the consolidated balance sheets. Gain on the sale is deferred and recognized as a reduction offacility lease expense for operating leases and a reduction of interest expense for capital leases.For leases in which the Company is involved with the construction of the building, the Company accounts for the lease during the construction period under the provisions of ASC840. If the Company concludes that it has substantively all of the risks of ownership during construction of a leased property and therefore is deemed the owner of the project foraccounting purposes, it records an asset and related financing obligation for the amount of total project costs related to construction in progress. Once construction is complete, theCompany considers the requirements under ASC 840-40. If the arrangement qualifies for sale-leaseback accounting, the Company removes the assets and related liabilities from theconsolidated balance sheets. If the arrangement does not qualify for sale-leaseback accounting, the Company continues to amortize the financing obligation and depreciate the assetsover the lease term.Treasury StockThe Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders' equity.88New Accounting PronouncementsIn November 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ("ASU 2015-17").ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in the consolidated financial statements instead of separating deferred taxes into current andnoncurrent amounts. ASU 2015-17 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and early adoption is permitted. TheCompany adopted ASU 2015-17 as of December 31, 2015. The consolidated balance sheet as of December 31, 2014 has been recast to conform to the provisions of ASU 2015-17, whichincluded an $84.2 million reduction of the deferred tax asset and the deferred tax liability.In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 requires entities to present debt issuance costs asa direct adjustment to the carrying value of the debt instead of as an asset. This presentation is consistent with the current accounting for debt discounts and premiums. ASU 2015-03 iseffective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The Company adopted ASU 2015-03 as ofDecember 31, 2015. The consolidated balance sheet as of December 31, 2014 has been recast to conform to the provisions of ASU 2015-03, which included a $19.7 million reduction ofother assets, net and long-term debt.In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis ("ASU 2015-02"). ASU 2015-02 changes the analysis that a reporting entitymust perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those fiscal years, beginningafter December 15, 2015. The Company will adopt ASU 2015-02 on January 1, 2016, and it is not expected to have a material impact on the Company's consolidated financial statementsand disclosures.In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement—Presentation by Eliminating the Concept of Extraordinary Items ("ASU 2015-01"). ASU 2015-01 isintended to reduce complexity and cost of compliance with GAAP by eliminating the concept of extraordinary items in the statement of operations. The amendments in this update areeffective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and early adoption is permitted. The Company adopted ASU 2015-01 as ofJanuary 1, 2015, and it did not have a material impact on the Company's consolidated financial statements and disclosures for the year ended December 31, 2015.In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 definesmanagement's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures.ASU 2014-15 is effective for the Company for the annual period ending after December 15, 2016. The Company will adopt ASU 2014-15 on January 1, 2016, and it is not expected to have amaterial impact on the Company's consolidated financial statements and disclosures.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 affects any entity that either enters into contracts withcustomers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promisedgoods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The new standard will be effective for the Company beginning onJanuary 1, 2018 and early adoption will be permitted beginning on January 1, 2017. The Company is currently evaluating the impact the adoption of ASU 2014-09 will have on itsconsolidated financial statements and disclosures.ReclassificationsCertain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's consolidated financial position or resultsof operations.893. Earnings Per ShareBasic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS includes the components ofbasic EPS and also gives effect to dilutive common stock equivalents. For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are consideredoutstanding. 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 wereexercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units and convertible debtinstruments and warrants.During fiscal 2015, 2014 and 2013, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock, restricted stock unit awards and convertible debtinstruments and warrants were antidilutive for each year and were not included in the computation of diluted weighted average shares. The weighted average restricted stock andrestricted stock unit awards excluded from the calculations of diluted net loss per share were 3.7 million, 3.6 million and 3.9 million for the years ended December 31, 2015, 2014 and 2013,respectively.The calculation of diluted weighted average shares excludes the impact of conversion of the outstanding principal amount of $316.3 million of the Company's 2.75% convertible seniornotes due 2018. As of December 31, 2015, 2014 and 2013, the maximum number of shares issuable upon conversion of the notes is approximately 13.8 million (after giving effect toadditional make-whole shares issuable upon conversion in connection with the occurrence of certain events); however it is the Company's current intent and policy to settle the principalamount of the notes in cash upon conversion. The maximum number of shares issuable upon conversion of the notes in excess of the amount of principal that would be settled in cash isapproximately 3.0 million.In addition, the calculation of diluted weighted average shares excludes the impact of the exercise of warrants to acquire the Company's common stock. As of December 31, 2015, 2014and 2013, the number of shares issuable upon exercise of the warrants was approximately 10.8 million. See Note 8 for more information about the 2.75% convertible notes and warrants.4. Acquisitions and Other Significant Transactions2015 Community Acquisitions and DispositionsOn December 29, 2014, the Company exercised its purchase option under an amended and restated master lease with HCP Inc. ("HCP"), as amended. As a result, the Company agreed topurchase the fee simple interest of nine communities previously leased to the Company for an aggregate purchase price of $60.0 million. On December 31, 2014, the Company paid the fullpurchase price of $51.4 million of cash as a deposit for the purchase of eight of the nine communities, and the Company took title to these eight communities at the closing on January 1,2015. On May 1, 2015, the Company acquired the ninth community and paid the remainder of the purchase price of $8.6 million of cash. The results of operations of these communities arereported in the Assisted Living and CCRCs - Rental segments within the consolidated financial statements for the year ended December 31, 2015.In February 2015, the Company acquired the underlying real estate associated with 15 communities that were previously leased for an aggregate purchase price of $268.6 million. Theresults of operations of these communities are reported in the Retirement Centers, Assisted Living, and CCRCs – Rental segments within the consolidated financial statements for theyear ended December 31, 2015. The Company financed the transaction with cash on hand, amounts drawn on the secured credit facility and $20.0 million of seller financing. The $20.0million note has a five year term and bears interest at a fixed rate of 8.0%. The fair value of the communities acquired was determined to approximate $187.2 million. The fair values of theproperty, plant and equipment of the acquired communities were determined utilizing a direct capitalization method considering stabilized facility operating income and marketcapitalization rates. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 3 measurements within the fair valuehierarchy. The range of capitalization rates utilized was 6.25% to 8.75%, depending upon the property type, geographical location, and the quality of the respective community. TheCompany recorded the difference between the amount paid and the estimated fair value of the communities acquired ($76.1 million) as a loss on facility lease termination on theconsolidated statement of operations for the year ended December 31, 2015, which includes the reversal of $5.3 million of deferred lease liabilities associated with the termination of theoperating lease agreements. The payment for the termination of the lease agreements has been included within net cash provided by operating activities within the consolidatedstatement of cash flows for the year ended December 31, 2015.In October 2015, the Company acquired the underlying real estate associated with five communities that were previously leased for an aggregate purchase price of $78.4 million. Theresults of operations of these communities are reported in the Assisted Living segment. The Company financed the transaction with seller-financing.90During the year ended December 31, 2015, the Company sold 17 communities for an aggregate selling price of $82.9 million. The results of operations of the communities were previouslyreported in the Retirement Centers, Assisted Living, and CCRCs - Rental segments. Impairment charges related to communities sold in 2015 totaled $18.4 million and were recognized inthe fourth quarter of 2015 in impairment expense within the Company's consolidated statements of operations.The Company designates communities as held for sale when it is probable that the properties will be sold. If appropriate, the Company records impairment losses and records theseassets on the consolidated balance sheet at the lesser of the carrying value and fair value less estimated selling costs. The Company allocates a portion of the goodwill of a reportingunit to the disposal groups if the disposal group constitutes a business. The Company determines the fair value of the communities based primarily on purchase and sale agreementsfrom prospective purchasers (Level 2 input). The long-lived assets are not depreciated while classified as held for sale. As of December 31, 2015, the Company has identified 17communities as held for sale. The sale of these communities is expected in 2016, although there can be no assurance that the transactions will close or if they do, when the actual closingwill occur. The results of operations of these communities are reported in the Assisted Living and CCRCs – Rental segments within the consolidated financial statements. Impairmentcharges related to communities identified as held for sale as of December 31, 2015 totaled $15.2 million and were recognized in impairment expense in the fourth quarter of 2015 within theCompany's consolidated statements of operations. As of December 31, 2015, $110.6 million was recorded as assets held for sale and $60.8 million of mortgage debt related to communitiesheld for sale was included in the current portion of long-term debt within the Company's consolidated balance sheet. This debt will either be assumed by the prospective purchasers orbe repaid with the proceeds from the sales.Investment in Unconsolidated RIDEA VentureOn June 30, 2015, the Company and HCP entered into a venture, which acquired 35 senior housing communities ("HCP 35 Venture") for $847 million. The venture uses a REIT InvestmentDiversification and Empowerment Act of 2007 ("RIDEA") structure, whereby we and HCP invested in an "opco" and a "propco". The Company contributed $30.3 million in cash to theRIDEA venture. The Company owns a 10% ownership interest, and HCP owns a 90% ownership interest, in each of the propco and opco. The Company had operated these communitiesunder a management agreement since 2011 and will continue to manage the communities under a market rate long-term management agreement with the venture. The Company's interestin the venture is accounted for under the equity method of accounting.Acquisition of EmeritusOn July 31, 2014, the Company completed the merger contemplated by that certain Agreement and Plan of Merger, dated as of February 20, 2015, (the "Merger Agreement") by andamong Emeritus Corporation ("Emeritus"), the Company, and Broadway Merger Sub Corporation, a wholly-owned subsidiary of the Company ("Merger Sub"), pursuant to which MergerSub merged with and into Emeritus, with Emeritus continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the "Merger"). Prior to the Merger, Emerituswas a senior living service provider focused on operating residential style communities throughout the United States. As of July 31, 2014 Emeritus operated 493 communities, includingassisted living and dementia care communities. Many of these communities offer independent living alternatives and, to a lesser extent, skilled nursing care. As of July 31, 2014, Emeritusowned 182 communities and leased 311 communities. Prior to the Merger, Emeritus also offered a range of outpatient therapy and home health services in Florida, Arizona and Texas.The aggregate acquisition-date fair value of the consideration transferred in the Merger was approximately $3.0 billion which consisted of the issuance of 47.6 million shares of theCompany's common stock with a fair value of approximately $1.6 billion upon the cancellation of all shares of Emeritus' common stock and stock options, as well as the Company'sassumption of approximately $1.4 billion aggregate principal amount of existing mortgage indebtedness of Emeritus. The fair value of the 47.6 million common shares issued wasdetermined based on the closing market price of the Company's common shares on July 31, 2014, the effective date of the Merger.91As a result of the acquisition of Emeritus, the Company acquired, directly or indirectly, entities that were lessees under operating and capital leases covering 311 communities, as well ascertain other leases such as office leases and leases associated with Emeritus' Nurse on Call home health business. The community leases contain customary terms, includingassignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial covenants. In connection with the Merger, theCompany entered into guarantees of certain