Certain statements in this Annual Report ~~on Form 10-K~~ and other information we provide from time to time (including statements with respect to the Merger (as defined herein)) may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements 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 initiatives and growth strategies and our expectations regarding their effect on our results; our expectations regarding the economy, the senior living industry, occupancy, revenue, cash flow, operating income, expenses, capital expenditures, Program Max opportunities, cost savings, the demand for senior housing, the home resale market, expansion, development and construction activity, acquisition opportunities, asset dispositions, our share repurchase program, capital deployment, returns on invested capital and taxes; our expectations regarding returns to shareholders and our growth prospects; our expectations concerning the future performance of recently acquired communities and 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 compliance with all of our debt and lease agreements (including the financial covenants contained therein); our expectations regarding liquidity and leverage; our expectations regarding financings and refinancings of assets (including the timing thereof) and their effect on our results; our expectations regarding changes in government reimbursement programs and their effect on our results; our plans to generate growth organically through occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering of ancillary services (therapy, home health and hospice); our plans to expand, renovate, redevelop and reposition existing communities; our plans to acquire additional communities, asset portfolios, operating companies and home health agencies; the expected project costs for our expansion, redevelopment and repositioning program; our expected levels of expenditures and reimbursements (and the timing thereof); our expectations regarding our sales, marketing and branding initiatives and their impact on our results; our expectations for the performance of our entrance fee communities; our ability to anticipate, manage and address industry trends and their effect on our business; our expectations regarding the payment of dividends; and our ability to increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income (as such terms are defined herein). Words such as ~~"anticipate(s)"~~“anticipate(s)”, ~~"expect(s)"~~“expect(s)”, ~~"intend(s)"~~“intend(s)”, ~~"plan(s)"~~“plan(s)”, ~~"target(s)"~~“target(s)”, ~~"project(s)"~~“project(s)”, ~~"predict(s)"~~“predict(s)”, ~~"believe(s)"~~“believe(s)”, ~~"may"~~“may”, ~~"will"~~“will”, ~~"would"~~“would”, ~~"could"~~“could”, ~~"should"~~“should”, ~~"seek(s)"~~“seek(s)”, ~~"estimate(s)"~~“estimate(s)” and similar expressions are intended to identify such forward-looking statements. These statements are based on ~~management's~~management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to, the risk associated with the current global economic situation and its impact upon capital markets and liquidity; changes in governmental

reimbursement programs; our inability to extend (or refinance) debt (including our credit and letter of credit facilities) 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 to generate 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 risk of 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 credit spreads, 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 ability to 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 may not be able to expand, redevelop and reposition our communities in accordance with our plans; our ability to complete acquisitions and integrate them into our operations; competition for the acquisition of assets; our ability to obtain additional capital on terms acceptable to us; a decrease in the overall demand for senior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces we lease; early terminations or non-renewal of management agreements; increased competition for skilled personnel; increased union activity; departure of our key officers; increases in market interest rates; environmental contamination at any of our facilities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; risks relating to the Merger, including in respect of the satisfaction of closing conditions to the Merger; unanticipated difficulties and/or expenditures relating to the Merger; the risk that regulatory approvals required for the Merger are not obtained or are obtained subject to conditions that are not anticipated; uncertainties as to the timing of the Merger; litigation relating to the Merger; the impact of the transaction on relationships with residents,

employees and third parties; and the inability to obtain, or delays in obtaining cost savings and synergies from the Merger; as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, press releases and other communications, including those set forth under ~~"Risk Factors"~~“Risk Factors” included elsewhere in this Annual ~~Report on Form 10-K.~~Report. Such forward-looking statements speak only as of the date of this Annual Report. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

~~On February 20, 2014, we entered into an Agreement~~

Management’s Assessment of Internal Control over Financial Reporting

Our management is responsible for establishing and Plan of Merger (the "Merger Agreement") with Emeritus Corporation, a Washington corporation ("Emeritus"), and Broadway Merger Sub Corporation, a Delaware corporation and our wholly owned subsidiary ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Emeritus (the "Merger"), with Emeritus continuing as the surviving corporation and our wholly owned subsidiary.

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of common stock, par value $0.0001 per share ("Emeritus Common Stock"), of Emeritus (including each restricted share of Emeritus Common Stock, but not including any shares (x) held by us or Emeritus or any of our or their wholly owned subsidiaries and (y) with respect to which appraisal rights are properly demanded and not withdrawn under Washington law ("Dissenting Shares")), will be automatically converted into the right to receive 0.95 of a share (the "Exchange Ratio") of our common stock.

The Merger Agreement provides that each option to purchase Emeritus Common Stock, whether vested or unvested (an "Emeritus Option"), will be canceled at the effective time of the Merger. Any Emeritus Option with an exercise price that is less than the implied dollar value of the per share consideration to be received in the Merger (valuing our common stock at its volume weighted average pricemaintaining adequate internal control over the 10 trading days preceding the consummation of the Merger) will be converted into the right to receive a number of shares of our common stock (net of any required withholding taxes) equal to the product of (x) the number of shares of Emeritus Common Stock subject to the Emeritus Option multiplied by (y) the excess of the implied dollar value of the per share consideration (based on the volume weighted average described above) over the exercise price of the Emeritus Option. Any Emeritus Option with an exercise price that is equal to or greater than the implied dollar value of the per share consideration to be received in the Merger as described above will be canceled without the payment of any consideration.

The Merger Agreement contains certain customary representations and warranties made by each party that are qualified by the confidential disclosures provided to the other party in connection with the Merger Agreement, as well as matters included in our and Emeritus' reports filed with the Securities and Exchange Commission prior to the date of the Merger Agreement. We and Emeritus have agreed to various customary covenants and agreements, including covenants regarding the conduct of our and their businesses prior to the closing of the Merger (the "Closing"), and covenants prohibiting each of us and Emeritus from soliciting alternative acquisition proposals and providing information to or engaging in discussions with third-parties, except in limited circumstances as provided in the Merger Agreement. In addition, the parties have agreed to use their respective reasonable best efforts to do all things necessary, proper or advisable to consummate the Merger, including obtaining all necessary approvals and consents, subject to certain limitations. In connection with the Merger, we will also seek stockholder approval to amend our certificate of incorporation to increase the number of authorized shares of our common stock from 200,000,000 to 500,000,000.

The Closing is subject to satisfaction or waiver of certain conditions, including, among others: (i) the approval of our and Emeritus' stockholders; (ii) the absence of any law or order prohibiting the Closing; (iii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) the receipt of certain federal and state government approvals necessary for the ownership, operation and management of Emeritus' senior living facilities and expiration of notice periods for the same, subject to certain exceptions; (v) the continuing effectiveness or receipt, as applicable, of certain third-party consents, subject to certain exceptions; (vi) the accuracy of each party's representations and warranties, subject to certain materiality

qualifiers; (vii) the performance in all material respects of each party's obligations under the Merger Agreement; (viii) no more than 7.5% of the shares of Emeritus Common Stock being Dissenting Shares; and (ix) the absence of any change, event or development that would reasonably be expected to have either a Parent Material Adverse Effect or a Company Material Adverse Effect (eachfinancial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the ~~Merger Agreement).~~

~~The Merger Agreement may be terminated by either party under certain circumstances, including, among others: (i) if~~effectiveness of our internal control over financial reporting based on the ~~Closing has not occurred~~framework in Internal Control — Integrated Framework issued by the ~~nine-month anniversary~~Committee of Sponsoring Organizations of the Merger Agreement (subject to extension for up to 60 days if certain required regulatory approvals have not yet been obtained); (ii) if a court or other governmental entity has issued a final and non-appealable order prohibiting the Closing; (iii) if our or Emeritus' stockholders fail to approve the transaction; (iv) upon a material uncured breach by the other party that would result in a failure of the conditions to the Closing; or (v) if the other party's board of directors makes an Adverse Recommendation Change (as defined in the Merger Agreement), or fails to reaffirm its recommendation following receipt of an acquisition proposal. In addition, prior to obtaining its stockholder approval and subject to the payment of a termination fee, we and Emeritus each may terminate the Merger Agreement in order to enter into an agreement for a Superior Proposal (as defined in the Merger Agreement). Upon termination of the Merger Agreement, under specified circumstances (including in connection with a Superior Proposal), we will be obligated to pay a termination fee of $143 million to Emeritus and Emeritus will be required to pay a termination fee of $53 million to us. If the Merger Agreement is terminated because a party's stockholders do not approve the transaction, such party will be obligated to pay the other party $13.5 million (which amount is intended as compensation for transaction expenses).

~~We and Emeritus have agreed to take all action necessary to provide~~Treadway Commission. Based on this evaluation, management concluded that our ~~board~~internal control over financial reporting was effective as of ~~directors appoints one individual serving on~~December 31, 2013. Management reviewed the ~~Emeritus board~~results of ~~directors to~~their assessment with our board of directors at the Closing (subject to the approval of such nominee by our board's Nominating and Corporate Governance Committee). In connection with the foregoing, it is anticipated that Granger Cobb, President and Chief Executive Officer of Emeritus, will be joining our board of directors following the Closing. In addition, Mr. Cobb will provide consulting services to us following the Closing.

In connection with the execution of the Merger Agreement, we concurrently entered into a voting agreement (the "Voting Agreement") with certain stockholders of Emeritus (the "Emeritus Stockholders") providing for, among other things, the Emeritus Stockholders' agreement to vote all of the shares of Emeritus Common Stock held by them in favor of the transactions contemplated by the Merger Agreement.Audit Committee. The Voting Agreement terminates on the earliest of (i) the date the Merger Agreement is terminated in accordance with its terms, (ii) the effective time of the Merger and (iii) the termination of the Voting Agreement by the mutual written consent of us and the Stockholders. In addition, certain Stockholders have agreed to certain limitations on their ability to sell shareseffectiveness of our ~~common stock received by them in the Merger for a specified period following the effective time of the Merger.~~

In connection with the execution of the Merger Agreement, we concurrently entered into a letter agreement (the "Letter Agreement") with certain of our stockholders that are affiliates of certain funds managed by affiliates of Fortress Investment Group LLC (the "Fortress Stockholders") that are party to that certain Stockholders Agreement, datedinternal control over financial reporting as of November 28, 2005, by and among us and the stockholders named therein (as amended, the "Fortress Stockholders Agreement"), providing for, among other things, the Fortress Stockholders' agreement to vote all of the shares of our common stock to the extent held by them as of the applicable record date for our special meeting in favor of the transactions contemplated by the Merger Agreement. Pursuant to the terms and subject to the conditions set forth in the Letter Agreement, we have agreed, among other things, (i) following the filing of our Registration Statement on Form S-4 (the "Form S-4") and prior to the Closing, not to exercise our right under the Fortress Stockholders Agreement to suspend the Fortress Stockholders' use of the prospectus under our Registration Statement on Form S-3 (the "Form S-3"); (ii) from the date of the Merger Agreement until the expiration of a period of thirty consecutive days following the filing of the Form S-4 during which the financial information set forth in the Form S-4 and Form S-3 is not "stale" (such period, the "Restricted Period"), not to issue any equity securities, subject to certain exceptions; and (iii) during the thirty day period following any sale by the Fortress Stockholders of at least 5,000,000 shares of our common stock during the Restricted Period, not to issue any equity securities, subject to certain exceptions. The Letter Agreement also provides that the Fortress Stockholders will cause the resignation of their designees to our board of directors upon any decrease of their ownership of our common stock below certain agreed thresholds.

The foregoing description of the Merger Agreement, the Voting Agreement and the Letter Agreement and the transactions contemplated thereby do not purport to be complete and are subject to and qualified in their entirety by reference to the full text of the Merger Agreement, Voting Agreement and Letter Agreement, each of which is

included as an exhibit to this Form 10-K, which can found in our Securities and Exchange Commission filings at www.sec.gov. The foregoing information about the Merger Agreement, the Voting Agreement and the Letter Agreement and the actions and conditions contemplated thereby is stated as of the date on which this Form 10-K is filed. We undertake no obligation to correct or update any information after the date hereof.

The Merger Agreement has been filed as an exhibit to this Form 10-K to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about us, Emeritus or any of our or their subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made by the parties thereto only for purposes of that agreement and as of specific dates; were made solely for the benefit of the parties to the Merger Agreement; may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Merger Agreement (such disclosures include information that has been included in our public disclosures, as well as additional non-public information); may have been made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of us or Emeritus or any of our or their subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other terms of the Merger Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in our or Emeritus' public disclosures.

As of December 31, 2013 we are the largest operator of senior living communities in the United States based on total capacity, with 649 communities in 36 states and the ability to serve approximately 67,000 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, 2013, we operated in six business segments: retirement centers, assisted living, continuing care retirement communities ("CCRCs") – rental, CCRCs – entry fee, Brookdale Ancillary Services (formerly known as Innovative Senior Care) and management services.