of these leases.The $1.4 billion aggregate principal amount of existing mortgage debt assumed, directly or indirectly, by the Company in the Merger was collateralized by a total of 179 underlyingcommunities, bore interest either at fixed rates at a weighted average of 6.06% per annum or at variable rates at a weighted average of 5.49% per annum (in each case, as of July 31, 2014),and had remaining maturities ranging from approximately three months to 33 years. The mortgage loans contained customary terms including assignment and change of controlrestrictions, acceleration provisions and financial covenants. In connection with the Merger, the Company entered into guarantees of certain of these debt arrangements.Emeritus maintained general and professional liability coverage for its owned, leased and managed communities under insurance policies that provided for self-insured retention. Incertain historical periods Emeritus was uninsured for a subset of communities. In addition, it maintained a large-deductible workers compensation and a self-insured employee medicalprogram. Emeritus accrued for claims under these three programs and therefore maintained reserves for liabilities related thereto. The Company acquired these liabilities as a result of theMerger, evaluated the adequacy of Emeritus' insurance reserves by reviewing historical claims, investigating claim files with assistance from Emeritus' third party administrators andother consultants, reviewing Emeritus' historical actuarial reports, and obtaining new actuarial valuations for claims incurred but not paid as of the date of the Merger. The Company alsoacquired tail insurance to provide coverage for general and professional liability claims incurred before the Merger date but made after, and maintains reserves for deductibles payableunder the tail policies. On June 4, 2013, in Joan Boice et al. v. Emeritus Corporation et al., the Sacramento County Superior Court entered final judgment in favor of Joan Boice (deceased) and againstEmeritus in the amount of $250,000 in compensatory damages and $23.0 million in punitive damages. Judgment was also entered in favor of Joan Boice's three adult children for $250,000and the court awarded the plaintiffs' lawyer over $4.1 million in attorneys' fees. The judgment accrued interest at prescribed statutory rates. On July 8, 2014, Emeritus filed a Notice ofAppeal challenging, among other things, the excessive nature of the punitive damages award. Emeritus was required to post a bond in connection with its appeal, and made a cashdeposit in the amount of $20.9 million to collateralize the bond. The amount of the cash deposit and the reserve regarding the judgment have been contemplated in the purchase priceallocation. Subsequent to the closing of the Merger, the Company was no longer required to collateralize the bond with a cash deposit. The case was settled by the parties during theyear ended December 31, 2015.The fair values of the acquired property, plant and equipment, including communities and assets under capital and financing leases, were determined utilizing a direct capitalizationmethod considering stabilized facility operating income and market capitalization rates. These fair value measurements were based on current market conditions as of the acquisition dateand are considered Level 3 measurements within the fair value hierarchy. The range of capitalization rates utilized was 5.5% to 9.75%, depending upon the property type, geographicallocation, and the quality of the respective community.The fair values of the acquired capital and financing lease obligations were determined utilizing a discounted cash flow approach considering the estimated contractual lease paymentsand a market discount rate. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 3 measurements within the fairvalue hierarchy. The range of discount rates utilized was 6.0% to 10.75%, depending upon the remaining lease term, property type, geographical location, and the quality of therespective community.The fair values of the acquired long-term debt obligations were determined utilizing a discounted cash flow approach considering the estimated contractual long-term debt payments anda market discount rate. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 2 measurements within the fair valuehierarchy. The range of discount rates utilized was 3.0% to 7.0%, depending upon the remaining debt term and collateral securing the indebtedness.The allocation of fair values of the assets acquired and liabilities assumed has changed from the allocation reported in "Note 4 – Acquisitions and Other Significant Transactions" in theNotes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The changes to the Company's valuationassumptions were based on more accurate information becoming available concerning the subject assets and liabilities. The purchase price allocation adjustments were primarily relatedto pre-acquisition self-insurance reserves and the related deferred tax impact, resulting in a $5.9 million net increase to the goodwill allocated to the Assisted Living segment during thenine months ended September 30, 2015.92The table below presents the allocation of purchase price to the assets acquired and liabilities assumed (in millions): Cash and cash equivalents $28 Property, plant and equipment and leasehold intangibles 5,506 Goodwill 645 Other intangible assets, net 259 Other assets, net 307 Trade accounts payable and accrued expenses (297)Long-term debt (1,516)Capital and financing lease obligations (2,692)Deferred tax liability (339)Other liabilities (251)Noncontrolling interest (1)Fair value of Brookdale common stock issued $1,649 The goodwill of $645.2 million is primarily attributable to the synergies expected to arise after the Merger. The Retirement Centers, Assisted Living and Brookdale Ancillary Servicessegments were allocated goodwill of $20.5 million, $497.9 million and $126.8 million, respectively. The goodwill is not deductible for tax purposes.The following table provides the pro forma consolidated operational data as if the Company had acquired Emeritus on January 1, 2013 (unaudited, in millions, except share and per sharedata): Year EndedDecember 31, 2014 2013 Total revenue $5,055 $4,853 Net income (loss) attributable to common stockholders (103) (424) Basic and diluted net income (loss) per share attributable to common stockholders $(0.59) $(2.48)Weighted average shares used in computing basic and diluted net income (loss) per share (in thousands) 175,823 171,255 The Company incurred $57.1 million of transaction costs related to the acquisition of Emeritus for the year ended December 31, 2014. Transaction costs are primarily comprised oftransaction fees and direct acquisition costs, including legal, finance, consulting, professional fees and other third party costs. The pro forma consolidated operational data for the yearended December 31, 2014 excludes $57.1 million of transaction costs that were directly attributable to the Merger. The proforma consolidated operational data for the year endedDecember 31, 2013 includes $57.1 million of transaction costs that were directly attributable to the Merger. On August 29, 2014, the Company completed the HCP Transactions (as definedbelow). The pro forma consolidated operational data reflects the Company's full ownership interests and previously existing lease terms through the closing of the HCP Transactions onAugust 29, 2014 and reflects the Company's subsequent venture arrangements and amended lease terms for the remainder of the 2014 period.The pro forma consolidated operational data is based on assumptions and estimates considered appropriate by the Company's management; however, these pro forma results are notnecessarily indicative of the results of operations that would have been obtained had the Merger occurred at the beginning of the periods presented, nor do they purport to representthe consolidated results of operations for future periods. The pro forma consolidated operational data does not include the impact of any synergies that may be achieved from theacquisition of Emeritus or any strategies that management may consider in order to continue to efficiently manage operations.On July 30, 2014, in connection with the Merger, the Company's Certificate of Incorporation was amended to authorize up to 400 million shares of common stock.93HCP TransactionsOn August 29, 2014, the Company completed the transactions contemplated by that certain Master Contribution and Transactions Agreement (the "Master Agreement"), dated as ofApril 23, 2014, by and between the Company and HCP, Inc. ("HCP"). At the closing of these transactions (the "Closing"), the Company and HCP entered into two ventures and amendedthe terms of certain existing agreements between the Company and HCP ("HCP Transactions").Each of the ventures contemplated by the Master Agreement uses a "RIDEA" structure, whereby at the Closing each of the Company and HCP invested in an "opco" entity and a"propco" entity. The propco owns most of the applicable communities and leases such communities to the opco pursuant to long-term leases entered into at the Closing. The opco ownsthe remainder of the applicable communities not owned by the propco, and at the Closing the opco engaged an affiliate of the Company to manage all of the owned and leasedcommunities pursuant to management agreements with 15-year terms subject to certain extension options.Venture Relating to Entry Fee CCRCs. At the Closing, the Company and HCP entered into a venture with respect to certain entry fee CCRCs previously owned, leased and/or operatedby the Company. The Company owns a 51% ownership interest, and HCP owns a 49% ownership interest, in each of the propco and opco (together, the "CCRC Venture"). Pursuant tothe terms of the Master Agreement, at the Closing the Company contributed to the CCRC Venture eight wholly-owned entities (owning eight CCRCs subject, in certain cases, to existingdebt) and certain purchase options with respect to the HCP Communities (as defined below), and HCP contributed to the CCRC Venture three wholly-owned entities (owning threeproperties in two CCRCs (the "HCP Communities")). In addition, HCP contributed $323.5 million in cash and the CCRC Venture completed the purchases of four communities managed bythe Company for an aggregate purchase price of $323.5 million immediately following the Closing. Each of the CCRCs in the CCRC Venture is managed by the Company pursuant tomarket rate management agreements entered into at the Closing, and the Company has agreed to guarantee certain obligations of the manager under the applicable managementagreements. Each of the propco and opco is governed by a board of managers consisting of six members, with three representatives appointed by each of the Company and HCP.The results of operations and financial position of the ten previously owned or leased entry fee CCRCs, including refundable entrance fee liabilities and deferred revenue, were in allmaterial respects deconsolidated from the Company prospectively upon formation of the CCRC Venture. The Company's interest in the CCRC Venture is accounted for under the equitymethod of accounting. The Company's investment basis in the CCRC Venture is based on the carrying values of the net assets it contributed which is less than the Company'sproportional share of underlying fair value of equity.Venture Relating to Emeritus / HCP Communities. At the Closing, the Company and HCP entered into a venture with respect to 49 independent living, assisted living, memory careand/or skilled nursing care communities previously owned by HCP and leased and historically operated by Emeritus. The Company acquired the leases in the Merger, recorded them atfair value at the acquisition date, and in this transaction effectively terminated the leases; therefore the Company has written off all of the recorded lease values in connection with thistermination. The Company owns a 20% ownership interest, and HCP owns an 80% ownership interest, in each of the propco and opco (together, the "HCP 49 Venture"). Pursuant to theterms of the Master Agreement, at the Closing an HCP affiliate made a loan to the Company at prevailing interest rates in the original principal amount of approximately $68 million tofund the Company's initial capital contribution to the HCP 49 Venture. HCP contributed 49 communities to propco. At the Closing, propco leased the communities to opco. Each of thecommunities in the HCP 49 Venture is managed by an affiliate of the Company, and the Company has agreed to guarantee certain obligations of the manager under the applicable marketrate management agreements. During the three months ended December 31, 2014, the Company repaid the $68 million loan from HCP primarily with the proceeds from the public equityoffering completed during the third quarter of 2014.The results and financial position of the communities were, in all material respects, deconsolidated from the Company prospectively upon formation of the HCP 49 Venture. TheCompany's interest in the venture is accounted for under the equity method of accounting.Pursuant to the terms of the Master Agreement, the Company is required to pay HCP a fee related to the lease restructuring in the amount of $34 million, which is payable over a two-yearperiod beginning September 30, 2014. The elimination of the recorded lease values upon termination of the aforementioned leases approximated the $34 million liability to HCP.94Amendments to Existing Agreements (including Triple Net Leases). At the Closing, the Company and HCP amended and restated (i) that certain Master Lease and Security Agreement,dated as of October 31, 2012, by and between Emeritus and certain affiliates of HCP, with respect to 112 communities, and (ii) certain other triple net leases between Emeritus and affiliatesof HCP, with respect to 41 communities, together into a single master lease with the communities subject thereto separated into three pools (the "Master Lease"). The term of the MasterLease is 14 years for the pool 1 communities, 15 years for the pool 2 communities and 16 years for the pool 3 communities, with an average of approximately 15 years, in each case subjectto two extension options of approximately 10 years each, and the Master Lease is guaranteed by the Company. The Master Lease provides for total base rent in 2014 of approximately$158 million, with lower future rent payments and escalations compared to the previously existing leases. HCP has agreed to make available up to $100 million for capital expendituresrelated to the communities during calendar years 2014 through 2017 at an initial lease rate of 7.0%. The Master Lease includes certain customary covenants, with respect to, among otherthings, capital expenditure requirements, restrictions on the ownership, operation and management of competing communities and transfer restrictions (including restrictions on changesof control of the Company). The Master Lease also includes customary events of default and remedies relating thereto. In addition, the Master Lease includes a fair value purchaseoption in favor of the Company for up to ten communities at an aggregate purchase price not to exceed $60 million. On December 29, 2014 the Company exercised this purchase optionand agreed to purchase nine communities for an aggregate purchase price of $60 million.In connection with the transactions contemplated by the Master Agreement, at the Closing, (i) the parties terminated the purchase option rights granted by HCP to Emeritus pursuant to49 of the previously existing Emeritus leases, (ii) the parties agreed to modify the existing term extension hurdle and incentive management fee structure applicable to an existing venturebetween the Company and HCP in respect of 20 independent living, assisted living, memory care and/or skilled nursing care communities, and (iii) HCP released certain deposits andreserves posted by the Company and held by HCP or its affiliates in connection with existing leases between the parties. For accounting purposes, the amended leases were treated asnew leases and classified as either capital or financing leases. The terminated purchase options were included in the determination of recorded capital or financing lease related balances.Equity OfferingIn September 2014, the Company completed a public equity offering of 10,298,506 shares of common stock, which yielded net proceeds of approximately $330.4 million, net ofapproximately $0.4 million of costs related to the offering. During the three months ended December 31, 2014, the Company repaid $275.9 million of existing long-term debt with aweighted average interest rate of approximately 5.5%, financed primarily with the proceeds of the public equity offering, and the Company has used and is using net proceeds to financethe exercise of purchase options on certain communities currently leased by the Company and for other general corporate purposes, which may include additional debt repayments andthe acceleration of capital investments in the Company's communities and corporate infrastructure platform.2014 Community Acquisitions and DispositionsIn July 2014, the Company acquired the underlying real estate associated with four communities that were previously leased for an aggregate purchase price of $51.4 million. The resultsof operations of three and one of these communities, prior and subsequent to the acquisition, are reported in the Retirement Centers and Assisted Living segments, respectively. TheCompany financed the transactions with $17.0 million of seller-financing secured by three of the communities. The balance of the purchase price was paid from cash on hand.During the year ended December 31, 2014, the Company sold four communities for an aggregate selling price of $9.2 million. The results of operations of the communities were previouslyreported in the Assisted Living and CCRCs - Rental segments.955. Variable Interest Entities and Investment in Unconsolidated VenturesVariable Interest EntitiesAt December 31, 2015, the Company has equity interests in unconsolidated VIEs. The Company has determined that it does not have the power to direct the activities of the VIEs thatmost significantly impact the VIEs' economic performance and is not the primary beneficiary of these VIEs in accordance with ASC 810. The Company's interests in the VIEs are,therefore, accounted for under the equity method of accounting.The Company holds a 51% equity interest in the CCRC Venture. The CCRC Venture's opco has been identified as a VIE. The equity members of the CCRC Venture's opco share certainoperating rights, and the Company acts as manager to the CCRC Venture opco; however, the Company does not consolidate this VIE because it does not have the ability to control theactivities that most significantly impact this VIE's economic performance. The assets of the CCRC Venture opco primarily consist of the CCRCs that it owns and leases, resident feesreceivable, notes receivable and cash and cash equivalents. The obligations of the CCRC Venture opco primarily consist of community lease obligations, accounts payable, accruedexpenses and refundable entrance fees. Assets generated by the CCRC operations (primarily rents from CCRC residents) of the CCRC Venture opco may only be used to settle itscontractual obligations (primarily the rental costs and operating expenses incurred to operate the communities). See Note 4 for more information about the Company's entry into theCCRC Venture.The Company holds a 20% equity interest in the HCP 49 Venture. The opco and propco of the HCP 49 Venture have been identified as VIEs. The equity members of the HCP 49 Ventureshare certain operating rights and the Company acts as manager to the HCP 49 Venture opco; however, the Company does not consolidate these VIEs because it does not have theability to control the activities that most significantly impact the economic performance of these VIEs. The assets of the HCP 49 Venture propco primarily consist of the senior housingcommunities that it owns and cash and cash equivalents. The obligations of the HCP 49 Venture propco primarily consist of a note payable to HCP. The assets of the HCP 49 Ventureopco primarily consist of the senior housing communities that it leases, resident fees receivable and cash and cash equivalents. The obligations of the HCP 49 Venture opco primarilyconsist of community lease obligations, accounts payable and accrued expenses. Assets generated by the operations of the senior housing communities (primarily rents from seniorhousing residents) of the HCP 49 Venture may only be used to settle its contractual obligations (primarily the rental costs and operating expenses incurred to operate the communities).See Note 4 for more information about the Company's entry into the HCP 49 Venture.The Company holds a 10% equity interest in the HCP 35 Venture. The venture's opco has been identified as a VIE. The equity members of the opco share certain operating rights, and theCompany acts as manager to the opco; however, the Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impactthis VIE's economic performance. The assets of the opco primarily consist of the communities that it owns and leases, resident fees receivable and cash and cash equivalents. Theobligations of the opco primarily consist of community lease obligations, debt, accounts payable and accrued expenses. Assets generated by the opco's operations (primarily rents fromsenior housing residents) of the opco may only be used to settle its contractual obligations (primarily the rental costs and operating expenses incurred to operate the communities). TheCompany's maximum exposure to loss and carrying amount of this opco are included within "Other" within the table below. See Note 4 for more information about the Company's entryinto the HCP 35 Venture.The carrying value and classification of the related assets, liabilities and maximum exposure to loss as a result of the Company's involvement with these VIEs are summarized below atDecember 31, 2015 (in millions):VIEAsset MaximumExposure to Loss Carrying Amount CCRC Venture opcoInvestment in unconsolidated ventures $180.5 $180.5 HCP 49 Venture opco and propcoInvestment in unconsolidated ventures $72.4 $72.4 OtherInvestment in unconsolidated ventures $5.3 $1.7 96As of December 31, 2015, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIEs.Investment in Unconsolidated VenturesThe Company owns interests in the following ventures that are accounted for under the equity method as of December 31, 2015:VentureOwnership PercentageCCRC Venture 51%HCP 49 Venture 20%BKD-HCN venture opco and propco 20%HCP 35 Venture 10%S-H Twenty-One venture opco and propco 10%6. Property, Plant and Equipment and Leasehold Intangibles, NetAs of December 31, 2015 and 2014, net property, plant and equipment and leasehold intangibles, which include assets under capital and financing leases, consisted of the following (inthousands): 2015 2014 Land $486,567 $475,485 Buildings and improvements 5,260,826 5,017,991 Leasehold improvements 100,430 56,515 Furniture and equipment 895,447 735,837 Resident and leasehold operating intangibles 783,434 852,746 Construction in progress 138,054 99,408 Assets under capital and financing leases 2,909,653 3,057,516 10,574,411 10,295,498 Accumulated depreciation and amortization (2,543,035) (1,905,993)Property, plant and equipment and leasehold intangibles, net $8,031,376 $8,389,505 During the years ended December 31, 2015, 2014 and 2013, the Company evaluated property, plant and equipment and leasehold intangibles for impairment and identified properties witha 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 ofthe assets to their carrying value for these identified properties and recorded an impairment charge for the excess of carrying value over fair value. The Company recorded property, plantand equipment and leasehold intangibles non-cash impairment charges in its operating results of $24.3 million for the year ended December 31, 2015, primarily within the Assisted Livingand CCRCs - Rental segments, $10.0 million for the year ended December 31, 2014, primarily within the CCRCs - Rental and Assisted Living segments and $12.9 million for the year endedDecember 31, 2013, primarily within the Retirement Centers and Assisted Living segments. These impairment charges are primarily due to lower than expected operating performance atthese properties and reflect the amount by which the carrying values of the assets exceeded their estimated fair value.During 2015, the Company sold 17 communities for an aggregate selling price of $82.9 million and recorded $18.4 million of impairment charges related to the communities sold, inclusiveof the allocation of $8.1 million of goodwill to the disposed communities. During the fourth quarter of 2015, the Company recorded $15.2 million of impairment charges related to 17communities identified as held for sale as of December 31, 2015, inclusive of the allocation of $12.2 million of goodwill to the disposal groups. These impairment charges are primarily dueto the excess of carrying value, including allocated goodwill, over the estimated selling price less costs to dispose. Refer to Note 4 for more information about the Company's communitydispositions and assets held for sale.For the years ended December 31, 2015, 2014 and 2013, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of$721.0 million, $529.1 million and $264.1 million, respectively.Future amortization expense for resident and leasehold operating intangibles is estimated to be as follows (dollars in thousands):Year Ending December 31, FutureAmortization 2016 $19,390 2017 13,011 2018 7,603 2019 6,247 2020 4,345 Thereafter 12,663 Total $63,259 In connection with the acquisition of Emeritus, the Company recorded intangible assets for resident-in-place leases and below market operating lease intangibles. The Company isamortizing the resident-in-place leases and below market operating lease intangibles over their estimated weighted average useful lives of one and nine years, respectively.977. Goodwill and Other Intangible Assets, NetThe following is a summary of changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 presented on an operating segment basis (dollars inthousands): December 31, 2015 December 31, 2014 GrossCarryingAmount AccumulatedImpairment andOther Charges Net GrossCarryingAmount AccumulatedImpairment andOther Charges Net Retirement Centers $28,141 $(721) $27,420 $28,141 $(521) $27,620 Assisted Living 591,814 (20,348) 571,466 582,623 (248) 582,375 Brookdale Ancillary Services 126,810 — 126,810 126,810 — 126,810 Total $746,765 $(21,069) $725,696 $737,574 $(769) $736,805 The Company concluded that goodwill for all reporting units was not impaired as of October 1, 2015 (our annual measurement date) and as of December 31, 2015. Factors the Companyconsiders important in its analysis, which could trigger an impairment of such assets, include significant underperformance relative to historical or projected future operating results,significant negative industry or economic trends, a significant decline in the Company's stock price for a sustained period and a decline in its market capitalization below net book value.A change in anticipated operating results or the other metrics indicated above could necessitate further analysis of potential impairment at an interval prior to the Company's annualmeasurement date.Approximately $7.9 million and $0.2 million of goodwill in the Assisted Living and Retirement Centers segments, respectively, was allocated to the disposed communities during thefourth quarter of 2015. Refer to Note 4 for more information about the Company's community dispositions.As of December 31, 2015, $12.2 million of goodwill related to assisted living communities held for sale was allocated to assets held for sale within the Company's consolidated balancesheet. Refer to Note 4 for more information about the Company's assets held for sale.The following is a summary of other intangible assets at December 31, 2015 and 2014 (dollars in thousands): December 31, 2015 December 31, 2014 GrossCarryingAmount AccumulatedAmortization Net GrossCarryingAmount AccumulatedAmortization Net Community purchase options $40,270 $— $40,270 $55,738 $— $55,738 Health care licenses 66,612 — 66,612 64,538 — 64,538 Trade names 27,800 (14,209) 13,591 27,800 (4,179) 23,621 Other 13,531 (4,818) 8,713 13,531 (2,655) 10,876 Total $148,213 $(19,027) $129,186 $161,607 $(6,834) $154,773 Amortization expense related to definite-lived intangible assets for the years ended December 31, 2015, 2014 and 2013 was $12.2 million, $8.0 million and $4.7 million, respectively. Healthcare licenses were determined to be indefinite-lived intangible assets and are not subject to amortization.In connection with the acquisition of Emeritus, the Company recorded intangible assets for community purchase options, trade names, management contracts and health care licenses.Health care licenses were determined to be indefinite-lived intangible assets and are not subject to amortization. The lease purchase options are not currently amortized, but will be addedto the cost basis of the related communities if the option is exercised, and will then be depreciated over the estimated useful life of the community. The Company is amortizing the tradenames and management contract intangibles assets over their estimated weighted average useful lives of three years and nine years, respectively. The weighted average amortizationperiods at