As of December 31, 2013, we operated 76 retirement center communities with 14,549 units, 438 assisted living communities with 22,176 units, 26 rental CCRC communities with 6,504 units, 14 entry fee CCRC communities with 5,873 units and 95 communities with 17,422 units where we provide management services for third parties or joint ventures in which we have an ownership interest. We offer therapy services to approximately 52,000 of our units and home health services to approximately 47,000 of our units. The majority of our units are located in campus settings or communities containing multiple services, including CCRCs. For the year ended December 31, 2013, the weighted average occupancy rate for our owned/leased communities was 88.7%. We generate approximately 80.0% of our resident fee revenues from private pay customers. For the year ended December 31, 2013, 42.2% of our resident and management fee revenues were generated from owned communities, 47.1% from leased communities, 9.5% from our Brookdale Ancillary Services business and 1.2% from management fees from communities we operate on behalf of third parties or joint ventures.

~~The table below presents a summary of our operating results and certain other financial metrics for each of the years ended December 31, 2013, 2012 and 2011 (dollars in millions):~~

Our operating results for the year ended December 31, 2013 were favorably impacted by an increase in the average monthly revenue per unit compared to the prior year, a 70 basis points increase in average occupancy and an increase in revenues from our ancillary services programs. The increases in occupancy rates were a result of improving fundamentals, execution by our field organization and sales and marketing team and the benefit of the capital we have invested and continue to spend on our communities.

During 2013, we increased our owned property portfolio by acquiring the underlying real estate associated with eight Assisted Living communities with a total of approximately 633 units for an aggregate purchase price of $83.3 million. Six of the communities had previously been managed by us since the acquisition of Horizon Bay in September 2011. During the period, we also acquired two home health agencies and one hospice agency for an aggregate purchase price of approximately $2.6 million.

During the year, we also made additional progress on our Program Max initiative. For the year ended December 31, 2013, we invested $31.8 million on the expansion, redevelopment and repositioning of our existing communities, net of third party lender or lessor reimbursement. We have completed 15 Program Max projects in 2013, which have resulted in 164 net new units. We currently have 25 additional Program Max projects that have been approved, most of which have begun construction.

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

We believe that there are substantial organic growth opportunities inherent in our existing portfolio. We intend to take advantage of those opportunities by growing revenues, while maintaining expense control, at our existing communities, continuing the expansion and maturation of our ancillary services programs, expanding, redeveloping and repositioning our existing communities, and acquiring additional operating companies and communities.

Our 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 these objectives include:

The senior living industry has undergone dramatic growth in the last twenty years, marked by the emergence of the assisted living segment in the mid-1990's. The industry is highly fragmented 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 service level offerings at varying price levels.

Beginning in 2007, the industry was affected by the downturn the general economy, increased unemployment and a downturn in the housing market. In spite of these factors, industry occupancy 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 near halt 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 Center for the Seniors Housing & Care Industry ("NIC"). Over the past year, 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 age 75 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 breakthroughs over the past 30 years, seniors have been 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~~audited by several other trends. Increased longevity results in increasing frailty in seniors, soaring rates of dementia 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 increased number 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 awareness among 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, the current 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, social security, along with a strong asset base, particularly now that the national housing markets have rebounded.

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. The regulatory 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, 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 in the allowable method for delivering therapy services to skilled nursing patients (resulting in increased therapy labor expense). In addition, certain per person annual limits on Medicare reimbursement for therapy services became effective in 2006, subject to certain exceptions. These exceptions are currently scheduled to expire on March 31, 2014. If these exceptions are 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 pre-payment manual medical review process. The review process has had an adverse effect on the provision and billing of services for patients and could negatively impact therapist productivity. These new 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.~~

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 providers in the future. For example, based on current federal law, an automatic 2% reduction in Medicare spending was imposed beginning on March 1, 2013. In 2012 we saw a rate reduction on multiple procedure payments ("MPPR") which was further increased effective April 1, 2013. In addition, payments for our outpatient therapy services are tied to Medicare's physician payment fee schedule. By statute, the physician fee schedule is subject to annual automatic adjustment by a sustainable growth rate ("SGR") formula that has resulted in reductions in reimbursement rates every year since 2002. However, in each case, Congress has acted to suspend or postpone the effect of these automatic reimbursement reductions. If Congress does not extend this relief, as it has done since 2002, or permanently modify the SGR formula by April 1, 2014, payment levels for outpatient therapy services under the physician fee schedule will be reduced at that point by approximately 25%. We cannot predict what action, if any, Congress will take on the physician fee schedule or what future rule changes the Centers for Medicare and Medicaid Services ("CMS") will implement. Changes in the reimbursement policies of the Medicare program could have an adverse effect on our results of operations and cash flow.

We 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) and Alterra Healthcare Corporation ("Alterra"). BLC and Alterra had been operating independently since 1986 and 1981, respectively. On November 22, 2005, we completed our initial public offering of common stock, and on July 25, 2006, we acquired American Retirement Corporation ("ARC"), another leading senior living provider which had been operating independently since 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.

We offer a variety of senior living housing and service alternatives in communities located across the United States. Our primary product offerings consist of (i) retirement center communities; (ii) assisted living communities; (iii) CCRCs – rental; (iv) CCRCs – entry fee; (v) Brookdale Ancillary Services; and (vi) management services.

~~Retirement Centers.~~ Our retirement center communities are primarily designed for middle to upper income seniors generally age 75 and older who desire an upscale residential environment providing the highest quality of service.

The majority of our retirement center communities consist of both independent and assisted living units in a single community, which allows residents to "age-in-place" by providing them with a continuum of senior independent and assisted living services. While the number varies depending upon the particular community, approximately 76.1% 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 191 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 and recreational activities. Most of these communities also offer custom tailored supplemental care services at an additional charge, which may include medication reminders, check-in services 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 with ADLs. The levels of care provided to residents vary from community to community depending, among other things, upon the licensing requirements and healthcare regulations of the state 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 including skilled 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 a more 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 of communities, and separate assisted living dining rooms and activity areas.

~~The communities in our Retirement Centers segment represent approximately 21.9% of our total 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 both freestanding, multi-story communities with more than 50 beds and smaller, freestanding single story communities with less than 50 beds. Depending upon the specific location, the community 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 a single-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.

Under our Clare Bridge brand, we also operate 87 memory care communities, which are freestanding assisted living communities specially designed for residents with Alzheimer's disease and other dementias requiring the attention, personal care and services needed to help cognitively impaired residents maintain a higher quality of life. Our memory care communities have from 19 to 69 beds and some are 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, coordination of special diets planned by a registered dietitian, assistance with coordination of physician care, social and recreational activities, housekeeping and personal laundry services. In some locations 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, we offer 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 other dementia 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 pay higher monthly service fees. Specialized services include assistance with ADLs, behavior management and an activities program, the goal of which is to provide a normalized environment 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.

~~The communities in our Assisted Living segment (including our memory care communities) represent approximately 33.3% of our total senior living capacity.~~

~~CCRCs - Rental.~~ 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 have independent living, assisted living and skilled nursing available on one campus or within the immediate market, and some also include memory care/Alzheimer's service areas.

~~The communities in our CCRCs – Rental segment represent approximately 9.8% of our total senior living capacity.~~

~~CCRCs – Entry Fee. The communities in our CCRCs – Entry Fee segment are similar to those in our CCRCs – Rental segment but allow for residents in~~Ernst & Young LLP, the independent living apartment units to pay a one-time upfront entrance fee, typically $100,000 to $400,000 or more, which is partially refundable in certain circumstances. The amount of the entrance fee varies depending upon the type and size of the dwelling unit, the type of contract plan selected, whether the contract contains a lifecare benefit (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 we receive entrance fees upon initial occupancy, the monthly fees are generally less than fees at a comparable rental community. Eleven of our communitiesregistered public accounting firm that ~~we own or lease are entry fee communities.~~

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 the unit, 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 a refund of the original entrance fee paid plus a percentage of the appreciation of the unit upon resale.

The communities in our CCRCs – Entry Fee segment represent approximately 8.8% of our total senior living capacity. The independent living units at our entrance fee communities (those units on which entry fees are paid) represent 4.9% of our total senior living capacity. Excluding managed communities and equity homes (which are residences located on certain of our CCRC campuses that we do not generally own), entrance fee communities represent 12.1% of our total senior living capacity.

~~Brookdale Ancillary Services.~~ 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 living communities that we do not own or operate and to seniors living outside of our communities. The Brookdale Ancillary Services segment does not include the therapy services provided in our skilled nursing units, which are included in the CCRCs - Rental and CCRCs - Entry Fee segments.

Through Brookdale Ancillary Services, we currently provide therapy, home health and other ancillary services, as well as education and wellness programs, to residents of many of our communities. These programs are focused on wellness and physical fitness to allow residents to maintain maximum independence. These services provide many continuing education opportunities for residents and their families through health fairs, seminars, and other consultative interactions. The therapy services we provide include 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 our communities, 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 be reimbursed 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 offering hospice services in certain locations. We believe that our Brookdale Ancillary Services are unique in the senior living industry and that we have a significant advantage over our competitors with respect to providing ancillary services because of our established infrastructure and experience.

~~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 a joint venture structure in which we have an ownership interest. Under the management agreements for these communities, we receive management fees as well as reimbursed expenses, which represent the reimbursement of certain expenses we incur on behalf of the owners.

The communities in our Management Services segment represent 26.2% of our total senior living capacity. As of December 31, 2013, we managed a total of 95 communities with a total of 17,422 units on behalf of third parties or joint ventures in which we have an ownership interest. There are a total of 51 retirement centers, 32 assisted living communities and 12 CCRC communities (of which six are entrance fee communities) in our Management Services segment.

We 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 significant competitive strengths are:

As of December 31, 2013, we had six reportable segments: retirement centers; assisted living; CCRCs – rental; CCRCs – entry fee; Brookdale Ancillary Services and management services. These segments 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 six business segments are discussed further in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 20 to~~audited our consolidated financial statements included in this Annual Report on Form ~~10-K.~~

~~We believe that successful senior living operators must effectively combine the expertise and business disciplines of housing, hospitality, health care, marketing, finance and real estate.~~

We continually review opportunities to expand the types of services we provide to our residents. To date, we have been able to increase our average monthly revenue per unit each year and we have generally experienced increasing 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 our communities. Our operating procedures include securing national vendor contracts to obtain the lowest possible pricing for certain services such10-K, 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, which we believe have contributed to high levels of customer service and to improved facility operating margins. 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 and efficient operations. We have established company-wide policies and procedures relating to, among other things: resident care; community design and community operations; billings and collections; accounts payable; finance and accounting; risk management; development of employee training materials and programs; marketing activities; the hiring and training of management and other community-based personnel; compliance with applicable local and state regulatory requirements; and implementation of our acquisition, development and leasing plans.

We have developed a centralized infrastructure and services platform, which provides us with a significant operational advantage over local and regional operators of senior living communities. 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, we have established centralized operations groups to support all of our product lines and communities in areas such as training, regulatory affairs, asset management, dining and procurement.

Each community has an Executive Director responsible for the overall day-to-day operations of the community, including quality of service, social services and financial performance. Each Executive Director receives specialized training from us. In addition, a portion of each Executive Director's compensation is directly tied to the operating performance of the community and key service quality measures. We believe that the quality of our communities, coupled with our competitive compensation philosophy, has enabled us to attract 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 either community staff or regional support to oversee the community's marketing and community outreach programs. Other key positions supporting each community may include individuals responsible for food service, activities, housekeeping, and engineering.

We 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, are trained 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 for our residents. We have extensive policy and procedure manuals and hold frequent training sessions for management and staff at each site.

We maintain quality assurance programs at each of our communities through our corporate and regional staff. Our quality assurance program is designed to achieve a high degree of resident and family member satisfaction with the care and services that we provide. Our quality control measures include, among other things, community inspections conducted by corporate staff on a regular basis. These inspections cover the appearance of the exterior and grounds; the appearance and cleanliness of the interior; the professionalism and friendliness 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 residentsstated in their daily living activities; and compliance with government regulations. Our quality control measures also include the survey of residents and family members 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 resident advisory 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 and desires.

Our 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 and among referral sources, including hospital discharge planners, physicians, clergy, area agencies for the elderly, skilled nursing facilities, home health agencies and social workers. Our marketing staff develops overall strategies for promoting our communities and monitors the success of our marketing efforts, including outreach programs. In addition to direct contacts with prospective referral sources, we also rely on internet inquiries, print advertising, yellow pages advertising, direct mail, signage and special events, health fairs and community receptions. Certain resident referral programs have been established and promoted within the limitations of federal and state laws at many communities.

In order to mitigate the impact of weakness in the housing market, we have implemented several sales and marketing initiatives designed to increase our entrance fee sales results. These include the acceptance of short-term promissory notes in satisfaction of a resident's required entrance fee from certain pre-qualified, prospective residents who are 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 additional refundable entrance fee amounts in return for a reduced monthly service fee, thereby offering choices to residents desiring a more affordable ongoing monthly service fee.