acquisition for the other intangible assets is three years. During the year ended December 31, 2014, the Company contributed certain community purchase options to theCCRC Venture and terminated the community purchase option rights pursuant to 49 of the previously existing Emeritus leases in connection with closing the HCP Transactions. See Note4 for more information about the Company's community purchase option activity.Future amortization expense for intangible assets with definite lives is estimated to be as follows (dollars in thousands):Year Ending December 31, FutureAmortization 2016 $8,165 2017 3,726 2018 3,717 2019 2,638 2020 1,133 Thereafter 2,925 Total $22,304 988. DebtLong-term Debt and Capital and Financing Lease ObligationsLong-term debt and capital and financing lease obligations consist of the following (dollars in thousands): December 31, 2015 2014 Mortgage notes payable due 2016 through 2047; weighted average interest rate of 4.51% in 2015, including net debt premium and deferredfinancing costs of $3.3 million in 2015 and including net debt premium and deferred financing costs of $42.9 million in 2014 (weightedaverage interest rate of 4.84% in 2014) $3,246,513 $3,088,752 Capital and financing lease obligations payable through 2031; weighted average interest rate of 8.11% in 2015 (weighted average interest rateof 8.57% in 2014) 2,489,588 2,649,226 Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount and deferred financing costs of $34.3 millionand $46.9 million in 2015 and 2014, respectively, interest at 2.75% per annum, due June 2018 281,902 269,300 Construction financing due 2017 through 2019; weighted average interest rate of 4.84% in 2015 (weighted average interest rate of 4.90% in2014) 24,105 50,118 Notes payable issued to finance insurance premiums (weighted average interest rate of 2.82% in 2014) — 22,586 Other notes payable, weighted average interest rate of 5.16% in 2015 (weighted average interest rate of 4.75% in 2014) and maturity datesranging from 2016 to 2020 80,305 66,271 Total debt and capital and financing lease obligations 6,122,413 6,146,253 Less current portion 235,604 268,399 Total long-term debt and capital and financing lease obligations $5,886,809 $5,877,854 As of December 31, 2015, the current portion of long-term debt within the Company's consolidated financial statements includes $60.8 million of mortgage notes payable secured byassets held for sale. This debt will either be assumed by the prospective purchasers or be repaid with the proceeds from the sales. Refer to Note 4 for more information about theCompany's assets held for sale.The annual aggregate scheduled maturities of long-term debt and capital and financing lease obligations outstanding as of December 31, 2015 are as follows (dollars in thousands):Year Ending December 31, Long-termDebt Capital andFinancingLeaseObligations Total Debt 2016 $180,423 $237,810 $418,233 2017 308,023 263,671 571,694 2018 1,179,702 282,951 1,462,653 2019 143,473 262,800 406,273 2020 490,605 207,594 698,199 Thereafter 1,361,903 3,629,265 4,991,168 Total obligations 3,664,129 4,884,091 8,548,220 Less amount representing debt discount and deferred financing costs, net (31,304) — (31,304)Less amount representing interest (weighted average interest rate of 8.11%) — (2,394,503) (2,394,503)Total $3,632,825 $2,489,588 $6,122,413 Credit FacilitiesOn December 19, 2014, the Company entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation, as administrative agent, lender andswingline lender, and the other lenders from time to time parties thereto. The amended credit agreement amended and restated in its entirety the Company's previously existing ThirdAmended and Restated Credit Agreement dated as of September 20, 2013, which provided a total commitment amount of $250.0 million. The amended agreement provides for a totalcommitment amount of $500.0 million, comprised of a $100.0 million term loan drawn at closing and a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of creditand a $50.0 million swingline feature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtainingcommitments for the amount of such increase from acceptable lenders. In addition, the amended credit agreement extended the maturity date from March 31, 2018 to January 3, 2020 anddecreased the interest rate payable on drawn amounts and the fee payable on the unused portion of the facility. Amounts drawn under the facility will continue to bear interest at 90-dayLIBOR plus an applicable margin; however, the amended agreement reduces the applicable margin from a range of 3.25% to 4.25% to a range of 2.50% to 3.50%. The applicable marginvaries based on the percentage of the total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less thanor equal to 50%, and a 3.50% margin at utilization greater than 50%. The amended agreement also eliminates the minimum 0.5% LIBOR rate included in the prior agreement.99Amounts drawn on the facility may be used to finance acquisitions, fund working capital and capital expenditures and for other general corporate purposes.The facility is secured by a first priority mortgage on certain of the Company's communities. In addition, the amended agreement permits the Company to pledge the equity interests insubsidiaries that own other communities (rather than mortgaging such communities), provided that loan availability from pledged assets cannot exceed 10% of loan availability frommortgaged assets. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance of thecommunities securing the facility.The amended credit agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage andminimum consolidated tangible net worth. A violation of any of these covenants could result in a default under the credit agreement, which would result in termination of all commitmentsunder the credit agreement and all amounts owing under the amended credit agreement and certain other loan agreements becoming immediately due and payable.As of December 31, 2015, the outstanding balance under this credit facility was $310.0 million. Additionally, there were $19.4 million of letters of credit outstanding under this creditfacility. In addition to the sublimit for letters of credit on this credit facility, the Company also had secured and unsecured letter of credit facilities of up to $80.2 million in the aggregateas of December 31, 2015. Letters of credit totaling $63.0 million had been issued under these separate facilities as of that date.Convertible Debt OfferingIn June 2011, the Company completed a registered offering of $316.3 million aggregate principal amount of 2.75% convertible senior notes due 2018 (the "Notes"). The Company receivednet proceeds of approximately $308.2 million after the deduction of underwriting commissions and offering expenses. The Company used a portion of the net proceeds to pay theCompany's cost of the convertible note hedge transactions described below, taking into account the proceeds to the Company of the warrant transactions described below, and used thebalance of the net proceeds to repay existing outstanding debt. The Notes are senior unsecured obligations and rank equally in right of payment to all of the Company's other senior unsecured debt, if any. The Notes will be senior in right of paymentto any of the Company's debt which is subordinated by its terms to the Notes (if any). The Notes are also structurally subordinated to all debt and other liabilities and commitments(including trade payables) of the Company's subsidiaries. The Notes are also effectively subordinated to the Company's secured debt to the extent of the assets securing the debt. The Notes bear interest at 2.75% per annum, payable semi-annually in cash. The Notes are convertible at an initial conversion rate of 34.1006 shares of Company common stock per$1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $29.33 per share), subject to adjustment. On and after March 15, 2018, until the close ofbusiness on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time. In addition, Holders may convert their Notes attheir option under the following circumstances: (i) during any fiscal quarter if the last reported sale price of the Company's common stock for at least 20 trading days (whether or notconsecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversionprice on the last day of such preceding fiscal quarter; (ii) during the five business day period after any five consecutive trading day period (the "measurement period"), in which thetrading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of the Company'scommon stock and the applicable conversion rate on each such day; or (iii) upon the occurrence of specified corporate events. As of December 31, 2015, the Notes are not convertible.Unconverted Notes mature at par in June 2018. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of the Company's common stock or a combination of cashand shares of the Company's common stock at the Company's election. It is the Company's current intent and policy to settle the principal amount of the Notes (or, if less, the amount ofthe conversion obligation) in cash upon conversion. In addition, following certain corporate transactions, the Company will increase the conversion rate for a holder who elects to convert in connection with such transaction by a numberof additional shares of common stock as set forth in the supplemental indenture governing the Notes.The Notes were issued in an offering registered under the Securities Act of 1933, as amended (Securities Act). In accordance with FASB guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial settlement), the liability andequity components of the convertible debt are separated in a manner that will reflect the Company's non-convertible debt borrowing rate when interest expense is recognized insubsequent periods. 100The Company is accreting the carrying value to the principal amount at maturity using an imputed interest rate of 7.5% (the estimated effective borrowing rate for nonconvertible debt atthe time of issuance, Level 2) over its expected life of seven years. As of December 31, 2015, the "if converted" value of the Notes does not exceed their principal amount. The interest expense associated with the Notes (excluding amortization of the associated deferred financing costs) was as follows (dollars in thousands): For the Years Ended December 31, 2015 2014 2013 Coupon interest $8,697 $8,697 $8,697 Amortization of discount 11,732 10,902 10,131 Interest expense related to convertible notes $20,429 $19,599 $18,828 In connection with the offering of the Notes, in June 2011, the Company entered into convertible note hedge transactions (the "Convertible Note Hedges") with certain financialinstitutions (the "Hedge Counterparties"). The Convertible Note Hedges cover, subject to customary anti-dilution adjustments, 10,784,315 shares of common stock. The Company alsoentered into warrant transactions with the Hedge Counterparties whereby the Company sold to the Hedge Counterparties warrants to acquire, subject to customary anti-dilutionadjustments, up to 10,784,315 shares of common stock (the "Sold Warrant Transactions"). The warrants have a strike price of $40.25 per share, subject to customary anti-dilutionadjustments.The Convertible Note Hedges are expected to reduce the potential dilution with respect to common stock upon conversion of the Notes in the event that the price per share of commonstock at the time of exercise is greater than the strike price of the Convertible Note Hedges, which corresponds to the initial conversion price of the Notes and is similarly subject tocustomary anti-dilution adjustments. If, however, the price per share of common stock exceeds the strike price of the Sold Warrant Transactions when they expire, there would beadditional dilution from the issuance of common stock pursuant to the warrants.The Convertible Note Hedges and Sold Warrant Transactions are separate transactions (in each case entered into by the Company and Hedge Counterparties), are not part of the termsof the Notes and will not affect the holders' rights under the Notes. Holders of the Notes do not have any rights with respect to the Convertible Note Hedges or the Sold WarrantTransactions.These hedging transactions had a net cost of approximately $31.9 million, which was paid from the proceeds of the Notes and recorded as a reduction of additional paid-in capital. TheCompany has contractual rights, and, at execution of the related agreements, had the ability to settle its obligations under the conversion features of the Notes, the Convertible NoteHedges and Sold Warrant Transactions, with the Company's common stock. Accordingly, these transactions are accounted for as equity, with no subsequent adjustment for changes inthe value of these obligations.2015 FinancingsOn March 31, 2015, the Company obtained a $63.0 million loan, secured by first mortgages on six communities. The loan bears interest at a variable rate equal to 90-day LIBOR plus amargin of 325 basis points and matures on April 1, 2020.On April 30, 2015, the Company obtained a $65.3 million loan, secured by first mortgages on six communities. The loan bears interest at a fixed rate of 3.98% and matures on May 1, 2027.On August 27, 2015, the Company obtained $226.4 million in loans secured by first mortgages on 21 communities. The mortgage facility has a ten year term and 75% of it bears interest ata variable rate of 30-day LIBOR plus a margin of 221 basis points and the remaining 25% bears interest at a fixed rate of 4.80%. Proceeds of the loans were used to refinance $209.9 millionof fixed rate mortgage debt on 28 communities that was scheduled to mature in September 2017. In connection with the transaction, the Company paid a prepayment penalty of $17.9million, of which $10.4 million was recorded against the existing debt premium, $6.3 million was recorded as a debt discount for the new loans, and $1.2 million was recorded as anextinguishment cost for the seven communities that became unencumbered.On September 15, 2015, the Company obtained $140.4 million in loans secured by first mortgages on 18 communities. The mortgage facility has a seven year term and bears interest at avariable rate of one-month LIBOR plus a margin of 223 basis points. Proceeds of the loans were used to refinance $122.3 million of fixed rate mortgage debt that was scheduled to maturein May 2018. In connection with the transaction, the Company paid a prepayment penalty of $13.6 million, of which $7.6 million was recorded against the existing debt premium and $6.0million was recorded as a debt discount for the new loans.The financings that occurred during the three months ended September 30, 2015 were accounted for as debt modifications and $5.5 million of debt modification costs were recorded onthe consolidated statement of operations for that period.1012014 FinancingsOn April 9, 2014, the Company obtained $146.0 million in loans, secured by first mortgages, on 20 communities. The loans bear interest at a fixed rate of 4.77% and mature in May 2021.Proceeds of the loans were used to refinance $140.0 million of mortgage debt that was scheduled to mature in November 2014.In October 2014, the Company obtained $89.7 million in supplemental loans, secured by the 21 underlying communities. The loans bear interest at a fixed rate of approximately 4.6%.In the fourth quarter of 2014, the Company repaid $275.9 million of existing long-term debt with a weighted average interest rate of approximately 5.5%, including the $68 million loan fromHCP used to fund the Company's initial capital contribution to the HCP 49 Venture. The Company financed the repayment of debt primarily with the proceeds from the public equityoffering completed during the third quarter. See Note 4 for more information about the HCP 49 Venture and the public equity offering.As of December 31, 2015, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.Interest Rate CapsIn the normal course of business, the Company has entered into certain interest rate protection agreements to effectively manage the risk above certain interest rates for a portion of theCompany's variable rate debt. The following table summarizes the Company's interest rate cap instruments at December 31, 2015 (dollars in thousands): Current notional balance $983,281 Weighted average fixed cap rate 4.34%Earliest maturity date 2016 Latest maturity date 2018 Estimated asset fair value (included in other assets, net at December 31, 2015) $29 Estimated asset fair value (included in other assets, net at December 31, 2014) $763 9. Accrued ExpensesAccrued expenses consist of the following components as of December 31, (in thousands): 2015 2014 Insurance reserves $94,948 $116,858 Salaries and wages 80,291 124,935 Vacation 44,421 43,037 Real estate taxes 37,206 43,155 Lease payable 20,714 30,001 Interest 12,940 12,757 Accrued utilities 11,949 12,798 Taxes payable 3,265 2,679 Other 67,140 36,434 Total $372,874 $422,654 10. Commitments and ContingenciesFacility Operating LeasesThe Company has entered into sale leaseback and lease agreements with certain real estate investment trusts ("REIT"s). Under these agreements communities are either sold to the REITand leased back or a long-term lease agreement is entered into for the communities. The initial lease terms primarily vary from 10 to 20 years and generally include renewal optionsranging from 5 to 30 years. The Company is responsible for all operating costs, including repairs, property taxes and insurance. The substantial majority of the Company's leasearrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. The Company typically guarantees its performanceand the lease payments under the master lease and the lease may include performance covenants, such as net worth, minimum capital expenditure requirements per community perannum and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of default. The Company's leases and mortgage debt generally contain cross-default and cross-collateralization provisions. Certain leases contain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is notmet.As of December 31, 2015 the Company operated 546 communities under long-term leases (322 operating leases and 224 capital and financing leases). As of December 31, 2014 theCompany operated 583 communities under long-term leases (342 operating leases and 241 capital and financing leases). The remaining base lease terms vary from one year to 17 yearsand generally provide for renewal, extension and purchase options.A summary of facility lease expense and the impact of straight-line adjustment and amortization of (above) below market rents and deferred gains are as follows (in thousands): 102 For the Years EndedDecember 31, 2015 2014 2013 Cash basis payment $372,148 $330,207 $278,504 Straight-line (income) expense 6,956 1,439 2,597 Amortization of (above) below market rents, net (7,158) (3,444) — Amortization of deferred gain (4,372) (4,372) (4,372)Facility lease expense $367,574 $323,830 $276,729 The aggregate amounts of future minimum operating lease payments, including community and office leases, as of December 31, 2015, are as follows (dollars in thousands): Year Ending December 31, OperatingLeases 2016 $390,816 2017 373,690 2018 358,168 2019 340,747 2020 300,674 Thereafter 1,336,099 Total $3,100,194 OtherThe Company has employment or letter agreements with certain officers of the Company and has adopted policies to which certain officers of the Company are eligible to participate thatgrant these employees the right to receive a portion or multiple of their base salary, pro-rata bonus, bonus and/or continuation of certain benefits, for a defined period of time, in theevent of certain terminations of the officers' employment, as described in those agreements and policies.11. Self-InsuranceThe Company obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policy. Losses related to deductible amounts are accruedbased on the Company's estimate of expected losses plus incurred but not reported claims. Emeritus provided professional liability coverage for approximately one-half of its operatinglocations through a wholly-owned captive insurance carrier, and the captive did not itself acquire excess professional liability coverage until October 1, 2013. Consequently, as a result ofthe Emeritus acquisition, the Company retains full exposure for professional liability claims incurred at those locations before October 1, 2013 and made prior to July 31, 2014.As of December 31, 2015 and 2014, the Company accrued reserves of $248.4 million and $301.6 million, respectively, for these programs of which $153.5 million and $184.7 million isclassified as long-term liabilities as of December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, the Company accrued $41.5 million and $52.7 million, respectively, ofestimated amounts receivable from the insurance companies under these insurance programs.The Company has secured self-insured retention risk under workers' compensation and general liability and professional liability programs with cash deposits of $15.6 million and $19.6million as of December 31, 2015 and 2014, respectively. Letters of credit securing the programs aggregated $49.8 million and $33.8 million as of December 31, 2015 and 2014, respectively.Emeritus previously maintained workers' compensation insurance coverage through a high deductible, collateralized insurance policy with deposits of $40.5 million as of December 31,2015.10312. Retirement PlansThe Company maintains a 401(k) Retirement Savings Plan for all employees that meet minimum employment criteria. The plan provides that the participants may defer eligiblecompensation on a pre-tax basis subject to certain Internal Revenue Code maximum amounts. The Company makes matching contributions in amounts equal to 25.0% of the employee'scontribution to the plan, up to a maximum of 4.0% of contributed compensation. An additional matching contribution of 12.5%, subject to the same limit on contributed compensation,may be made at the discretion of the Company, based upon the Company's performance. For the years ended December 31, 2015, 2014 and 2013, the Company's expense to the plan was$6.6 million, $7.1 million and $6.6 million, respectively.13. Stock-Based CompensationThe following table sets forth information about the Company's restricted stock awards (excluding restricted stock units) (share amounts in thousands): Number of Shares WeightedAverageGrant Date FairValue Outstanding on January 1, 2013 3,952 $16.67 Granted 1,328 $26.98 Vested (1,455) $15.08 Cancelled/forfeited (452) $18.87 Outstanding on December 31, 2013 3,373 $21.12 Granted 1,662 $29.79 Vested (1,185) $19.58 Cancelled/forfeited (298) $21.02 Outstanding on December 31, 2014 3,552 $25.70 Granted 1,698 $32.75 Vested (1,275) $23.55 Cancelled/forfeited (521) $18.68 Outstanding on December 31, 2015 3,454 $28.80 As of December 31, 2015, there was $63.8 million of total unrecognized compensation cost related to nonvested share-based compensation awards granted. That cost is expected to berecognized over a weighted-average period of 2.3 years and is based on grant date fair value, net of forfeiture estimates. The compensation cost reflects an initial estimated cumulativeforfeiture rate from 0% to 20% over the requisite service period of the awards. That estimate is revised if subsequent information indicates that the actual number of awards expected tovest is likely to differ from previous estimates.During 2015, grants of restricted shares under the Company's 2014 Omnibus Incentive Plan were as follows (amounts in thousands except for value per share): Shares Granted Value Per Share Total Value Three months ended March 31, 2015 1,335 $34.57 - $34.89 $46,142 Three months ended June 30, 2015 70 $36.12 $2,540 Three months ended September 30, 2015 49 $33.02 $1,611 Three months ended December 31, 2015 244 $21.82 $5,327 The Company has an employee stock purchase plan for all eligible employees. Under the plan, eligible employees of the Company can purchase shares of the Company's common stockon a quarterly basis at a discounted price through accumulated payroll deductions. Each eligible employee may elect to deduct up to 15% of his or her base pay each quarter. Subject tocertain limitations specified in the plan, on the last trading date of each calendar quarter, the amount deducted from each participant's pay over the course of the quarter will be used topurchase whole shares of the Company's common stock at a purchase price equal to 90% of the closing market price on the New York Stock Exchange on that date. The Companyreserved 1,800,000 shares of common stock for issuance under the plan. The impact on the Company's consolidated financial statements is not material.14. Share Repurchase ProgramOn August 11, 2011, the Company's board of directors approved a share repurchase program that authorizes the Company to purchase up to $100.0 million in the aggregate of theCompany's common stock. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or blocktrades, or by any combination of these methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases willbe based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase programdoes 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 discretionwithout prior notice. Shares of stock repurchased under the program will be held as treasury shares.No shares were purchased pursuant to this authorization during the years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, approximately $82.4 million remainsavailable under this share repurchase authorization.10415. Income TaxesThe benefit (provision) for income taxes is comprised of the following (dollars in thousands): For the Years Ended December 31, 2015 2014 2013 Federal: Current $49 $1,367 $(312)Deferred 95,259 182,371 183 Total Federal 95,308 183,738 (129)State: Current (3,099) (2,433) (1,627)Deferred (included in Federal above) — — — Total State (3,099) (2,433) (1,627)Total $92,209 $181,305 $(1,756)A reconciliation of the benefit (provision) for income taxes to the amount computed at the U.S. Federal statutory rate of 35% is as follows (dollars in thousands): For the Years Ended December 31, 2015 2014 2013 Tax benefit at U.S. statutory rate $192,390 $115,603 $640 State taxes, net of federal income tax 18,323 11,582 (985)Tax credits 3,937 (2,222) 9,757 Valuation allowance (111,797) 64,155 (7,097)Goodwill impairment (7,856) — — Meals and entertainment (1,090) (946) (496)Other, net (1,626) (713) (1,007)Return to provision (72) 716 (2,568)Non-deductible transaction costs — (6,870) — Total $92,209 $181,305 $(1,756) Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows (dollars in thousands): 2015 2014 Deferred income tax assets: Capital and financing lease obligations $872,002 $945,000 Operating loss carryforwards 282,075 227,956 Accrued expenses 144,691 146,536 Deferred lease liability 94,105 77,790 Tax credits 40,974 34,860 Intangible assets 22,522 17,785 Deferred gain on sale leaseback 5,661 7,073 Prepaid revenue 2,415 5,835 Total gross deferred income tax asset 1,464,445 1,462,835 Valuation allowance (121,602) (9,213)Net deferred income tax assets 1,342,843 1,453,622 Deferred income tax liabilities: Property, plant and equipment (1,320,423) (1,556,603)Investment in unconsolidated ventures (88,798) (54,113)Other (2,673) (2,181)Total gross deferred income tax liability (1,411,894) (1,612,897)Net deferred tax liability $(69,051) $(159,275)105As of December 31, 2015 and 2014, the Company had federal net operating loss carryforwards of approximately $930.4 million and $745.1 million, respectively, which are available to offsetfuture taxable income through 2035. The Company determined that a valuation allowance was required due to the loss before income taxes in 2015, and in consideration of the Company'sestimated future reversal of existing timing differences as of December 31, 2015. In the fourth quarter of 2015, the Company recorded a provision of approximately $111.8 million to reflectthe necessary valuation allowance of $121.6 million as of December 31, 2015. The valuation allowance reflects that the Company's net operating losses will begin to expire in 2027.As a result of the acquisition of Emeritus on July 31, 2014, the Company recorded deferred tax liabilities in excess of deferred tax assets that reflect the difference between the fair marketvalue of the acquired assets over the historical basis of the acquired assets. During the year ended December 31, 2014, the Company determined that it was more likely than not that itsfederal net operating loss carryforwards and a majority of its state net operating loss carryforwards, and the majority of its tax credits will be utilized in the future, based on the futurereversal of these deferred tax liabilities. As a result, during the year ended December 31, 2014 the Company recorded an aggregate deferred federal, state and local income tax benefit of$64.2 million from the release of the valuation allowance against certain deferred tax assets. Additionally, the Company recorded an aggregate deferred federal, state and local tax benefitof $94.1 million as a result of the operating loss for the year ended December 31, 2014.The Company has recorded valuation allowances of $89.5 million and $7.5 million at December 31, 2015 and 2014, respectively, against its federal and state net operating losses, as theCompany anticipates these losses will not be utilized prior to expiration. The Company also recorded a valuation allowance against federal and state credits of $32.1 million