The 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 general, regulatory and other barriers to competitive entry in the retirement center and assisted living sectors of the senior living industry are not substantial. Although new construction of senior living communities has declined in 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 potential senior living competitors have, or may obtain, greater financial resources than us and may have a lower cost of capital. Consequently, we may encounter competition that could limit our ability to attract residents or expand our business, which could have a material adverse effect on our revenues and earnings. Our major publicly-traded competitors which operate senior living communities are Emeritus Corporation and Capital Senior Living Corporation and our major private competitors include Sunrise Senior Living, LLC, Life Care Services, LLC and Atria Senior Living Group, as well as a large number of not-for-profit entities. Partially as a result 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. The largest three of these publicly-traded healthcare REITs measured on equity market capitalization include HCP, Inc., Ventas, Inc. and Health Care REIT, Inc.

Our 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 a retirement center community for approximately 36 months. A number of our retirement center residents relocate to one of our communities in order to be in a metropolitan area that is closer 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 resides in 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 been triggered 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 residents generally 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 and assisted living operating expertise and the broad base of customers that this enables us to target creates a unique opportunity 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.

As of December 31, 2013, we had approximately 30,000 full-time employees and approximately 19,000 part-time employees, of which 418 work in our Nashville headquarters office, 442 work in our Milwaukee office, 28 work in our Chicago office and 143 work in a variety of field-based management positions. We currently consider our relationship with our employees to be good.

The 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 local officials 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 the laws and regulations that impact our industry include: state and local laws impacting licensure, protecting consumers against deceptive practices, and generally affecting the communities' 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 and state 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 abuse and 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 the Occupational 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 could have a material adverse effect on our business.

Many senior living communities are also subject to regulation and licensing by state and local health and social service agencies and other regulatory authorities. Although requirements vary from state to state, these requirements may address, among others, the following: personnel education, training and records; community services, including administration of medication, assistance with self-administration of medication and the provision of nursing, home health and therapy services; staffing levels; monitoring of resident wellness; physical plant specifications; furnishing of resident units; food and housekeeping services; emergency evacuation plans; professional licensing and certification of staff prior to 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 our employees. 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 the appropriate 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 facilities require 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/or local 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 regulatory requirements 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 licensed communities 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 and consequent 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 a complaint 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 or surveys. 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 the authority 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 or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. 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 against providers 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 or other 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 had a 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 effect to 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 Fraud and 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 to standardize regulations for certain segments of the industry, particularly assisted living. Our operations could suffer if future regulatory developments, such as federal assisted living laws 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 can result 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 our communities 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 and discharge of residents, which may create market instability and other adverse consequences. Furthermore, certain states may allow citations in one community to impact other communities 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 licenses at 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 credit agreements, or adversely affect our ability to operate and/or obtain financing in the future. If a state were to find that one community's citation 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 or

changes in the enforcement of existing rules, including increased enforcement brought about by advocacy groups, in addition to federal and state regulators, our operations could be adversely 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 investigations under federal and state laws, which may result in civil and/or criminal penalties against the community or individual.

There are various extremely complex federal and state laws governing a wide array of referrals, relationships and arrangements and prohibiting fraud by health care providers, including those in the senior living industry, and governmental agencies are devoting increasing attention and resources to such anti-fraud initiatives. The Health Insurance Portability and Accountability 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 health care 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 care provider 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 faced enforcement 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 a percentage 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 its level 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 result in 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 living communities, 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 care programs. 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, 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 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 or suppliers from furnishing covered items or services to beneficiaries of the applicable federal and/or state health care reimbursement program. Loss of licensure may also cause us to default under our leases and 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 state referral 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, in cash or in kind" for referring or recommending for purchase any item or servicereport which is ~~eligible for payment under the Medicare and/or Medicaid programs. Authorities have interpreted~~included in Item 8 of this 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 default under 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 Medicaid physician 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 could be 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. The U.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, 2003 govern our use and disclosure of health information at certain HIPAA covered communities. We established procedures to comply with HIPAA privacy requirements at these communities. We were required to be in compliance with the HIPAA rule establishing administrative, physical and technical security standards for health information by April 2005. To the best of our knowledge, we are in compliance with these rules.

certain hazardous or toxic substances, including, among others, petroleum and materials containing asbestos, that could be located on, in, at or under 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 hazardous or 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 such substances, 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 additional residents 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 impose liability 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 such release 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 to pay 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 and disposal 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 such materials; the presence of other substances in the indoor environment; and protection of the environment and natural resources in connection with development or construction of our properties.

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-contaminated bandages, 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 set forth 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 waste management 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 such medical 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 to cleanup 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 and financial 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 other employers operating in the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings. 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 to an increased risk of personal injury lawsuits by workers and others exposed to asbestos-containing materials and potential asbestos-containing materials. The regulations may affect the value of a building containing asbestos-containing materials and potential asbestos-containing materials in which we have invested. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potential asbestos-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 impose liability 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 third parties 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.

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 lead to the incurrence of costs 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 such properties 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 legislative or 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, because environmental 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 we operate our communities.

~~Our~~ Annual Report on Form 10-K ~~Quarterly Reports~~and incorporated herein by reference.

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on ~~Form 10-Q, Current Reports on Form 8-K,~~such evaluation, our Chief Executive Officer and ~~amendments~~Chief Financial Officer each concluded that, as of December 31, 2013, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2013 that has materially affected, or is reasonably likely to ~~these reports, are available free~~materially affect, our internal control over financial reporting.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

Information Concerning Directors

Set forth below is certain biographical information for our directors. See “Security Ownership of ~~charge through~~Certain Beneficial Owners and Management and Related Stockholder Matters” in this Amendment for a description of securities beneficially owned by our ~~web site~~directors as ~~soon~~of April 25, 2014.


Name	Age	Position with Brookdale	Class
Jeffrey R. Leeds	68	Non-Executive Chairman of the Board of Directors	Class III
Frank M. Bumstead	72	Director	Class I
Jackie M. Clegg	52	Director	Class II
Wesley R. Edens	52	Director	Class I
Randal A. Nardone	58	Director	Class II
Mark J. Schulte	60	Director	Class III
James R. Seward	61	Director	Class II
W.E. Sheriff	71	Director	Class I
Dr. Samuel Waxman	77	Director	Class III

Jeffrey R. Leeds became a member of our Board of Directors in November 2005 and has served as ~~reasonably practicable~~Non-Executive Chairman of the Board since June 2012. Mr. Leeds retired as Executive Vice President and Chief Financial Officer of GreenPoint Financial Corporation and GreenPoint Bank in October 2004, in which capacities he served since January 1999. Prior to that, he was Executive Vice President, Finance and Senior Vice President and Treasurer of GreenPoint. He joined GreenPoint after ~~we electronically file such material~~14 years with ~~or furnish it~~Chemical Bank, having held positions as Head of Asset and Liability Management, Proprietary Trading and Chief Money Market Economist. He previously served as a director and chair of the Audit Committee of Och-Ziff Capital Management Group LLC and as a director and Audit Committee member of United Western Bancorp. Mr. Leeds’ experience as an executive and principal financial officer, along with his extensive financial industry expertise, led to the ~~Securities~~conclusion that he should serve as a member of our Board of Directors.

Frank M. Bumstead became a member of our Board of Directors in August 2006. Prior to our acquisition of American Retirement Corporation, or ARC, Mr. Bumstead served as the Lead Director of ARC. Mr. Bumstead had been a member of the Board of Directors of ARC for 11 years. Since 1989, Mr. Bumstead has been President or Chairman and a principal shareholder of Flood, Bumstead, McCready & McCarthy, Inc., a business management firm that represents, among others, artists, songwriters and producers in the music industry. From 1993 to December 1998, Mr. Bumstead also served as the Chairman and Chief Executive Officer of FBMS Financial, Inc., an investment advisor registered under the Investment Company Act of 1940. Mr. Bumstead is a director of Syntroleum Corporation. Mr. Bumstead’s experience in business management and as a director of several public companies, along with his knowledge of the senior housing industry (through his prior service as a director of ARC), led to the conclusion that he should serve as a member of our Board of Directors.

Jackie M. Clegg became a member of our Board of Directors in November 2005. Ms. Clegg has served as the Managing Partner of the strategic consulting firm Clegg International Consultants, LLC since August 2001. Prior to that, from June 1997 through July 2001, Ms. Clegg was Vice Chair of the Board of Directors, First Vice President and for a time Chief Operating Officer of the Export-Import Bank of the United States, the official export credit institution of the United States government. Ms. Clegg currently serves as a director and as an Audit Committee member of CME Group Inc., the parent company of the Chicago Mercantile Exchange, ~~Commission,~~and chairs the Audit Committee of the Public Welfare Foundation. Ms. Clegg also previously served on the Board of Directors of Cardiome Pharma Corp., Javelin Pharmaceuticals, Inc. and Blockbuster Inc. and as Chair of the Audit Committees of the Chicago Board of Trade, Cardiome Pharma Corp. and Javelin Pharmaceuticals, Inc. She has also chaired numerous special committees for mergers, acquisitions and financing transactions. Ms. Clegg also worked in the U.S. Senate on international finance and monetary policy, national security and foreign affairs. Ms. Clegg’s experience in the public sector and as a director of numerous public companies (including her service as chairman of the foregoing special committees) led to the conclusion that she should serve as a member of our Board of Directors.

Wesley R. Edens became a member of our Board of Directors in August 2005 and served as Chairman of the Board from August 2005 until June 2012. Mr. Edens has been Co-Chairman of the Board of Directors of Fortress Investment Group LLC (“Fortress”) since August 2009, and he has been a member of the Board of Directors of Fortress since November 2006. Mr. Edens has been a member of the Management Committee of Fortress since co-founding Fortress in 1998. Mr. Edens is responsible for Fortress’ private equity and publicly traded alternative investment businesses. He is chairman of the board of directors of each of New Residential Investment Corp., Florida East Coast Railway Corp., New Media Investment Group Inc., Mapeley Limited, Nationstar Mortgage Holdings Inc. and Newcastle Investment Corp., and he is a director of Intrawest Resorts Holdings, Inc., GAGFAH S.A., Gaming and Leisure Properties Inc., Springleaf Finance Corporation, Springleaf Holdings Inc. and Springleaf Finance Inc. Mr. Edens was Chief Executive Officer of Global Signal Inc. from February 2004 to April 2006 and chairman of its board of directors from October 2002 to January 2007. He also previously served on the boards of the following publicly traded companies and registered investment companies: Penn National Gaming, Inc.; GateHouse Media, Inc.; Aircastle Limited; RailAmerica Inc.; Crown Castle Investment Corp.; Eurocastle Investment Limited; Fortress Brookdale Investment Fund LLC; Fortress Pinnacle Investment Fund; Fortress Investment Trust II; and RIC Coinvestment Fund LP. Prior to forming Fortress, Mr. Edens was a partner and managing director of BlackRock Financial Management Inc., where he headed BlackRock Asset Investors, a private equity fund. In addition, Mr. Edens was formerly a partner and managing director of Lehman Brothers. Mr. Edens’ extensive private equity experience and knowledge of business and finance led to the conclusion that he should serve as a member of our Board of Directors.

Randal A. Nardone became a member of our Board of Directors in January 2011. Mr. Nardone has been a member of the Board of Directors of Fortress since November 2006. He has been a member of the Management Committee of Fortress since co-founding Fortress in 1998. He has been the Chief Executive Officer of Fortress since July 2013, after service as the Interim Chief Executive Officer since December 2011. Mr. Nardone is a director of Eurocastle Investment Limited, GAGFAH S.A., Springleaf Finance Corporation and Springleaf Finance Inc. Mr. Nardone was a director of Alea Group Holdings (Bermuda) Ltd. from July 2007 to March 2014. Mr. Nardone was previously a managing director of UBS from May 1997 to May 1998. Prior to joining UBS in 1997, Mr. Nardone was a principal of BlackRock Financial Management, Inc. Prior to joining BlackRock, Mr. Nardone was a partner and a member of the executive committee at the ~~following address: www.brookdale.com.~~law firm of Thacher Proffitt & Wood. Mr. Nardone’s extensive credit, private equity finance and management expertise, extensive experience as an officer and director of public companies and extensive knowledge of our Company and the senior housing industry led to the conclusion that he should serve as a member of our Board of Directors.

Mark J. Schulte became a member of our Board of Directors in February 2008. Mr. Schulte served as our Co-Chief Executive Officer from July 2006 until February 2008. He previously served as our Chief Executive Officer from August 2005 until July 2006. Mr. Schulte also previously served as Chief Executive Officer and as a member of the Board of Directors of Brookdale Living Communities, Inc., or BLC, since 1997, and was also Chairman of the Board of BLC from September 2001 to June 2005. From January 1991 to May 1997, he was employed by BLC’s predecessor company, The ~~information within,~~Prime Group, Inc., in its Senior Housing Division, most recently serving as its Executive Vice President, with primary responsibility for overseeing all aspects of Prime’s Senior Housing Division. He is a former Chairman of the American Seniors Housing Association, or ASHA. Mr. Schulte is licensed to practice law in the State of New York. Mr. Schulte’s extensive knowledge of the senior housing industry and his prior experience as a principal executive officer led to the conclusion that ~~can be accessed through,~~he should serve as a member of our Board of Directors.

James R. Seward became a member of our Board of Directors in November 2008. Since 2000, Mr. Seward has been a private investor. Previously, Mr. Seward was Chief Executive Officer and President of SLH Corporation and

Chief Financial Officer of Seafield Capital Corporation, both of which were publicly-traded investment holding companies. Mr. Seward, a Chartered Financial Analyst, currently serves as a member of the ~~web site~~board of directors and Audit Committee of Syntroleum Corporation, a synthetic and renewable fuels processor, and is ~~not part~~Chairman of the Board of Trustees and a member of the Audit Committee of RBC Funds, a registered investment company. He previously served as a director of ARC and LabOne. Mr. Seward’s experience and credentials in investing and finance, along with his knowledge of both the senior housing industry (through his prior service as a director of ARC) and the health care industry (through his prior service as a director of LabOne), led to the conclusion that he should serve as a member of our Board of Directors.

W.E. Sheriff has served as a member of our Board of Directors since January 2010. He previously served as our Chief Executive Officer from February 2008 until February 2013 and as our Co-Chief Executive Officer from July 2006 until February 2008. Previously, Mr. Sheriff served as Chairman and Chief Executive Officer of ARC and its predecessors since April 1984 and as its President since November 2003. From 1973 to 1984, Mr. Sheriff served in various capacities for Ryder System, Inc., including as President and Chief Executive Officer of its Truckstops of America division. Mr. Sheriff serves on the boards of various educational and charitable organizations and in varying capacities with several trade organizations, and also serves as a member of the Board of Directors of Direct Supply, Inc. Mr. Sheriff’s extensive knowledge of the senior housing industry and his experience as our previous Chief Executive Officer and as the Chairman and Chief Executive Officer of ARC led to the conclusion that he should serve as a member of our Board of Directors.

Dr. Samuel Waxman became a member of our Board of Directors in November 2005. Since 1983, Dr. Waxman has served as a professor at Mount Sinai School of Medicine where he directs a multidisciplinary cancer research laboratory and currently serves as the Distinguished Service Professor. In addition, since July 1980, Dr. Waxman has served as the Founder and Scientific Director of the Samuel Waxman Cancer Research Foundation, which supports an international program of collaborative scientists. He is also the president of Samuel Waxman M.D. P.C. Dr. Waxman earned his M.D. Summa Cum Laude from Downstate Medical Center of the State University of New York and completed all clinical and research training at Mount Sinai Hospital in New York. Dr. Waxman’s experience in, and knowledge of, health care and the health care industry led to the conclusion that he should serve as a member of our Board of Directors.

Legal Proceedings Involving Directors, Officers or Affiliates

There are no legal proceedings ongoing as to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of any class of voting securities of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our affiliates.

Audit Committee

The Company has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee’s functions include:

reviewing the audit plans and findings of the independent registered public accounting firm and our internal audit and risk review staff, as well as the results of regulatory examinations, and tracking management’s corrective action plans where necessary;

reviewing our financial statements (and related regulatory filings), including any significant financial items and/or changes in accounting policies, with our senior management and independent registered public accounting firm;

reviewing our risk and control issues, compliance programs and significant tax and legal matters;

having the sole discretion to appoint annually the independent registered public accounting firm and evaluating its independence and performance, as well as to set clear hiring policies for the Company’s hiring of employees or former employees of the independent registered public accounting firm; and

reviewing our risk management processes.

The Audit Committee is currently chaired by Mr. Seward and also consists of Ms. Clegg and Mr. Leeds. All three current members are “independent” directors as defined under NYSE rules and under section 10A(m)(3) of the

Securities Exchange Act of 1934, as amended. The Board of Directors has determined that each of the current members of the Audit Committee is an “audit committee financial expert” as defined by the rules of the SEC. No member of the Audit Committee simultaneously serves on the audit committees of more than three public companies.

Corporate Governance

The role of our Board of Directors is to ensure that Brookdale is managed for the long-term benefit of our stockholders. To fulfill this ~~report.~~

~~We have posted our~~role, the Board of Directors has adopted corporate governance principles designed to assure compliance with all applicable corporate governance standards. In addition, the Board of Directors is informed regarding Brookdale’s activities and periodically reviews, and advises management with respect to, Brookdale’s annual operating plans and strategic initiatives.

The Board of Directors has adopted Corporate Governance ~~Guidelines,~~Guidelines. The Board of Directors has also adopted a Code of Business Conduct and Ethics and ~~the charters of our Audit, Compensation, Investment and Nominating and Corporate Governance Committees on our web site at www.brookdale.com. In addition, our~~a Code of Ethics for Chief Executive and Senior Financial Officers ~~which applies~~to help ensure that Brookdale abides by applicable corporate governance standards. These guidelines and codes are available on the “Investor Relations” section of our website, www.brookdale.com. Any amendment to, or waiver from, a provision of such codes of ethics granted to our ~~Chief Executive Officer, President, Chief Financial Officer, Treasurer and Controller, is also available~~principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions, or to any executive officer or director, will be posted on our website. Our corporate governance materials are available in print free of charge to any stockholder upon request to our Corporate Secretary, Brookdale Senior Living Inc., 111 Westwood Place, Suite 400, Brentwood, Tennessee 37027.

Completion of the Merger is not assured and is subject to risks, including the risks that approval of the transaction by our stockholders and the stockholders of Emeritus or by governmental agencies will not be obtained or that certain other closing conditions will not be satisfied. If the Merger is not completed, our ongoing business and financial results may be adversely affected and we will be subject to several risks, including:

We expect to incur a significant amount of non-recurring expenses in connection with the Merger. Additional unanticipated costs may be incurred in the course of the integration of our businesses and the business of Emeritus. We cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.

Completion of the Merger is contingent upon, among other things, the receipt of certain required regulatory approvals, including the expiration or termination of the applicable HSR Act waiting period and required regulatory approvals from governmental authorities necessary for the ownership, operation and management of each of the Emeritus facilities and the Emeritus management properties following closing of the Merger as well as certain third party consents. We and Emeritus can provide no assurance that all required regulatory or third party authorizations, approvals or consents will be obtained or that the authorizations, approvals or consents will not contain terms, conditions or restrictions that would be detrimental to the combined company after completion of the Merger.

Satisfying the conditions to, and completion of, the Merger may take longer than, and could cost more than, we expect. Any delay in completing or any additional conditions imposed in order to complete the Merger may materially adversely affect the synergies and other benefits that we expect to achieve from the Merger and the integration of our businesses. In addition, we and Emeritus each have the right to terminate the Merger agreement if the Merger is not completed by November 20, 2014, except that such date may be extended to January 20, 2015 if the only unsatisfied conditions to the completion of the Merger are those regarding the receipt of certain regulatory and third party approvals and consents.

Transactions such as the Merger are often subject to lawsuits by stockholders. One of the conditions to the closing of the Merger is that no temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any court of competent jurisdiction or other law, legal restraint or prohibition will be in effect preventing the consummation of the Merger. Consequently, if any lawsuit is successful in obtaining an injunction prohibiting us or Emeritus from consummating the Merger on the agreed upon terms, the injunction may prevent the Merger from being completed within the expected timeframe, or at all. Furthermore, if the Merger is prevented or delayed, the lawsuits could result in substantial costs, including any costs associated with the indemnification of directors. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may adversely affect the combined company's business, financial condition or results of operations.

Uncertainty about the effect of the Merger on employees, suppliers and residents may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter, and could cause residents, suppliers and others who deal with us to seek to change existing business relationships with us. Employee retention and recruitment may be particularly challenging prior to completion of the Merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

~~The pursuit of the Merger and the preparation for the integration of the two companies may place a significant~~

burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results or the financial results of the combined company.

In addition, the Merger agreement restricts us from taking certain specified actions while the Merger is pending without first obtaining Emeritus' prior written consent. These restrictions may limit us from pursuing attractive business opportunities and making other changes to our business prior to completion of the Merger or termination of the Merger agreement.

We entered into the Merger agreement with the expectation that the Merger will result in various benefits, including, among other things, cost savings and operating efficiencies. Achieving the anticipated benefits of the Merger is subject to a number of uncertainties, including whether our business and the business of Emeritus can be integrated in an efficient and effective manner.

It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, additional and unforeseen expenses, the disruption of our ongoing business, processes and systems, or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect the combined company's ability to achieve the anticipated benefits of the Merger. Difficulties in combining operations of the two companies could also result in the loss of residents, suppliers, partners or other persons with whom we conduct business and potential disputes or litigation with residents, suppliers, partners or other persons with whom we conduct business. The combined company's results of operations could also be adversely affected by any issues attributable to either company's operations that arise or are based on events or actions that occur prior to the closing of the Merger. The integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated benefits, expense savings and synergies will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected revenues and could adversely affect the combined company's future business, financial condition, operating results and prospects.

We expect to issue approximately 46 million shares of our common stock to Emeritus stockholders in the Merger. As a result of these issuances, our current stockholders and Emeritus stockholders are expected to hold approximately 73% and 27%, respectively, of the combined company's outstanding common stock immediately following completion of the Merger.

Our stockholders currently have the right to vote for directors and on other matters affecting our company. When the Merger occurs, each of our stockholders will remain a holder of our common stock with a percentage ownership of the combined company that will be smaller than the stockholder's percentage of our common stock prior to the Merger. As a result of this reduced ownership percentage, our stockholders will have less voting power in the combined company than they now have with respect to us.

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 could adversely 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 and home 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). In addition, certain per person annual limits on Medicare reimbursement for therapy services became effective in 2006, subject to certain exceptions. These exceptions are currently scheduled to expire on March 31, 2014. If these exceptions are modified or not extended beyond that date, our revenues and net operating income relating to our outpatient therapy services could be materially adversely impacted.

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 providers in the future. For example, based on current federal law, an automatic 2% reduction in Medicare spending was imposed beginning on March 1, 2013. In 2012 we saw a rate reduction on MPPR which was further increased effective April 1, 2013. In addition, payments for our outpatient therapy services are tied to Medicare's physician payment fee schedule. By statute, the physician fee schedule is subject to annual automatic adjustment by a SGR formula that has resulted in reductions in reimbursement rates every year since 2002. However, in each case, Congress has acted to suspend or postpone the effect of these automatic reimbursement reductions. If Congress does not extend this relief, as it has done since 2002, or permanently modify the SGR formula by April 1, 2014, payment levels for outpatient therapy services under the physician fee schedule will be reduced at that point by approximately 25%. We cannot predict what action, if any, Congress will take on the physician fee schedule or what future rule changes the CMS will implement. Changes in the reimbursement policies of the Medicare program could have an adverse effect on our results of operations and cash flow.

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, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, along with the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act"). The passage of the Affordable Care Act has resulted in comprehensive reform legislation that is expected to expand health care coverage to millions of currently uninsured people beginning in 2014 and provide for significant changes to the U.S. health care system over the next ten years. To help fund this expansion, the Affordable Care Act outlines certain reductions in Medicare reimbursements for various health care providers, including skilled nursing facilities, as well as certain other changes to Medicare payment methodologies. This comprehensive health care legislation provides for extensive future rulemaking by regulatory authorities, and also may be altered or amended.

It is difficult to predict the full impact of the Affordable Care Act due to the law's complexity and current lack of implementing regulations or interpretive guidance, as well our inability to foresee how CMS 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 pending legislative 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 that will 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 impact of 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, decrease our revenues, expose us to expanded liability or require us to revise the ways in which we conduct our business.

The Supreme Court's decision upholding the constitutionality of the individual mandate while striking down the provisions linking federal funding of state Medicaid programs with a federally mandated expansion of those programs has not reduced the uncertain impact that the law will have on health care delivery systems over the next decade. We can expect that the federal authorities will continue to implement the law, but, because of the Court's mixed ruling, the implementation will likely take longer than originally expected, with a commensurate increase in the period of uncertainty regarding the law's full long term financial impact on the delivery of and payment for health care.

In addition to its impact on the delivery and payment for health care, the Affordable Care Act and the implementing regulations may result in an increase in our 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 the Affordable Care Act

~~impacting the provision of health insurance by employers, which could result in additional expense and adversely affect our results of operations.~~

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/or changes 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 of operations could decline.

Downturns in the housing markets, such as the one we have recently experienced, could adversely affect the ability (or perceived ability) of seniors to afford our entrance fees and resident 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, these difficulties could impact their ability to relocate into our communities or finance their stays at our communities with private resources. If the recent volatility in the housing market continues for a protracted period, our occupancy rates, revenues, cash flows and results of operations could be negatively impacted.

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 stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances materially impacted liquidity in the financial markets, making terms for 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 ability to 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, 2013, we had three principal corporate-level debt obligations: our $250.0 million revolving credit facility, our $316.3 million convertible senior notes due 2018 and separate secured and unsecured letter of credit facilities providing for up to $92.5 million of letters of credit in the aggregate. If we are unable to extend (or refinance, as applicable) any of our 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 to extend 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 plan accordingly. 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 could have 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 growth strategies, which could adversely affect our revenues and results of operations.

~~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 community operating 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 and residents 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 manage interest 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 are unable to fully anticipate.