and $1.8million as of December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, the Company had $126.7 million and $112.6 million, respectively, included in its net operatingloss carryforward relating to restricted stock grants. Under ASC 718-10, this loss will be recorded in additional paid-in capital in the period in which the loss is effectively used to reducetaxes payable.The formation of the Company, the reorganization of a predecessor company and the acquisitions of several wholly-owned subsidiaries constituted ownership changes under Section382 of the Internal Revenue Code, as amended. As a result, the Company's ability to utilize the net operating loss carryforward to offset future taxable income is subject to certainlimitations and restrictions. Furthermore, the Company had an ownership change under Section 382 in May 2010 which resulted in an additional annual limitation to the utilization of thenet operating loss in the amount of $92.8 million. The acquisition of Emeritus on July 31, 2014 resulted in an ownership change for Emeritus resulting in an annual limitation of $53.9million on net operating losses acquired by the Company from Emeritus. The Company expects the net operating losses of the Company from prior to May 2010 and of Emeritus to befully released before expiration and therefore does not anticipate a financial statement impact as a result of the limitations.At December 31, 2015, the Company had gross tax affected unrecognized tax benefits of $30.2 million, which, if recognized, would result in an income tax benefit in accordance with ASC805. Interest and penalties related to these tax positions are classified as tax expense in the Company's consolidated financial statements. Total interest and penalties reserved is $0.1million at December 31, 2015. Tax returns for years 2011 through 2014 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subjectto adjustment under examination. The Company does not expect that unrecognized tax benefits for tax positions taken with respect to 2015 and prior years will significantly change in2016.A reconciliation of the unrecognized tax benefits for the year 2015 is as follows (dollars in thousands):Balance at January 1, 2015 $30,195 Additions for tax positions related to the current year — Additions for tax positions related to prior years 50 Reductions for tax positions related to prior years (9)Balance at December 31, 2015 $30,236 On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. Thefinal regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property as well as dispositions of suchproperty and are generally effective for tax years beginning on or after January 1, 2015. The Company has evaluated these regulations and determined they will not have a material impacton the Company's consolidated results of operations, cash flows or financial position.10616. Supplemental Disclosure of Cash Flow Information(dollars in thousands) For the Years EndedDecember 31, Supplemental Disclosure of Cash Flow Information: 2015 2014 2013 Interest paid $360,960 $226,594 $123,036 Income taxes paid $2,952 $2,746 $2,283 Additions to property, plant and equipment and leasehold improvements Property, plant and equipment and leasehold intangibles, net $448,682 $304,245 $257,527 Accounts payable (37,631) — — Net cash paid $411,051 $304,245 $257,527 Acquisitions of assets, net of related payables and cash received, net: Cash and escrow deposits—restricted $— $— $466 Prepaid expenses and other assets, net (53,405) (3,138) 346 Property, plant and equipment and leasehold intangibles, net 198,558 80,330 99,657 Other intangible assets, net (7,294) (23,978) 3,517 Accrued expenses — — (5,169)Long-term debt (101,558) 7,795 (64,131)Capital and financing lease obligations 155,230 — — Other liabilities (315) (20,568) — Net cash paid $191,216 $40,441 $34,686 Proceeds from sale of assets, net: Prepaid expenses and other assets, net $25,780 $— $— Property, plant and equipment and leasehold intangibles, net (82,953) — — Capital and financing lease obligations 8,907 — — Other liabilities (960) — — Net cash received $(49,226) $— $— Formation of CCRC Venture: Property, plant and equipment and leasehold intangibles, net $— $(729,123) $— Investment in unconsolidated ventures — 194,485 — Other intangible assets, net — (56,829) — Other assets, net — (9,137) — Long-term debt — 170,416 — Capital and financing lease obligations — 27,085 — Refundable entrance fees and deferred revenue — 413,761 — Other liabilities — 1,514 — Net cash paid $— $12,172 $— Formation of HCP 49 Venture: Property, plant and equipment and leasehold intangibles, net $— $(525,446) $— Investment in unconsolidated ventures — 71,656 — Long-term debt — (67,640) — Capital and financing lease obligations — 538,355 — Other liabilities — (9,034) — Net cash paid $— $7,891 $— 107Supplemental Schedule of Non-cash Operating, Investing and Financing Activities: Capital and financing leases: Property, plant and equipment and leasehold intangibles, net $26,644 $27,100 $— Other intangible assets, net (5,202) — — Capital and financing lease obligations (23,738) (27,100) — Other liabilities 2,296 — — Net $— $— $— Master Lease amendment: Property, plant and equipment and leasehold intangibles, net $— $385,696 $— Other intangible assets, net — (174,012) — Capital and financing lease obligations — (217,022) — Other liabilities — 5,338 — Net $— $— $— Assets designated as held for sale: Property, plant and equipment and leasehold intangibles, net $(113,592) $— $— Assets held for sale 110,620 — — Goodwill (12,200) — — Asset impairment 15,172 — — Net $— $— $— Contribution to CCRC venture: Property, plant and equipment $(25,717) $— $— Investment in unconsolidated ventures 7,422 — — Long-term debt 18,295 — — Net $— $— $— 17. LitigationThe Company has been and is currently involved in litigation and claims incidental to the conduct of its business which are comparable to other companies in the senior living industry.Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. Similarly, the senior living industry is continuously subject to scrutinyby governmental regulators, which could result in litigation related to regulatory compliance matters. As a result, the Company maintains general liability and professional liabilityinsurance policies in amounts and with coverage and deductibles the Company believes are adequate, based on the nature and risks of its business, historical experience and industrystandards. The Company's current policies provide for deductibles for each claim. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductibleamounts.18. Segment InformationAs of December, 31, 2015 the Company has five reportable segments: Retirement Centers; Assisted Living; CCRCs – Rental; Brookdale Ancillary Services; and Management Services.Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financialinformation is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and makedecisions about resources to be allocated to the segment.Prior to August 29, 2014, the Company had an additional reportable segment, CCRCs - Entry Fee. On August 29, 2014, the Company contributed all but two of the legacy Brookdale entryfee CCRCs to the CCRC Venture, at which time the contributed CCRCs were deconsolidated. The results of the entry fee CCRCs contributed to the CCRC Venture are reported in theCCRCs - Entry Fee segment for the time periods prior to being contributed to the CCRC Venture. The results of the two legacy Brookdale CCRCs that were not contributed to the CCRCVenture are included in the CCRCs - Entry Fee segment for the six month period ended June 30, 2014 and the CCRCs - Rental segment for periods subsequent to June 30, 2014, based onhow operating results are being reviewed by the chief operating decision maker following the creation of the CCRC Venture. The CCRC Venture is accounted for under the equity methodof accounting. See Note 4 for more information about the Company's entry into the CCRC Venture.108During 2014, two communities were moved from the Retirement Centers segment to the Assisted Living segment and one community was moved from the Retirement Centers segment tothe CCRCs – Rental segment to more accurately reflect the underlying product offering of the communities. The movement did not change the Company's reportable segments, but it didimpact the revenues and expenses reported within the Retirement Centers, Assisted Living and CCRCs - Rental segments. Revenue and expenses for the year ended December 31, 2013have not been recast.Retirement Centers. The Company's Retirement Centers segment includes owned or leased communities that are primarily designed for middle to upper income seniors generally age 75and older who desire an upscale residential environment providing the highest quality of service. The majority of the Company's retirement center communities consist of bothindependent living and assisted living units in a single community, which allows residents to "age-in-place" by providing them with a continuum of senior independent and assistedliving services.Assisted Living. The Company's Assisted Living segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily life to mid-acuity frailand elderly residents. Assisted living communities include both freestanding, multi-story communities and freestanding single story communities. The Company also operates memorycare communities, which are freestanding assisted living communities specially designed for residents with Alzheimer's disease and other dementias.CCRCs - Rental. The Company's CCRCs - Rental segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate all levelsof 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, andsome also include memory care/Alzheimer's units. As of December 31, 2015 and 2014, the CCRCs - Rental segment also includes three entry fee CCRCs.CCRCs - Entry Fee. Prior to August 29, 2014, the Company had an additional reportable segment, CCRCs - Entry Fee. The communities in the Company's former CCRCs - Entry Feesegment are similar to rental CCRCs but allow for residents in the independent living apartment units to pay a one-time upfront entrance fee, which is partially refundable in certaincircumstances. In addition to the initial entrance fee, residents under all entrance fee agreements also pay a monthly service fee, which entitles them to the use of certain amenities andservices.Brookdale Ancillary Services. The Company's Brookdale Ancillary Services segment includes the outpatient therapy, home health and hospice services provided to residents of manyof the Company's communities, to other senior living communities that the Company does not own or operate and to seniors living outside of the Company's communities. TheBrookdale Ancillary Services segment does not include the therapy services provided in the Company's skilled nursing units, which are included in the Company's CCRCs - Rental andCCRCs - Entry Fee segments.Management Services. The Company's Management Services segment includes communities operated by the Company pursuant to management agreements. In some of the cases, thecontrolling 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 ownershipinterest. Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement ofexpenses 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 2.109The following table sets forth selected segment financial and operating data (dollars in thousands): For the Years Ended December 31, 2015 2014 2013 Revenue: Retirement Centers(1) $657,940 $582,312 $526,284 Assisted Living(1) 2,445,457 1,685,563 1,051,868 CCRCs - Rental(1) 604,572 493,173 396,975 CCRCs - Entry Fee(1) — 202,414 297,756 Brookdale Ancillary Services(1) 469,158 337,835 242,150 Management Services(2) 783,481 530,409 376,933 $4,960,608 $3,831,706 $2,891,966 Segment Operating Income(3): Retirement Centers $285,257 $248,883 $222,282 Assisted Living 877,303 608,489 389,678 CCRCs - Rental 150,495 121,661 109,026 CCRCs - Entry Fee — 48,433 76,393 Brookdale Ancillary Services 75,210 63,463 45,709 Management Services 60,183 42,239 31,125 1,448,448 1,133,168 874,213 General and administrative (including non-cash stock-based compensation expense) 370,579 280,267 180,627 Transaction costs 8,252 66,949 3,921 Facility lease expense: Retirement Centers 114,738 98,321 91,258 Assisted Living 197,452 162,575 123,980 CCRCs - Rental 47,937 51,523 48,809 CCRCs - Entry Fee — 4,362 7,470 Brookdale Ancillary Services — 890 — Corporate and Management Services 7,447 6,159 5,212 Depreciation and amortization: Retirement Centers 104,063 86,188 64,353 Assisted Living 489,933 317,918 85,337 CCRCs - Rental 87,754 60,175 30,957 CCRCs - Entry Fee — 37,524 55,842 Brookdale Ancillary Services 7,451 4,764 3,023 110Corporate and Management Services 43,964 30,466 29,245 Asset impairment 57,941 9,992 12,891 Loss on facility lease termination 76,143 — — (Loss) income from operations $(165,206) $(84,905) $131,288 Total interest expense: Retirement Centers $58,397 $41,906 $31,286 Assisted Living 250,116 140,001 51,410 CCRCs - Rental 39,502 28,418 17,512 CCRCs - Entry Fee — 7,530 11,911 Brookdale Ancillary Services 1,354 823 — Corporate and Management Services 39,395 29,510 25,280 $388,764 $248,188 $137,399 Total capital expenditures for property, plant and equipment, and leasehold intangibles: Retirement Centers $161,986 $76,285 $63,519 Assisted Living 220,893 107,037 95,829 CCRCs - Rental 54,864 42,412 27,134 CCRCs - Entry Fee — 36,575 43,019 Brookdale Ancillary Services 4,061 1,805 1,855 Corporate and Management Services 6,878 40,131 26,171 $448,682 $304,245 $257,527 As of December 31, 2015 2014 Total assets: Retirement Centers $1,556,169 $1,600,007 Assisted Living 6,354,415 6,577,821 CCRCs - Rental 1,037,384 1,027,854 Brookdale Ancillary Services 292,540 275,618 Corporate and Management Services 808,056 936,161 $10,048,564 $10,417,461 (1)All revenue is earned from external third parties in the United States.(2)Management services segment revenue includes reimbursements for which the Company is the primary obligor of costs incurred on behalf of managed communities.(3)Segment operating income is defined as segment revenues less segment operating expenses (excluding depreciation and amortization).11119. Quarterly Results of Operations (Unaudited)The following is a summary of quarterly results of operations for each of the fiscal quarters in 2015 and 2014 (in thousands, except per share amounts): For the Quarters Ended March 31,2015 June 30,2015 September 30,2015 December 31,2015 Revenues $1,247,881 $1,238,184 $1,238,841 $1,235,702 Asset impairment — — — 57,941 Income (loss) from operations (116,873) (43,123) 3,663 (8,873)Income (loss) before income taxes (208,997) (137,400) (99,132) (104,835)Net income (loss) (130,709) (84,807) (68,336) (174,303)Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders (130,451) (84,547) (68,220) (174,259)Weighted average basic and diluted income (loss) per share $(0.71) $(0.46) $(0.37) $(0.94) For the Quarters Ended March 31,2014 June 30,2014 September 30,2014 December 31,2014 Revenues $747,275 $748,393 $1,083,935 $1,252,103 Asset impairment — — — 9,992 Income (loss) from operations 32,148 30,657 (73,197) (74,513)Income (loss) before income taxes (1,293) (2,333) (153,109) (173,996)Net income (loss) (2,299) (3,295) (37,036) (106,796)Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders (2,299) (3,295) (36,862) (106,534)Weighted average basic and diluted income (loss) per share $(0.02) $(0.03) $(0.23) $(0.58) 112SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTSDecember 31, 2015(In thousands) Additions Description Balance atbeginning ofperiod Acquisition ofEmeritus Charged tocosts andexpenses Chargedto otheraccounts Deductions Balance atend ofperiod Allowance for Doubtful Accounts: Year ended December 31, 2013 $15,262 $— $21,048 $444 $(19,026) $17,728 Year ended December 31, 2014 $17,728 $11,087 $20,509 $771 $(23,594) $26,501 Year ended December 31, 2015 $26,501 $- $25,132 $2,135 $(27,298) $26,470 Deferred Tax Valuation Allowance: Year ended December 31, 2013 $65,269 $— $7,272(1) $(175)(2) $— $72,366 Year ended December 31, 2014 $72,366 $1,002 $— $— $(64,155)(3) $9,213 Year ended December 31, 2015 $9,213 $— $111,797(4) $592(4) $— $121,602 (1)Adjustment to valuation allowance for federal net operating losses and federal credits of $(4,851) and $12,123, respectively.(2)Adjustment to valuation allowance for state net operating losses of $(175).(3) Adjustment to reverse valuation allowance for federal and state net operating losses of $(64,155).(4) Adjustment to valuation allowance for federal and state net operating losses and federal credits of $81,968 and $30,421, respectively113Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A.Controls and Procedures.Evaluation of Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Our management,under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures.Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of December 31, 2015, our disclosure controls and procedures were effective.Management's Assessment of Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the supervision andwith the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control overfinancial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013framework). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to beeffective can only provide reasonable assurance with respect to financial statement preparation and presentation.Based on the Company's evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2015. Management reviewed the results oftheir assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Ernst & Young LLP, theindependent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report which is includedin Item 8 of this Annual Report on Form 10-K and incorporated herein by reference.Internal Control Over Financial ReportingThere has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarterended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Item 9B.Other Information.None.114PART IIIItem 10.Directors, Executive Officers and Corporate Governance.The information required by this item is incorporated by reference from the discussions under the headings "Proposal Number One - Election of Directors" and "Section 16(a) BeneficialOwnership Reporting Compliance" in our Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders. Pursuant to General Instruction G(3), certain information concerningour executive officers is contained in the discussion entitled "Executive Officers of the Registrant" appearing after Item 1 of Part I of this Annual Report on Form 10-K.We have adopted a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including our principal executive officer, our principal financial officer, ourprincipal accounting officer or controller, or persons performing similar functions, as well as a Code of Ethics for Chief Executive and Senior Financial Officers, which applies to our ChiefExecutive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer and Controller, both of which are available on our website at www.brookdale.com. Anyamendment to, or waiver from, a provision of such codes of ethics granted to a principal executive officer, principal financial officer, principal accounting officer or controller, or personperforming similar functions, or to any executive officer or director, will be posted on our website.115Item 11.Executive Compensation.The information required by this item is incorporated by reference from the discussions under the headings "Compensation of Directors" and "Compensation of Executive Officers" inour Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference from the discussion under the heading"Security Ownership of Certain Beneficial Owners and Management" in our Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders.The following table provides certain information as of December 31, 2015 with respect to our equity compensation plans (after giving effect to shares issued and/or vesting on suchdate):Equity Compensation Plan InformationPlan category Number of securitiesto be issued uponexercise of outstandingoptions, warrants andrights(a)(1) Weighted-averageexercise price ofoutstandingoptions, warrantsand rights(b) Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column (a))(c)(2)Equity compensation plans approved by securityholders — — 7,146,804Equity compensation plans not approved bysecurity holders(3) — — 81,069Total — — 7,227,873 (1)As of December 31, 2015, an aggregate of 1,830,075 shares of unvested restricted stock were outstanding under our 2014 Omnibus Incentive Plan, and an aggregate of 1,623,916shares of unvested restricted stock and 6,850 vested restricted stock units were outstanding under our Omnibus Stock Incentive Plan. Such shares of restricted stock andrestricted stock units are not reflected in the table above. Our 2014 Omnibus Incentive Plan allows awards to be made in the form of stock options, stock appreciation rights,restricted shares, restricted stock units, unrestricted shares, performance awards and other stock-based awards.(2)The number of shares remaining available for future issuance under equity compensation plans approved by security holders consists of 5,950,618 shares remaining available forfuture issuance under our 2014 Omnibus Incentive Plan and 1,196,186 shares remaining available for future issuance under our Associate Stock Purchase Plan.(3)Represents shares remaining available for future issuance under our Director Stock Purchase Plan. Under the existing compensation program for the members of our Board ofDirectors, each non-affiliated director has the opportunity to elect to receive either immediately vested shares or restricted stock units in lieu of up to 50% of his or her quarterlycash compensation. Any immediately vested shares that are elected to be received will be issued pursuant to the Director Stock Purchase Plan. Under the director compensationprogram, all cash amounts are payable quarterly in arrears, with payments to be made on April 1, July 1, October 1 and January 1. Any immediately vested shares that a directorelects to receive under the Director Stock Purchase Plan will be issued at the same time that cash payments are made. The number of shares to be issued will be based on theclosing price of our common stock on the date of issuance (i.e., April 1, July 1, October 1 and January 1), or if such date is not a trading date, on the previous trading day's closingprice. Fractional amounts will be paid in cash. The Board of Directors initially reserved 100,000 shares of our common stock for issuance under the Director Stock Purchase Plan.116.Item 13.Certain Relationships and Related Transactions, and Director Independence.The information required by this item is incorporated by reference from the discussions under the headings "Certain Relationships and Related Transactions" and "DirectorIndependence" in our Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders.Item 14.Principal Accounting Fees and Services.The information required by this item is incorporated by reference from the discussion under the heading "Proposal Number Two – Ratification of Appointment of Ernst & Young LLP asIndependent Registered Public Accounting Firm" in our Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders.117PART IVItem 15.Exhibits, Financial Statement Schedules.The following documents are filed as part of this report:1)Our Audited Consolidated Financial StatementsReport of the Independent Registered Public Accounting FirmReport of the Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2015 and 2014Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013Consolidated Statements of Equity for the Years Ended December 31, 2015, 2014 and 2013Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013Notes to Consolidated Financial StatementsSchedule II – Valuation and Qualifying Accounts2)Exhibits – See Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.118SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized. BROOKDALE SENIOR LIVING INC. By: /s/ T. Andrew Smith Name:T. Andrew Smith Title:Chief Executive Officer Date:February 12, 2016 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and onthe dates indicated. SignatureTitleDate /s/ Daniel A. DeckerNon-Executive Chairman of the BoardFebruary 12, 2016Daniel A. Decker /s/ T. Andrew SmithChief Executive Officer and DirectorFebruary 12, 2016T. Andrew Smith(Principal Executive Officer) /s/ Lucinda M. BaierChief Financial OfficerFebruary 12, 2016Lucinda M. Baier(Principal Financial Officer) /s/ Dawn L. KussowSenior Vice President and Chief Accounting OfficerFebruary 12, 2016Dawn L. Kussow(Principal Accounting Officer) /s/ Frank M. BumsteadDirectorFebruary 12, 2016Frank M. Bumstead /s/ Jackie M. CleggDirectorFebruary 12, 2016Jackie M. Clegg /s/ Jeffrey R. LeedsDirectorFebruary 12, 2016Jeffrey R. Leeds /s/ Mark J. ParrellDirectorFebruary 12, 2016Mark J. Parrell /s/ William G. Petty, Jr.DirectorFebruary 12, 2016William G. Petty, Jr. /s/ James R. SewardDirectorFebruary 12, 2016James R. Seward /s/ Lee S. WielanskyDirectorFebruary 12, 2016Lee S. Wielansky 119EXHIBIT INDEX Exhibit No. Description2.1 Agreement and Plan of Merger, dated as of February 20, 2014, by and among Brookdale Senior Living Inc. (the "Company"), Emeritus Corporation and BroadwayMerger Sub Corporation (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 21, 2014 (File No. 001-32641)).2.2 Master Contribution and Transactions Agreement, dated as of April 23, 2014, by and between the Company and HCP, Inc. (incorporated by reference to Exhibit 2.2 tothe Company's Quarterly Report on Form 10-Q filed on August 11, 2014 (File No. 001-32641)).3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed onFebruary 26, 2010 (File No. 001-32641)).3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated July 30, 2014 (incorporated by reference to Exhibit 3.1 to theCompany's Current Report on Form 8-K filed on August 5, 2014 (File No. 001-32641)).3.3 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on July 3, 2012 (File No.001-32641)).4.1 Form of Certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Amendment No. 3) filed onNovember 7, 2005 (File No. 333-127372)).4.2 Indenture, dated as of June 14, 2011, between the Company and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by reference to Exhibit 4.1 tothe Company's Current Report on Form 8-K filed on June 14, 2011 (File No. 001-32641)).4.3 Supplemental Indenture, dated as of June 14, 2011, between the Company and American Stock Transfer & Trust Company, LLC, as Trustee (incorporated by referenceto Exhibit 4.2 to the Company's Current Report on Form 8-K filed on June 14, 2011 (File No. 001-32641)).4.4 Form of 2.75% Convertible Senior Note due 2018 (included as part of Exhibit 4.3).10.1.1 Amended and Restated Master Lease and Security Agreement, dated as of August 29, 2014, by and between HCP, Inc. and the other lessors named therein, andEmeritus Corporation and the other lessees named therein (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed onNovember 10, 2014 (File No. 001-32641)).†10.1.2 First Amendment to Amended and Restated Master Lease and Security Agreement and Option Exercise Notice, dated as of December 29, 2014, by and between HCP,Inc. and the Company (incorporated by reference to Exhibit 10.1.2 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).†10.1.3 Second Amendment to Amended and Restated Master Lease and Security Agreement, dated as of January 1, 2015, by and among HCP, Inc. and the other lessorsnamed therein, Emeritus Corporation and the other lessees named therein, and the Company as guarantor (incorporated by reference to Exhibit 10.1.3 to the Company'sAnnual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).†10.1.4 Third Amendment to Amended and Restated Master Lease and Security Agreement, dated as of May 1, 2015, by and among HCP, Inc. and the other lessors namedtherein, Emeritus Corporation and the other lessees named therein, and the Company as guarantor (incorporated by reference to Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q filed on August 7, 2015 (File No. 001-32641)).10.2 Fourth Amended and Restated Credit Agreement, dated as of December 19, 2014, among certain subsidiaries of the Company, General Electric Capital Corporation, asadministrative agent, lender and swingline lender, and the other lenders from time to time parties thereto (incorporated by reference to Exhibit 10.1 to the Company'sCurrent Report on Form 8-K filed on December 23, 2014 (File No. 001-32641)).10.3 Master Credit Facility Agreement, dated as of July 29, 2011, by and among various subsidiaries of the Company and Oak Grove Commercial Mortgage, LLC(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 4, 2011 (File No. 001-32641)).10.4 Convertible Bond Hedge Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 8, 2011 (incorporated by reference to Exhibit10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).12010.5 Issuer Warrant Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 8, 2011 (incorporated by reference to Exhibit10.2 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.6 Convertible Bond Hedge Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 8, 2011(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.7 Issuer Warrant Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 8, 2011 (incorporated byreference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.8 Convertible Bond Hedge Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 8, 2011 (incorporated by reference toExhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.9 Issuer Warrant Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 8, 2011 (incorporated by reference to Exhibit10.6 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.10 Additional Convertible Bond Hedge Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 15, 2011 (incorporated byreference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.11 Additional Issuer Warrant Transaction Confirmation between the Company and Bank of America, N.A., dated as of June 15, 2011 (incorporated by referenceto Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.12 Additional Convertible Bond Hedge Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 15,2011 (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.13 Additional Issuer Warrant Transaction Confirmation between the Company and JPMorgan Chase Bank, National Association, dated as of June 15, 2011(incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.14 Additional Convertible Bond Hedge Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 15, 2011 (incorporated byreference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.15 Additional Issuer Warrant Transaction Confirmation between the Company and Royal Bank of Canada, dated as of June 15, 2011 (incorporated by referenceto Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2011 (File No. 001-32641)).10.16.1 Brookdale Senior Living Inc. Omnibus Stock Incentive Plan, as amended and restated effective June 23, 2009 (incorporated by reference to Exhibit 10.1 to theCompany's Current Report on Form 8-K filed on June 23, 2009 (File No. 001-32641)) (the "Omnibus Stock Incentive Plan").