We have significant indebtedness and lease obligations, and we intend to continue financing our communities through mortgage financing, long-term leases and other types of financing, 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 from operations to cover required interest, principal and lease payments. Any non-payment or other default under our financing arrangements could, subject to cure provisions, cause the lender 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 of income 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 our subsidiaries. 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 amounts outstanding 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 these scenarios 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 our mortgages and leases generally 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.

~~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:~~

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 to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. Our business might not continue to 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 our leases, 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 selected assets, 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 lease payments 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 on our 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 and financial condition could be negatively impacted.

Our outstanding indebtedness and leases contain restrictions and covenants and require us to maintain or satisfy specified financial ratios and coverage tests, including maintaining prescribed 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 lease securing 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 maintain stockholders' equity or tangible net worth amounts. The debt service coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. 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 and increase 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 could pay this debt if it became due.

Our 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 of default 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 all amounts outstanding to be immediately due and payable, terminate the lease, foreclose on collateral securing the outstanding indebtedness and leases, and restrict our ability to make additional borrowings under the outstanding indebtedness or continue to operate the properties subject to the lease. Certain of our outstanding indebtedness and leases contain cross-default provisions so that a default under certain outstanding indebtedness would cause a default under certain of our leases. Certain of our outstanding indebtedness and leases also restrict, among other things, our ability to incur additional debt.

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 an indivisible 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 with Medicare or Medicaid provider requirements is a default under several of our master lease and debt financing instruments. In addition, potential defaults related to an individual property may cause a default of an entire master lease portfolio and could trigger cross-default provisions in our outstanding indebtedness and other leases, which would have a negative impact on our capital structure and our ability to generate future revenues, and could interfere with our ability to pursue our growth strategy.

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 distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our expansion, development and acquisition plans.

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 foreclosure actions 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, a foreclosure 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 the outstanding 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 cash proceeds, which could negatively impact our earnings and liquidity. Further, our mortgage debt and leases generally contain cross-default and cross-collateralization provisions and a default 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, in certain 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 no assurance 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 circumstances at 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 if the terms of such options are unfavorable or unacceptable to us, our business, financial condition and results of operation could be adversely affected.

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 in prevailing interest rates could increase our payment obligations, which would negatively impact our liquidity and earnings.

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 maintain profitability 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 would 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 or recently-acquired or initiated operations (including expansions, developments, acquisitions and the expansion of our ancillary services program) into our existing business will require us 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 no assurance that we will be successful in attracting qualified individuals to the extent necessary, and management may expend significant time and energy attracting the appropriate personnel 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 maintain consistent quality control measures that allow our management to effectively identify deviations that result in delivering care and services that are substandard, which may result in litigation 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 our existing business, or maintain consistent quality control measures, our business, financial condition and results of operations could be adversely affected.

We plan to continue to expand our offering of ancillary services (including therapy, home health and hospice) to additional communities. In the current environment, it is difficult to obtain certain required regulatory approvals. Delays in obtaining required regulatory approvals could impede our ability to expand to additional communities in accordance with our plans, which could negatively impact our anticipated revenues, results of operations and cash flows.

We are currently working on projects that will expand, reposition or redevelop a number of our existing senior living communities over the next several years. These projects are 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 contractors and 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 delay completion 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 and regulations. We cannot assure you that we will elect to undertake or complete all of our proposed expansion, repositioning and development projects, or that we will not experience 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 that these costs will not be greater than we have anticipated. We also cannot assure you that any of our expansion, repositioning or development projects will be economically successful. Our failure to achieve our expansion and development plans could adversely impact our growth objectives, and our anticipated revenues and results of operations.

We will continue to selectively target strategic acquisitions as opportunities arise. Under the Merger Agreement, we are subject to a number of restrictions limiting our ability to acquire businesses or assets. To the extent we do identify and complete any future acquisition opportunities, subject to the restrictions set forth in the Merger Agreement, the process of identifying potential acquisition candidates, completing acquisition transactions and integrating acquired communities into our existing operations may result in unforeseen operating difficulties, divert managerial attention or require significant financial or other resources. These acquisitions and other future acquisitions may require us to incur additional indebtedness and contingent liabilities, and may result in unforeseen expenses or compliance issues, which may limit our revenue growth, cash flows, and our ability to achieve profitability. 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 be able 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 to complete transactions after we have entered into definitive agreements may result in significant expenses to us.

Our growth strategy contemplates selected future acquisitions of existing senior living operating companies and communities. Despite our extensive underwriting and due diligence procedures, 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 find acceptable. In addition, we might encounter unanticipated difficulties and expenditures relating to any of the acquired communities, including contingent liabilities, or newly acquired communities might require significant management attention that would otherwise be devoted to our ongoing business. For example, a community may require capital expenditures in excess of budgeted amounts, or it may experience management turnover that is higher than we project. These costs may negatively affect our future profitability.

Several real estate investment trusts, or REITs, have similar asset acquisition objectives as we do, along with greater financial resources and lower costs 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 successfully implement our growth strategy. There is significant competition among potential acquirers in the senior living industry, including REITs, and there can be no 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 a result 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.~~

Continued expansion of our business through the expansion, redevelopment and repositioning of our existing communities, the development of new communities and the acquisition 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 all of 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. Any newly 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 of the 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 to seek alternative sources of potentially less attractive financing. There can be no assurance that such alternative sources will be available.

As of December 31, 2013, we owned or leased 11 lifecare entrance fee communities that offer residents a limited lifecare benefit. Residents of these communities pay an upfront entrance fee upon occupancy, of which a portion is generally refundable, with an 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 the resident'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 is refundable. The pricing of entrance fees, refundability provisions, monthly service fees, and lifecare benefits are determined utilizing actuarial projections of the expected morbidity and mortality of the resident population. In the event the entrance fees and monthly service payments established for our communities are not sufficient to cover the cost of lifecare benefits granted to residents, the results of operations and financial condition of these communities 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 financial resources 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 the resident 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 to ensure that they have adequate assets, income, and reimbursements from government programs and third parties to pay their obligations to our communities during their lifetime, we cannot assure you that such assets, income, and reimbursements will be sufficient in all cases. If insufficient, we have rights 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 that the 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 our communities must pay third parties to provide nursing care to residents of our communities, our results of operations and financial condition would be adversely affected.

We have a high concentration of communities in various geographic areas, including the states of Florida, Texas, North Carolina, California, Colorado, Ohio and Arizona. As a result of this concentration, the conditions of local economies and real estate markets, changes in governmental rules and regulations, particularly with respect to assisted living communities, acts of nature 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 natural disasters 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 of insurance.

State regulations governing assisted living communities require written resident agreements with each resident. Several of these regulations also require that each resident have the right to terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, many of our assisted living resident agreements allow residents to terminate their 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 a year 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 agreements generally 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. If multiple 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 the demographics 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 be unoccupied for a period of time, which could adversely affect our revenues and earnings.

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, in other cases, the community is owned in a joint venture structure in which we have an ownership interest. At December 31, 2013, approximately 14.6% of our communities were managed for third parties or unconsolidated ventures. We obtained a significant portion of our management agreements as a result of our acquisition of Horizon Bay in 2011. The majority of our management agreements are long-term agreements. In most cases, either party to the agreements 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, community owners 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 the community 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 the management 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 its affiliates. Certain of our management agreements, both with joint ventures and with entities owned by third parties, provide that an event of default under the debt instruments 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 management agreement, giving the non-Brookdale party to the management agreement the right to pursue the remedies provided for in the management agreement, potentially including termination of 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 ventures, 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 the venture. 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 of operations and cash flows.

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 community has 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 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 either community staff or regional support to oversee the community's marketing and community outreach programs. Other key positions supporting each

community may include individuals responsible for food service, healthcare services, therapy services, activities, housekeeping and engineering. We compete with various health care service providers, including other senior living providers, in retaining and attracting qualified and skilled personnel. Increased competition for or a shortage of nurses, therapists or other trained personnel, or general inflationary pressures 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 rates we 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 or other trained personnel varies substantially from market to market. Although reliable industry-wide data on key employee retention does not exist, we believe that our employee retention rates are consistent with those of other national senior housing operators. If we fail to attract and retain qualified and skilled personnel, our ability to conduct our business operations effectively, 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 with respect to certain workplace rules. Recently proposed legislation known as the Employee Free Choice Act, or card check, and/or related regulatory proposals could make it significantly easier for union organizing drives to be successful, leading to increased organizational activity, and could give third-party arbitrators the ability to impose terms of collective bargaining agreements upon us and a labor union if we and such union are unable to agree to the terms of a collective bargaining agreement. If we experience an increase in organizing activity, if onerous 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 from operations would be negatively affected.

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 retain qualified 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 the capital markets.

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 of investigation, 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 such materials came to be located there. 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 such substances, 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 additional residents and retain existing residents, to borrow using such property as collateral or to develop or redevelop 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 of or 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, or was 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 be subject 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.

~~environment and natural resources in connection with development or construction of our properties.~~

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 a waste 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 of such 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 cleanup disposal 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 the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings. Significant fines can be 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 injury lawsuits. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potential asbestos-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 impose liability 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 third parties 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.

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 lead to the incurrence of costs 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 could adversely 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 increased expenditures 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 our business 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 financial condition and our ability to pursue our growth strategy.

We are subject to various regulatory requirements, including the Sarbanes-Oxley Act of 2002. Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to include a report with each Annual Report on Form 10-K regarding our internal control over financial reporting. We have implemented processes documenting and evaluating our system of internal controls. Complying with these requirements is expensive, time consuming and subject to changes in regulatory requirements. The existence of one or more material weaknesses, management's conclusion that its internal control over financial reporting is not effective, or the inability of our auditors to express an opinion that our internal control over financial reporting is effective, could result in a loss of investor confidence in our financial reports, adversely affect our stock price and/or subject us to sanctions or investigation by regulatory authorities.

We have been and are currently involved in litigation and claims incidental to the conduct of our business which are comparable to other companies in the senior living and healthcare industries. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. Similarly, the senior living and healthcare industries are continuously subject to scrutiny by governmental regulators, which could result in litigation related to regulatory compliance matters. As a result, we maintain general liability and professional 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 and industry 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 less than 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 and financial condition could be adversely affected.

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 vary from 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 regulatory authorities. 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 the appropriate 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 need before 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 on enforcement of these laws, particularly with respect to large for-profit, multi-community providers like us. These requirements and the increased enforcement thereof, could affect our ability 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 licensing authority, may subject us to penalties including closure of the community. Future regulatory developments as well as mandatory increases in the scope and severity of deficiencies determined 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. If regulatory requirements increase, whether through enactment of new laws or regulations or changes in the enforcement of existing rules, our earnings and operations could be adversely affected.

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

There are various extremely complex federal and state laws governing a wide array of referral relationships and arrangements and prohibiting fraud by health care providers, including those in the senior living industry, and governmental agencies are devoting increasing attention and resources to such anti-fraud initiatives. Some examples

are the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Balanced Budget Act of 1997, and the False Claims Act, which gives private individuals the ability to bring an action on behalf of the federal government. The violation of any of these laws or regulations may result in the imposition of fines or other penalties that could increase our costs and otherwise jeopardize our business. Under the Deficit Reduction Act of 2005, or DRA 2005, every entity that receives at least $5.0 million annually in Medicaid payments must have established written policies for all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including the federal False Claims Act, and similar state laws. Failure to comply with this new compliance requirement may potentially give rise to potential liability. DRA 2005 also creates an incentive for states to enact false claims laws that are comparable to the federal False Claims Act.

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

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

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 these programs 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 third party 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 to respond 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 of operations and cash flows. Moreover, an adverse review, audit or investigation could result in:

~~These results could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows.~~

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

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

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

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

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

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

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

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

As of December 31, 2013, funds managed by affiliates of Fortress Investment Group LLC ("Fortress") and various principals of Fortress, in the aggregate, beneficially own 20,285,916 shares, or approximately 16.3% of our outstanding common stock (excluding unvested restricted shares). In addition, two of our directors are associated with Fortress and, pursuant to our Stockholders Agreement, Fortress currently has the ability to require us to nominate two individuals designated by Fortress for election as members of our nine-member Board of Directors (subject to their election by our stockholders). As a result, Fortress may be able to influence fundamental and significant corporate matters and transactions, including: the election of directors; mergers, consolidations or acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our amended and restated certificate of incorporation and our amended and restated by-laws; and the dissolution of the Company. Fortress's interests, including its ownership of the North American operations of Holiday Retirement Corp., one of our competitors, may conflict with your interests. Their influence over the Company could delay, deter or prevent acts that may be favored by our other stockholders such as hostile takeovers, changes in control of the Company and changes in management. As a result of such actions, the market price of our common stock could decline or stockholders might not receive a premium for their shares in connection with a change of control of the Company.

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

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

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

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

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

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

At December 31, 2013, 124,353,674 shares of our common stock were outstanding (excluding unvested restricted shares). All of the shares of our common stock are freely transferable, except for any shares held by our "affiliates," as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, or any shares otherwise subject to the limitations of Rule 144.

Pursuant to our Stockholders Agreement, as well as the Letter Agreement entered into in connection with the Merger, Fortress and certain of its affiliates and permitted third-party transferees have the right, in certain circumstances, to require us to register their shares of our common stock under the Securities Act for sale into the public markets. In connection with our obligations under the Stockholders Agreement, we have on file with the SEC an effective registration statement permitting the resale, from time to time, of shares of common stock owned by certain affiliates and various principals of Fortress. The shares covered by the registration statement are freely transferable pursuant to the registration statement and by subsequent purchasers that are not our affiliates.

In addition, as of March 3, 2014, we had registered under the Securities Act an aggregate of 13,700,000 shares for issuance under our Omnibus Stock Incentive Plan, an aggregate of 1,800,000 shares for issuance under our Associate Stock Purchase Plan and an aggregate of 100,000 shares for issuance under our Director Stock Purchase Plan. In accordance with the terms of the Omnibus Stock Incentive Plan, the number of shares available for issuance automatically increases by the lesser of (i) 400,000 shares of common stock or (ii) 2% of the number of outstanding shares of common stock on January 1 of each year.

Subject to any restrictions imposed on the shares and options granted under our stock incentive programs, shares registered under these registration statements will be available for sale into the public markets.

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

At December 31, 2013, we operated 649 communities across 36 states, with the capacity to serve approximately 67,000 residents. Of the communities we operated at December 31, 2013, we owned 225, we leased 329 pursuant to operating and capital leases, and 95 were managed by us and fully or majority owned by third parties.

~~Substantially all of our owned properties are subject to mortgages.~~

Our main corporate offices are all leased, including our 74,593 square foot facility in Nashville, Tennessee, our 117,609 square foot facility in Milwaukee, Wisconsin, and our 10,655 square foot facility in Chicago, Illinois.

~~The information contained in Note 19 to the consolidated financial statements contained in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.~~

We are aware of a lawsuit relating to the Merger Agreement filed by purported stockholders of Emeritus. On February 28, 2014, Tampa Maritime Association / International Longshoremen's Association Pension Fund, a purported stockholder of Emeritus, filed a putative class action complaint in the Superior Court of King County, Washington, titled Tampa Maritime Association / International Longshoremen's Association Pension Fund v. Emeritus Corp., et al., Case No. 14-2-06385-7-SEA, against Emeritus, the Emeritus board of directors, Brookdale and Merger Sub. The complaint alleges that the Emeritus board of directors breached its fiduciary duties by, among other things, failing to take appropriate steps to enhance Emeritus' value and attractiveness as a merger/acquisition candidate, not acting independently to protect the interests of Emeritus' stockholders or resolving conflicts of interest, failing to actively engage in an auction process with third parties, and failing to disclose all material information to Emeritus' stockholders. The complaint also alleges that Brookdale, Merger Sub and Emeritus aided and abetted the Emeritus board's alleged breaches of fiduciary duties that prevented Emeritus stockholders from obtaining fair consideration in the Merger. The complaint seeks, among other things, injunctive relief, including rescission of the Merger, and damages, including counsel fees and expenses.

T. Andrew Smith became our Chief Executive Officer in February 2013. Previously, Mr. Smith served as Executive Vice President, General Counsel and Secretary since October 2006. In that capacity, in addition to his role in managing the ~~Company's~~Company’s legal affairs, Mr. Smith was responsible for management and oversight of the ~~Company's~~Company’s corporate development functions (including acquisitions and expansion and development activity); corporate finance activities (including capital structure, debt and lease transactions and lender/lessor relations); strategic planning; and risk management. Prior to joining Brookdale, Mr. Smith was with Bass, Berry & Sims PLC in Nashville, Tennessee from 1985 to 2006, where he was a member of the ~~firm's~~firm’s corporate and securities group and served as the chair of the ~~firm's~~firm’s healthcare group. While at Bass, Berry & Sims, Mr. Smith served ARC as outside General Counsel. Mr. Smith currently serves as a member of the board of directors of the National Investment Center for the Seniors Housing & Care Industry and as a member of the executive board of the American Seniors Housing Association.

Mark W. Ohlendorf has served as our President since June 2013 and as our Chief Financial Officer since March 2007. He previously served as our Co-President from August 2005 until June 2013. Mr. Ohlendorf previously

served as Chief Executive Officer and President of Alterra from December 2003 until August 2005. From January 2003 through December 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 of Alterra. 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 House Corporation, Vitas Healthcare Corporation and Horizon/CMS Healthcare Corporation. He is a past chairman of the board of directors of the Assisted Living Federation of America.

Gregory B. Richard has served as our Executive Vice President and Chief Operating Officer since June 2013. He previously served as our Executive Vice President – Field Operations from January 2008 until June 2013 and as our Executive Vice President – Operations from July 2006 through December 2007. Previously, Mr. Richard served as Executive Vice President and Chief Operating Officer of ~~American Retirement Corporation~~ARC since January 2003 and previously served as its Executive Vice President – Community Operations since January 2000. Mr. Richard was formerly with a pediatric practice management company from May 1997 to May 1999, serving as President and Chief Executive Officer from October 1997 to May 1999. Prior to this, Mr. Richard was with Rehability Corporation, a publicly traded outpatient physical rehabilitation service provider, from July 1986 to October 1996, serving as Senior Vice President of Operations and Chief Operating Officer from September 1992 to October 1996.

Bryan 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 Accounting Officer from September 2006 through April 2008. Previously, Mr. Richardson served as Executive Vice President – Finance and Chief Financial Officer of ARC since April 2003 and previously 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 various capacities, 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 from 1989 to 1994. Mr. Richardson was previously with the national public accounting firm PricewaterhouseCoopers.

Glenn O. Maulbecame our Executive Vice President and Chief People Officer in March 2013. Previously, Mr. Maul served as Senior Vice President – Human Resources since joining Brookdale 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 on human resources, his early career included roles in finance and operations. Mr. Maul is certified as a Senior Professional in Human Resources (SPHR).

Tricia A. Conahan became our Executive Vice President and Chief Marketing Officer in April 2014. Previously, she served as Chief Marketing & Sales Officer for Grant Thornton, LLP, a global accounting/consulting firm, from 2010 until March 2014. Ms. Conahan also served as Managing Director of Fernwood Holdings, LLC, a multi-family residential business, from 2009 until 2012. She served as Senior Vice President, Brand & Customer Acquisition for JPMorgan Chase from 2008 through 2009 and as Head of Brand Marketing at ING Americas from 2001 through 2008. From 1999 through 2001, Ms. Conahan served as Chief Marketing Officer for RealEstate.com. Ms. Conahan has also held marketing leadership positions at McGraw-Hill Inc., Time Warner and Times Mirror Magazines.

Kristin A. Ferge became our Executive Vice President and Treasurer in August 2005. Ms. Ferge also served as our Chief Administrative Officer from March 2007 through December 2007. She previously served as Vice President, Chief Financial Officer and Treasurer of Alterra from December 2003 until August 2005. From April 2000 through December 2003, Ms. Ferge served as ~~Alterra's~~Alterra’s Vice President of Finance and Treasurer. 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. Previously, 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~~ARC’s predecessors since 1985, including Chief Financial 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 of ARC since September 1993. Mr. Kaestner served in various capacities for ~~ARC's~~ARC’s predecessors since 1985, including Vice President – Development from 1988 to 1993 and Chief Financial Officer from 1985 to 1988.

Edward A. Fenoglio, Jr. became our Division President in February 2013. Mr. Fenoglio previously served as Divisional Vice President since February 2008 and as Regional Vice President of Operations from July 2006 until February 2008. Previously, he served as Regional Vice President of Operations for ARC since 2003. Prior to that, Mr. Fenoglio served in various other capacities for ARC since joining ARC in 1997. Mr. Fenoglio is a Licensed Nursing Facility Administrator.

Mary Sue Patchett became our Division President in February 2013. Previously, Ms. Patchett served as Divisional Vice President since joining Brookdale in September 2011 in connection with the Horizon Bay acquisition. Ms. Patchett has over 30 years of senior care and housing experience 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 of Operations 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 ~~seniors~~senior housing and other healthcare companies, from 2005 until March 2008. Ms. Patchett had previously served as Divisional Vice President for Alterra for over six years. Ms. Patchett has served on numerous industry boards and currently is serving as Chair for Florida Assisted Living Federation of America.

Kari L. Schmidt became our Division President in February 2013. Previously, Ms. Schmidt served as Divisional Vice President since February 2008 and as Regional Vice President of Operations of Brookdale or its predecessors from June 1998 until February 2008. Prior to joining Brookdale, Ms. Schmidt served as Regional Director of Operations for Eby Development and Management from 1996 to 1998, where she was responsible for expanding their assisted living and memory care products into new markets.

~~Our common stock is traded on~~ the ~~New York Stock~~ Exchange ~~or the NYSE, under the symbol "BKD". The following table sets forth the range~~Act requires our directors, executive officers and persons who own more than ten percent of ~~high and low sales prices~~a registered class of our ~~common stock for each quarter for~~equity securities to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the ~~last two fiscal years.~~

~~The closing sale price~~SEC. Such officers, directors and ten-percent stockholders are also required by SEC rules to furnish us with copies of ~~our common stock as reported~~all Section 16(a) reports they file. We reviewed copies of the forms received by us or written representations from certain reporting persons that they were not required to file these forms. Based solely on ~~the NYSE on February 28, 2014 was $33.54 per share. As of~~ that ~~date, there were approximately 415 holders of record of our common stock.~~

~~On December 30, 2008, our Board of Directors voted to suspend our quarterly cash dividend indefinitely and no dividends were declared~~review, we believe that during the ~~last two~~ fiscal years. Although we anticipate that, over the 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 growth strategy, our ability to negotiate favorable lease and other contractual terms, anticipated operating expense levels, the level of demand for our units, occupancy rates, entrance fee sales results, the rates we charge, our liquidity position and actual results that may vary substantially from estimates. Some of the factors are beyond our control and a change in any such factor could affect our ability to pay or maintain dividends. We can give no assurance as to our ability to pay or maintain dividends in the future. We also cannot assure you that the level of dividends will be maintained or increase over time or that increases in demand for our units and monthly resident fees will increase our actual cash available for dividends to

~~stockholders. As we have done in the past, we may also pay dividends in the future that exceed our net income for the relevant period as calculated in accordance with U.S. GAAP.~~

The selected financial data should be read in conjunction with the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and our historical consolidated financial statements and the related notes included elsewhere herein. Our historical statement of operations data and balance sheet data as of and for each of the years in the five-year period ended December 31, 2013 have been derived from our audited financial statements.

On February 20, 2014, we entered into an Agreement and Plan of Merger with Emeritus Corporation providing for the merger of Emeritus with one of our wholly owned subsidiaries, with Emeritus continuing as the surviving corporation and our wholly owned subsidiary. See "Item 1. Business — Overview — The Pending Merger."

During 2013, we continued to make progress in implementing our long-term growth strategy, integrating previous acquisitions, and building a platform for future growth. Our primary long-term growth objectives are to grow our revenues, Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income primarily through a combination of: (i) organic growth in our core business, including expense control and the realization of economies of scale; (ii) growth through strategic capital allocation; (iii) growth through development of a market leading Brookdale brand; and (iv) growth through innovation of product offerings, including our Brookdale Ancillary Services programs.

The table below presents a summary of our operating results and certain other financial metrics for the years ended December 31, 2013 and 2012 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).

~~(1) Net loss for 2013 and 2012 includes non-cash impairment charges of $12.9 million and $27.7 million, respectively.~~

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

During the year ended December 31, 2013, we experienced an increase in our total revenues, primarily due to increases in occupancy and average monthly revenue per unit, including an increase in our ancillary services revenue. Total revenues for the year ended December 31, 2013 increased to $2.9 billion, an increase of $123.2 million, or 4.5%, over our total revenues for the year ended December 31, 2012. Resident fees for the year ended December 31, 2013, increased $102.1 million, or 4.2% from the prior year. Management fees increased $0.3 million, or 1.1%, from the prior year, and reimbursed costs incurred on behalf of managed communities increased $20.8 million, or 6.4%.

The increase in resident fees during the year ended December 31, 2013 was primarily a result of a 2.6% increase in the average monthly revenue per unit compared to the prior year, a 70 basis points increase in average occupancy and an increase in revenues from our ancillary services programs. Our weighted average occupancy rate for the year ended December 31, 2013 and 2012 was 88.7% and 88.0%, respectively. The increase in our average occupancy rate was a result of improving fundamentals, execution by our field organization and sales and marketing team and the benefit of the capital we have invested and continue to spend on our communities.

During the year ended December 31, 2013, we also made progress in controlling our cost growth. Facility operating expenses for the year ended December 31, 2013 were $1.7 billion, an increase of $41.0 million, or 2.5%, as compared to the prior year.

Net loss for the year ended December 31, 2013 was $3.6 million, or $(0.03) per basic and diluted common share, compared to a net loss of $66.5 million, or $(0.54) per basic and diluted common share, for the year ended December 31, 2012.