*10.16.2 First Amendment to the Omnibus Stock Incentive Plan effective as of October 30, 2009 (incorporated by reference to Exhibit 10.1 to the Company's QuarterlyReport on Form 10-Q filed on November 4, 2009 (File No. 001-32641)).*10.17 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (Time-Vesting Form for Executive Committee Members) (incorporated byreference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*10.18 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (Time-Vesting Form for Executive Vice Presidents) (incorporated by referenceto Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*12110.19 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2011 Performance-Vesting Form for Executive Committee Members)(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*10.20 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2011 Performance-Vesting Form for Executive Vice Presidents) (incorporatedby reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on November 9, 2011 (File No. 001-32641)).*10.21 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Time-Vesting Form for Executive Committee Members) (incorporated byreference to Exhibit 10.39 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*10.22 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Time-Vesting Form for Executive Vice Presidents) (incorporated byreference to Exhibit 10.40 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*10.23 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Performance-Vesting Form for Executive Committee Members)(incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*10.24 Form of Restricted Share Agreement under the Omnibus Stock Incentive Plan (2013 Performance-Vesting Form for Executive Vice Presidents) (incorporatedby reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K filed on February 19, 2013 (File No. 001-32641)).*10.25 Brookdale Senior Living Inc. 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed onJuly 8, 2014 (File No. 001-32641)) (the "Omnibus Incentive Plan").*10.26 Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for Executive Committee Members) (incorporated by reference toExhibit 10.26 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*10.27 Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for Executive Vice Presidents) (incorporated by reference toExhibit 10.27 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*10.28 Form of Restricted Share Agreement under the Omnibus Incentive Plan (Performance-Vesting Form for Executive Committee Members) (incorporated byreference to Exhibit 10.28 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*10.29 Form of Restricted Share Agreement under the Omnibus Incentive Plan (Performance-Vesting Form for Executive Vice Presidents) (incorporated by referenceto Exhibit 10.29 to the Company's Annual Report on Form 10-K filed on February 25, 2015 (File No. 001-32641)).*10.30 Form of Restricted Share Agreement under the Omnibus Incentive Plan (Time-Vesting Form for New Directors) (incorporated by reference to Exhibit 10.5 tothe Company's Quarterly Report on Form 10-Q filed on May 11, 2015 (File No. 001-32641)).*10.31 Restricted Share Agreement under the Omnibus Incentive Plan, dated as of October 1, 2015, by and between the Company and Daniel A. Decker.*10.32.1 Brookdale Senior Living Inc. Associate Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filedon June 11, 2008 (File No. 001-32641)) (the "Associate Stock Purchase Plan").*10.32.2 First Amendment to Associate Stock Purchase Plan, effective as of December 12, 2013 (incorporated by reference to Exhibit 10.1 to the Company's CurrentReport on Form 8-K filed on December 18, 2013 (File No. 001-32641)).*12210.33.1 Form of Severance Letter and Brookdale Senior Living Inc. Severance Pay Policy, Tier I (incorporated by reference to Exhibit 10.2 to the Company's QuarterlyReport on Form 10-Q filed on August 6, 2010 (File No. 001-32641)).*10.33.2 Amendment No. 1 to Severance Pay Policy, Tier I, adopted by the Company on April 23, 2015 (incorporated by reference to Exhibit 10.3 to the Company'sCurrent Report on Form 8-K filed on April 27, 2015 (File No. 001-32641)).*10.33.3 Amendment No. 2 to Severance Pay Policy, Tier I, adopted by the Company on August 3, 2015 (incorporated by reference to Exhibit 10.5 to the Company'sQuarterly Report on Form 10-Q filed on August 7, 2015 (File No. 001-32641)).*10.34.1 Employment Agreement, dated as of February 11, 2013, by and between the Company and T. Andrew Smith (incorporated by reference to Exhibit 10.1 to theCompany's Current Report on Form 8-K filed on February 12, 2013 (File No. 001-32641)).*10.34.2 Amendment No. 1 to Employment Agreement dated as of April 23, 2015 by and between the Company and T. Andrew Smith (incorporated by reference toExhibit 10.2 to the Company's Current Report on Form 8-K filed on April 27, 2015 (File No. 001-32641)).*10.35 Restricted Share Agreement (Time-Vesting) under the Omnibus Stock Incentive Plan, dated as of February 11, 2013, by and between the Company and T.Andrew Smith (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 12, 2013 (File No. 001-32641)).*10.36 Restricted Share Agreement (Performance-Vesting) under the Omnibus Stock Incentive Plan, dated as of February 11, 2013, by and between the Companyand T. Andrew Smith (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on February 12, 2013 (File No. 001-32641)).*10.37 Restricted Share Agreement under the Omnibus Incentive Plan, dated as of February 5, 2015, by and between the Company and T. Andrew Smith (2-YearPerformance-Vesting) (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2015 (File No. 001-32641)).*10.38 Restricted Share Agreement under the Omnibus Incentive Plan, dated as of February 5, 2015, by and between the Company and T. Andrew Smith (3-YearCliff Vesting) (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed on May 11, 2015 (File No. 001-32641)).*10.39 Offer Letter Agreement by and between the Company and Labeed Diab.*10.40 Offer Letter Agreement by and between the Company and Lucinda Baier.*10.41 Severance Letter Agreement dated November 16, 2015, by and between the Company and Mary Sue Patchett.*10.42 Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-Kfiled on February 28, 2011 (File No. 001-32641)).*12310.43 Summary of Brookdale Senior Living Inc. Director Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the Company's Registration Statementon Form S-8 filed on June 30, 2009 (File No. 333-160354)).*10.44 Form of Outside Director Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filedon August 9, 2012 (File No. 001-32641)).*10.45 Letter Agreement, dated as of May 22, 2014, by and between the Company and Granger Cobb (incorporated by reference to Exhibit 10.3 to the Company'sQuarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-32641)).*10.46 Restricted Share Agreement under the Omnibus Incentive Plan, dated as of July 31, 2014, by and between the Company and Granger Cobb (incorporated byreference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-32641)).*10.47 Agreement dated as of April 23, 2015, by and among the Company and Sandell Asset Management Corp. and the other entities listed on Schedule A thereto(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 27, 2015 (File No. 001-32641)).21 Subsidiaries of the Registrant.23 Consent of Ernst & Young LLP.31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS XBRL Instance Document.101.SCH XBRL Taxonomy Extension Schema Document.101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF XBRL Taxonomy Extension Definition Linkbase Document.101.LAB XBRL Taxonomy Extension Label Linkbase Document.101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.*Management Contract or Compensatory Plan†Portions of this exhibit have been omitted pursuant to a request for confidential treatment, which has been granted by the SEC.124EXHIBIT 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, T. Andrew Smith, certify that:1.I have reviewed this Annual Report on Form 10-K of Brookdale Senior Living Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which thisreport is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosurecontrols and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant'sfourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financialreporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and theaudit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect theregistrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date: February 12, 2016 /s/ T. Andrew Smith T. Andrew Smith Chief Executive OfficerEXHIBIT 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Lucinda M. Baier, certify that:1.I have reviewed this Annual Report on Form 10-K of Brookdale Senior Living Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which thisreport is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosurecontrols and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant'sfourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financialreporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and theaudit committee of the registrant's board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect theregistrant's ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date: February 12, 2016 /s/ Lucinda M. Baier Lucinda M. Baier Chief Financial OfficerEXHIBIT 32CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIALOFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTEDPURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of Brookdale Senior Living Inc. (the "Company") for the fiscal year ended December 31, 2015, as filed with the Securities andExchange Commission on the date hereof (the "Report"), T. Andrew Smith, as Chief Executive Officer of the Company, and Lucinda M. Baier, as Chief Financial Officer of the Company,each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company./s/ T. Andrew Smith Name:T. Andrew Smith Title:Chief Executive Officer Date:February 12, 2016 /s/ Lucinda M. Baier Name:Lucinda M. Baier Title:Chief Financial Officer Date:February 12, 2016 BOARD OF DIRECTORS Daniel A. Decker, Non-Executive Chairman of the Board 3 President and Owner, CoastWood Senior Housing Partners, LLC Frank M. Bumstead, Director 2, 4 Chairman and Principal Shareholder, Flood, Bumstead, McCready & McCarthy, Inc. The Honorable Jackie M. Clegg, Director 1, 2, 4 Managing Partner, Clegg International Consultants, LLC Jeffrey R. Leeds, Director 1, 2, 4 Former Chief Financial Officer, GreenPoint Financial Corporation Mark J. Parrell, Director 1, 3 Executive Vice President and Chief Financial Officer, Equity Residential EXECUTIVE OFFICERS T. Andrew Smith President and Chief Executive Officer Labeed S. Diab Chief Operating Officer Lucinda M. Baier Chief Financial Officer Bryan D. Richardson Executive Vice President and Chief Administrative Officer CORPORATE DATA Corporate Office 111 Westwood Place Brentwood, TN 37027 615.221.2250 www.brookdale.com Transfer Agent American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 800.937.5449 Stock Listing NYSE: BKD Investor Relations Contact Ross Roadman Brookdale Senior Living 111 Westwood Place Brentwood, TN 37027 615.564.8104 William G. Petty, Jr., Director 3, 4 Partner, Beecken Petty O’Keefe & Company James R. Seward, Director 1, 3 Private Investor T. Andrew Smith, Director President and Chief Executive Officer, Brookdale Senior Living Inc. Lee S. Wielansky, Director 2, 3 Chairman and CEO, Midland Development Group, Inc. (1) Audit Committee (2) Compensation Committee (3) Investment Committee (4) Nominating and Corporate Governance Committee Glenn O. Maul Executive Vice President and Chief People Officer Mary Sue Patchett Executive Vice President – Community and Field Operations George T. Hicks Executive Vice President – Finance and Treasurer H. Todd Kaestner Executive Vice President – Corporate Development Independent Auditors Ernst & Young LLP 155 N. Wacker Drive Chicago, IL 60606 2016 Annual Meeting June 13, 2016 • 10:00 a.m. CDT Brookdale Senior Living 111 Westwood Place Brentwood, TN 37027 615.221.2250 Governance Brookdale’s corporate governance guidelines, code of business conduct and ethics, the charters of the principal board committees and other governance information can be accessed through the Investor Relations portion of our website, www.brookdale.com. 383 registered record holders as of March 31, 2016 Elizabeth is a full-time associate at a Brookdale community, serving as a program coordinator with our Alzheimer’s and Dementia Care residents. She is one of a number of Brookdale associates featured in our national television commercials, which can be viewed at brookdale.com. Bringing New Life to Senior Living™ Corporate Headquarters 111 Westwood Place Brentwood, TN 37027 (615) 221-2250 For more information, visit our website: brookdale.com ©2016 Brookdale Senior Living Inc. All rights reserved. BROOKDALE, BRINGING NEW LIFE TO SENIOR LIVING and other trademarks and service marks herein are the registered and unregistered trademarks and service marks of Brookdale Senior Living Inc. B M L - L P S - 6 1 4 0 - 5 9 P - P R O C W K

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