~~During the~~ year ended December 31, 2013, our ~~Adjusted EBITDA,~~officers, directors and ten-percent stockholders complied with all Section 16(a) filing requirements applicable to them, with the exception of (i) one late Form 4 filing made by George T. Hicks to report 17 transactions made by a broker with discretionary authority, with no instruction from Mr. Hicks, and (ii) one late Form 4 filing made by Mr. Hicks to report one transaction in which shares of common stock were withheld to satisfy tax withholding obligations due upon the vesting of restricted stock previously granted to Mr. Hicks.

Item 11.

Executive Compensation.

COMPENSATION OF EXECUTIVE OFFICERS

Compensation Discussion and Analysis

The Compensation Committee (the “Committee”) administers the Company’s executive compensation program. In this regard, the role of the Committee is to oversee our compensation plans and policies, administer our Omnibus Stock Incentive Plan and Associate Stock Purchase Plan, review and approve corporate goals and objectives relevant to our Chief Executive Officer’s and other executive officers’ compensation, perform an annual evaluation of the Chief Executive Officer’s and other executive officers’ performance in light of those goals and objectives, perform an annual review of executive compensation plans, and annually review and approve all decisions regarding the compensation of executive officers. In addition, the Committee is responsible for annually evaluating the appropriate level of compensation for non-employee directors. The Committee’s charter reflects these responsibilities and provides that the Committee and the Board of Directors will periodically review and, if appropriate, revise the charter. The Committee’s membership is determined by the Board of Directors and is composed entirely of independent directors. The Committee meets at scheduled times during the year and also takes action by written consent. The Committee Chairman reports on Committee actions and recommendations to the Board of Directors. In addition, the Committee has the authority to engage the services of outside advisers, experts and others to assist it and to delegate authority to subcommittees as it deems appropriate.

Certain of our executive officers, including our Chief Executive Officer, participate in Committee meetings (excluding executive sessions of the Committee) and assist the Committee in fulfilling its responsibilities regarding executive and director compensation. In that regard, our executive officers may provide information to the Committee and make recommendations to the Committee regarding compensation programs and levels (including recommendations regarding proposed equity grants). Our Chief Executive Officer typically recommends to the Committee any changes in the compensation of our other executive officers. Nevertheless, the Committee retains the ultimate authority and responsibility for determining the form and amount of executive compensation. The Committee recommends to the full Board of Directors the form and amount of director compensation.

Appointment of T. Andrew Smith as Our Chief Executive Officer

In August 2012, W.E. Sheriff announced his intent to retire as Chief Executive Officer once a successor was named and the transition process was complete. During late 2012 and early 2013, the Committee engaged Chernoff Diamond & Co. LLC, a third-party compensation consultant (“Chernoff”), to review the compensation of chief executive officers at comparable companies and to assist the Committee in the development of a compensation package for the candidate ultimately chosen by the Board of Directors to serve as the Company’s Chief Executive Officer. Chernoff utilized data from the following peer group companies in preparing its report and recommendations: Emeritus Corporation, National HealthCare Corporation, Kindred Healthcare, Inc., The Ensign Group, Inc., Capital Senior Living Corporation, Skilled Healthcare Group, Inc., Five Star Quality Care, Inc., Wyndham Worldwide Corporation, Universal Health Services, Inc., Mednax, Inc., Tenet Healthcare Corporation, Community Health Systems, Inc., Omega Healthcare Investors, Inc., Centene Corporation, Healthcare Realty Trust Incorporated, HealthSouth Corporation, Health Management Associates, Inc., LaSalle Hotel Properties, LifePoint Hospitals, Inc., DiamondRock Hospitality Company, Select Medical Holdings Corporation, Magellan Health Services, Inc., Chemed Corporation, Vanguard Health Systems, Inc., Sunrise Senior Living, Inc., Sun Healthcare Group and Assisted Living Concepts, Inc.

The Committee took this information into account in determining the compensation package that was ultimately provided to T. Andrew Smith upon his appointment as Chief Executive Officer, but did not use the information to benchmark any elements of his compensation. Chernoff reported directly to the Committee and did not provide any other services to the Company.

Our Named Executive Officers

We refer to the following individuals as our “named executive officers:”

Mr. Smith, our Chief Executive Officer;

Mr. Sheriff, our former Chief Executive Officer;

Mark W. Ohlendorf, our President and Chief Financial Officer;

Gregory B. Richard, our Executive Vice President and Chief Operating Officer;

Bryan D. Richardson, our Executive Vice President and Chief Administrative Officer; and

Glenn O. Maul, our Executive Vice President and Chief People Officer.

Mr. Smith served as our Executive Vice President, General Counsel and Secretary until February 20, 2013, when he became Chief Executive Officer upon Mr. Sheriff’s retirement.

Executive Officer Compensation Philosophy

Because we believe that our executive officers are vital to our long-term success, we strive to ensure that our executive officer compensation programs are effective in rewarding performance, retaining key executives responsible for the success of the Company and, when applicable, attracting new executives. To accomplish these objectives, the Company intends to provide compensation that is:

Competitive Externally,

Fair Internally, and

Based upon Performance.

We have structured our executive compensation programs so that each executive receives a base salary, short-term cash incentive compensation and long-term incentive compensation. We believe that an executive’s total annual cash compensation should vary with the Company’s and the individual’s performance in achieving financial and non-financial objectives, and that any long-term incentive compensation that is awarded should be closely aligned with our stockholders’ interests. Thus, long-term incentive compensation should be generally comprised of equity-based awards, the value of which cannot be realized immediately and depends upon the long-term performance of the Company.

At the Company’s annual meeting of stockholders held in 2013, more than 95% of the votes cast supported the non-binding, advisory vote to approve the compensation of Brookdale’s named executive officers (referred to as the “say-on-pay” vote). The Committee believes this overwhelmingly positive result affirms our stockholders’ support of the Company’s approach to its executive compensation program and provides assurance that the program is reasonable and well-aligned with stockholder expectations. Given the high level of approval for the say-on-pay vote from our stockholders, the Committee did not change its approach to the Company’s executive compensation program. The Committee values the opinions expressed by stockholders in the annual say-on-pay vote and will consider the outcome of such votes when making future compensation decisions for the Company’s named executive officers.

2013 Named Executive Officer Compensation

During late 2010, the Committee engaged Chernoff to conduct a thorough review of our executive officer compensation program, in order to assist the Committee in establishing the Company’s 2011 executive officer compensation program. The Committee may elect in the future to expand the scope of the engagement of its independent compensation consultants or to retain other compensation consultants (as it did in late 2013, as described below) if it determines that doing so would assist it in implementing and maintaining compensation plans and programs.

In conducting its review, Chernoff completed a market study of the levels, structure and mix of the various elements of compensation provided to executives in similarly-titled roles at comparable companies. Chernoff utilized data from the following peer group companies in preparing its report and recommendations: Amedisys, Inc., Assisted Living Concepts, Centene Corporation, Chemed Corporation, Diamondrock Hospitality, Emeritus Corporation, The Ensign Group, Five Star Quality Care, Inc., Gentiva Health Services, Inc., Health Care REIT, Inc., Health Management Assoc., HealthSouth Corporation, Kindred Healthcare, Inc., LifePoint Hospitals, Inc., Lincare Holdings, Inc., Magellan Health Services, Mednax, Inc., National HealthCare Corporation, Nationwide Health Properties, Inc., Psychiatric Solutions, Inc., RehabCare Group, Inc., Sun Healthcare Group, Inc., Sunrise Senior Living, Inc., Ventas, Inc. and Wyndham Worldwide. Although the Committee did not utilize the information from Chernoff’s report to benchmark formally any elements or levels of our named executive officers’ compensation, it did generally compare the levels of total compensation and individual elements of compensation provided to the Company’s executive officers to the median and 75th percentile levels of compensation provided to executives in similarly-titled roles at the peer companies. Following completion of Chernoff’s executive compensation review, the Committee indicated that, while it did not want to formally benchmark its target market position to any particular quartile or percentile, the Committee’s objective should generally be to target executive compensation in the 50th to 75th percentile, particularly in light of the complexity of the organization and the size of the Company relative to the peer group. As a result of the Committee’s review of Chernoff’s report, its discussions with management and its own deliberations, the Committee determined to modify certain elements of the 2011 compensation program for our named executive officers from the program that was in effect during 2010.

For 2013, the Committee generally did not make any changes to our compensation program for our named executive officers from that in place in 2011 or 2012, but it did provide compensation increases and additional grants of equity awards to certain of our named executive officers in connection with 2013 promotions, and provided additional cost of living base salary increases to certain other named executive officers, each as described below.

For 2013, the total annual compensation for the Company’s named executive officers consisted of base salary, an annual performance-based cash incentive opportunity based on Company and (for each named executive officer other than Mr. Sheriff) individual performance objectives and long-term incentive compensation in the form of time-based and performance-based restricted stock awards, as described below:

•

Base Salary

The Committee believes that, in order to attract and retain our key executives, it is appropriate to provide a base salary that is both competitive externally and fair internally. Once base salary is fixed, it does not generally depend on the Company’s performance; however, subject to any applicable employment agreement provisions, it remains adjustable, based on individual performance.

•

Annual Cash Incentive Opportunity

The purpose of annual performance-based compensation is to motivate and reward executives for their contributions to the Company’s performance for the applicable year by providing them with the opportunity to receive an annual cash bonus based on the achievement of performance objectives. For 2013, each named executive officer had the opportunity to receive an annual cash bonus dependent on the level of achievement of performance goals based on the Company’s Cash From Facility Operations (“CFFO”) per share and, ~~Facility Operating Income increased by 13.0%, 23.0%~~for each named executive officer other than Mr. Maul, year-over-year same community senior housing net operating income (“NOI”) growth. In addition, for each of the named executive officers other than Mr. Sheriff, a portion of the annual cash incentive bonus opportunity was dependent on the level of achievement of individual performance objectives.

•

Long-Term Incentive Compensation

The purpose of long-term incentive compensation is to align an executive’s long-term goals with those of our stockholders. For 2013, the Committee used time-based and ~~7.0%, respectively, when compared~~performance-based restricted stock as the forms of long-term incentive compensation awarded to our executives. The Committee believes that the use of restricted stock is particularly helpful in the retention of key executives and appropriately aligns the interests of our executives with the interests of our stockholders. We have never granted stock options to our employees or executives. Additionally, as a retention tool, restricted stock retains some value to the ~~prior year.~~

~~During 2013, we increased our owned property portfolio by acquiring~~employee irrespective of any movement in stock price. This encourages employees to remain with the ~~underlying real estate associated with eight Assisted Living communities with a total of approximately 633 units for an aggregate purchase price of $83.3 million. Six of~~Company during the ~~communities had previously been managed by us since the acquisition of Horizon Bay in September 2011.~~

~~During the year ended December 31, 2013, we continued to expand our ancillary services offerings. During the year, we acquired two home health agencies~~restricted period and one hospice agency for an aggregate purchase price of approximately $2.6 million. As of December 31, 2013, we offered therapy services to approximately 52,000 of our units and home health services to approximately 47,000 of our units (approximately 38,000 and 34,000 of these units, respectively, are in our consolidated portfolio). As of that date we also had eleven hospice agencies in operation. We expect to continue to ~~expand~~work to achieve the Company’s long-term goals for growth and profitability.

2013 Base Salaries

The annual base salaries for our ~~ancillary services programs to additional units and to open or acquire additional home health agencies. We also expect to expand our ancillary services programs by opening additional hospice agencies.~~

~~The following table sets forth, for the periods indicated, statement of operations items~~thereafter received a consulting fee, as described below in “— Employment Agreements with Named Executive Officers — Employment Agreement and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunctionRelated Arrangements with ~~our consolidated financial statements and the notes thereto, which are included herein. Our results reflect the inclusion of acquisitions that occurred during the respective reporting periods.~~

W.E. Sheriff.” As ~~of December 31, 2013, our total operations included 649 communities with a capacity~~noted below, Mr. Smith’s base salary was increased to ~~serve 66,524 residents.~~

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

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

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

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

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

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

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

~~Facility operating expense increased over the prior year primarily due to an increase in salaries and wages, an increase in marketing and advertising, and additional expenses incurred~~$825,000 in connection with ~~the expansion of our ancillary services programs. These increases were partially offset by a decrease in insurance expense.~~

~~Retirement Centers operating expenses~~his appointment as Chief Executive Officer effective February 20, 2013. The Committee increased ~~$5.7 million, or 1.9%, primarily due~~Mr. Richard’s base salary to ~~an increase in salaries~~$360,000 effective January 1, 2013 and ~~wages due~~then further increased his base salary to wage increases and an increase in marketing and advertising expense. There was also an increase in real estate tax expense year over year and an increase in food and supplies expense driven by higher occupancy compared to the prior year. These increases were partially offset by a decrease in insurance expense.

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

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

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

~~Brookdale Ancillary Services operating expenses increased $19.7 million, or 11.1%, primarily due to an increase in expenses incurred~~$450,000 in connection with ~~the continued expansion~~his appointment as Chief Operating Officer effective June 16, 2013.

2013 Annual Cash Incentive Opportunity

As noted above, each named executive officer was eligible to receive a cash bonus opportunity for 2013 based on Company, and for each named executive officer other than Mr. Sheriff, individual performance. The 2013 target bonus amounts that each of our ~~ancillary~~named executive officers were eligible to receive were calculated as follows:

Mr. Smith was eligible to receive an amount equal to 125% of the base salary that was paid to him in 2013;

Mr. Sheriff was eligible to receive an amount equal to 100% of his annual base salary, pro-rated to reflect the duration of his service ~~programs,~~as Chief Executive Officer through his retirement, which was effective as of February 20, 2013;

Mr. Richard was eligible to receive an ~~increase in therapy labor expense~~amount equal to 100% of his annual base salary for his service as Executive Vice President—Field Operations through his appointment as Chief Operating Officer effective as June 16, 2013 and an ~~increase~~amount equal to 100% of his annual base salary for his service as Chief Operating Officer for the remainder of the year;

Messrs. Ohlendorf and Richardson were eligible to receive amounts equal to 100% of their respective annual base salaries; and

Mr. Maul was eligible to receive an amount equal to 80% of his annual base salary.

The actual 2013 target bonus amounts for the named executive officers are set forth below:


Name	2013 Target CFFO Bonus Opportunity		2013 Target Same Community NOI Growth Bonus Opportunity		2013 Target Individual Objectives Bonus Opportunity		Total 2013 Target Bonus Opportunity
T. Andrew Smith	$	619,641	$	95,329	$	238,324	$	953,294
W.E. Sheriff	$	97,615	$	10,846		—	$	108,461
Mark W. Ohlendorf	$	278,000	$	49,000	$	163,000	$	490,000
Gregory B. Richard	$	224,765	$	40,458	$	139,354	$	404,577
Bryan D. Richardson	$	200,000	$	36,000	$	124,000	$	360,000
Glenn O. Maul	$	140,000		—	$	60,000	$	200,000

The Company performance portions of the cash bonus opportunity were to be paid dependent on the level of achievement of performance goals developed by management and approved by the Committee based on the Company’s budgeted CFFO per share for 2013 and (other than for Mr. Maul) year-over-year same community senior housing NOI growth.

During 2013, Mr. Maul participated in ~~bad debt expense.~~

~~General~~members of management (rather than the program applicable to the other members of the Company’s senior management executive committee). Mr. Maul’s target bonus opportunity was 80% of his annual earnings attributable to base salary. Seventy percent (70%) of the target bonus opportunity was based on the Company’s CFFO per share for 2013. The remaining 30% of Mr. Maul’s target bonus opportunity (which, if earned, would be paid irrespective of the Company’s CFFO results) was based on the achievement of individual objectives.

The targeted level of CFFO performance under the bonus programs was CFFO per share of $2.45 for fiscal 2013, which was consistent with the Company’s internal business plan. Achievement of the targeted level of performance would have required significant growth in CFFO per share over the Company’s actual 2012 CFFO results and ~~administrative expense increased $5.7 million, or 3.2%, primarily~~management therefore viewed the performance targets to be challenging. For purposes of our 2013 bonus programs, the CFFO per share performance targets were defined as the result of increases in salaries and wage expense and employee benefits expense primarily due to increased employee headcount and increases in travel, repairs and maintenance, and marketing and advertising expenses. These increases were partially offset by a decrease inCompany’s publicly-reported CFFO per share (as adjusted for integration, transaction-related and electronic medical records ~~("EMR"~~(“EMR”) roll-out ~~costs compared~~costs).

Achievement of the minimum threshold level of CFFO performance under our 2013 bonus programs would have resulted in 20% of this portion of the award being funded. Achievement of the targeted level of CFFO performance would have resulted in 100% of this portion of the award being funded. Achievement in excess of the targeted level of performance would have resulted in a payout in excess of 100% of the target bonus opportunity. In order to ensure that amounts paid under the program could qualify as “performance-based” compensation under Section 162(m) of the Internal Revenue Code, the maximum award that any named executive officer could receive with respect to 2013 performance under the 2013 annual cash incentive bonus program was $2,000,000.

The actual percentage of the CFFO bonus opportunity set forth above that each named executive officer would have been eligible to receive was determined as follows:


CFFO per Share Targets	Percentage of Target CFFO Bonus Opportunity Awarded
$2.85		200	%
$2.65		150	%
$2.61		140	%
$2.57		130	%
$2.53		120	%
$2.49		110	%
$2.45		100	%
$2.39		90	%
$2.33		80	%
$2.27		60	%
$2.21		40	%
$2.15		20	%
Below $2.15		0	%

Bonus opportunity percentages were to be pro-rated between the steps set forth above.

The targeted level of same community senior housing NOI growth was year-over-year growth of 7.50% for 2013. For purposes of our 2013 bonus programs, the actual level of NOI growth was to be measured using a specified subset of the Company’s communities (which was intended to exclude the effect of recent acquisitions and dispositions or other EBITDA-enhancing reinvestments in our communities). Achievement of the minimum threshold level of same community NOI growth performance would have resulted in 20% of this portion of the award being funded. Achievement of the targeted level of performance would have resulted in 100% of this portion of the award being funded. Achievement in excess of the targeted level of performance would have resulted in a payout in excess of 100% of the target bonus opportunity. As noted above, the maximum award that any named executive officer could receive with respect to 2013 performance under the 2013 annual cash incentive bonus program was $2,000,000.

The actual percentage of the same community senior housing NOI growth bonus opportunity set forth above that each named executive officer (other than Mr. Maul) would have been eligible to receive was determined as follows:


Same Community NOI Growth Targets	Percentage of Target Same Community NOI Growth Opportunity Awarded
8.50%		150	%
8.30%		140	%
8.10%		130	%
7.90%		120	%
7.70%		110	%
7.50%		100	%
6.75%		90	%
6.00%		80	%
5.00%		50	%
4.00%		20	%
Below 4.00%		0	%

Bonus opportunity percentages were to be pro-rated between the steps set forth above.

The individual objectives bonus opportunity was to be payable following the end of the fiscal year, dependent on the level of achievement of certain objectives established for each applicable individual for 2013. The objectives for each named executive officer other than Mr. Smith were established by Mr. Smith, the Company’s Chief Executive Officer, and approved by the Committee at the beginning of the performance period. Mr. Smith’s objectives were approved by the Board of Directors at the beginning of the performance period. The individual objectives contained both subjective and objective elements and, therefore, the determination of the level of achievement of the goals was, in part, subjective. These individual objectives were intended to create near-term focus by each applicable executive on key strategic initiatives supporting the Company’s business plan. It was intended that the objectives would be reasonably achievable, but they would require significant additional efforts on behalf of each of the executives, and the individual objectives bonuses were therefore at risk. The level of achievement of the individual objectives for each named executive officer other than Mr. Smith was to be determined by the Committee promptly following the end of the fiscal year upon the recommendation of Mr. Smith. The level of achievement of Mr. Smith’s individual objectives was to be determined by the Board of Directors. Achievement of the targeted level of performance would have resulted in 100% of the award being funded, which represented the maximum individual objectives bonus opportunity for each applicable executive.

For 2013, Mr. Smith’s objectives related to the ~~prior year. General~~exploration, negotiation and, if feasible and appropriate, completion of various acquisitions, financing and other transactions, the implementation of organizational goals relating to the Company’s senior management team and support office structure, the achievement of operational goals relating to the Company’s performance monitoring and planning processes and human capital management strategy and the attainment of various corporate marketing and sales goals. Each of these objectives was chosen based on Mr. Smith’s oversight role as the Chief Executive Officer of the Company.

For 2013, Mr. Ohlendorf’s objectives related to the analysis and exploration of various financing and other transactions, the implementation of various strategic systems initiatives, the achievement of service alignment targets relating to risk management, resident satisfaction and labor scheduling efficiency, and the development and implementation of various reporting, branding and investor relations goals. Each of these objectives was chosen based on Mr. Ohlendorf’s role as the Company’s principal financial and accounting officer (including his role in oversight of the Company’s information technology team and investor relations activities).

For 2013, Mr. Richard’s objectives related to the achievement of service alignment targets relating to risk management, resident satisfaction and labor scheduling efficiency, the establishment of standards for community activities and resident programs, an increase in the year-over-year skilled nursing facility census and the achievement of net operating income goals and various other operational goals. Each of these objectives was chosen based on Mr. Richard’s role in oversight of the Company’s field operations (including his role in oversight of the Company’s ISC and clinical teams) and subsequent appointment as the Company’s Chief Operating Officer.

For 2013, Mr. Richardson’s objectives related to the analysis and exploration of various financing and other transactions, the achievement of service alignment targets relating to risk management, resident satisfaction and labor scheduling efficiency, the implementation of various strategic systems initiatives, the development of an approved monthly and divisional reporting process, the implementation of an updated employee medical plan and the attainment of certain Program Max goals. Each of these objectives was chosen based on Mr. Richardson’s role in oversight of the Company’s administrative ~~expense~~operations.

For 2013, Mr. Maul’s objectives related to the implementation of an updated employee medical plan, the development of a multi-year human capital management strategy, the development and implementation of a refined compensation administration program and the completion and implementation of a disaster recovery and business continuity program. Each of these objectives was chosen based on Mr. Maul’s role in oversight of the Company’s human resources functions.

2013 Annual Cash Incentive Results

The Company achieved CFFO per share of $2.50 for 2013 (as shown in the calculation below and as ~~a percentage of total revenue, including revenue generated by the communities we manage and excluding non-cash stock-based compensation expense and~~adjusted for integration, transaction-related and EMR roll-out ~~costs, was 4.5% and 4.3% for~~costs). Accordingly, the ~~years ended December 31, 2013 and 2012, respectively, calculated as follows (dollars in thousands):~~

~~Facility lease expense decreased $7.3 million, or 2.6%, primarily as a result~~Committee determined that each of the ~~purchase of 12 previously leased communities in the prior year.~~

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

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

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

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

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

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

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

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

~~As of December 31, 2012, our total operations included 647 communities with a capacity to serve 66,734 residents.~~

Resident fees increased over the prior year primarily as a result of an increase in the average monthly revenue per unit compared to the prior year period, including growing revenues from our ancillary services programs, an increase in occupancy and a 2.2% increase in consolidated units operated. During 2012, revenues grew 2.4% at the 531 communities we operated during both periods with a 1.6% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances). Occupancy increased 0.7% in these communities period over period.

Retirement Centers revenue increased $30.1 million, or 6.3%, primarily due to the inclusion of revenue from communities acquired during the prior year and increases in occupancy and average monthly revenue per unit at the communities we operated during both years.

Assisted Living revenue increased $48.8 million, or 5.1%, primarily due to the inclusion of revenue from communities acquired during the prior year and increases in occupancy and average monthly revenue per unit at the communities we operated during both years.

~~CCRCs - Rental revenue increased $21.4 million, or 5.9%, primarily due to the inclusion of revenue from~~

communities acquired during the prior year. The increase was partially offset by decreases in the average monthly revenue per unit and occupancy at the communities we operated during both years. Revenue for the CCRCs – Rental segment was also impacted by a reduction in the reimbursement rate for Medicare skilled nursing patients.

CCRCs - Entry Fee revenue increased $3.7 million, or 1.3%, primarily due to an increase in occupancy at the communities we operated during both periods. The increase was partially offset by a decrease in the average monthly revenue per unit at the communities we operated during both years. Revenue for the CCRCs – Entry Fee segment was also impacted by a reduction in the reimbursement rate for Medicare skilled nursing patients.

Brookdale Ancillary Services revenue increased $18.7 million, or 9.1%, primarily due to the roll-out of our ancillary services programs to additional units subsequent to the prior year end. The increase was partially offset by a reduction in Medicare reimbursement rates.

Total management services revenue increased $189.6 million, or 114.1%, over the prior year. Approximately $172.4 million of this increase is attributable to the increase in revenue from reimbursed costs incurred on behalf of managed communities and is primarily due to the management agreements entered into or acquired in conjunction with the Horizon Bay and HCP transactions that occurred during third quarter of 2011.

Facility operating expense increased over the prior-year primarily due to an increase in salaries and wages, additional expense incurred in 2012 in connection with the continued expansion of our ancillary services programs during 2011 and 2012, increased payroll taxes and workers compensation expense, as well as the inclusion of expenses from communities acquired during 2012. These increases were partially offset by decreases in utilities expense as a result of milder weather in 2012 and bad debt expense.

Retirement Centers operating expenses increased $22.9 million, or 8.3%, primarily due to the inclusion of expenses from communities acquired during the prior year, as well as increases in salaries and wages due to wage rate increases and an increase in hours worked year over year. These increases were partially offset by a decrease in utilities expense as a result of milder weather in 2012.

Assisted Living operating expenses increased $27.5 million, or 4.4%, primarily due to the inclusion of expenses from communities acquired during the prior year, as well as an increase in salaries and wages due to wage rate increases and an increase in hours worked year over year. These increases were partially offset by a decrease in utilities expense as a result of milder weather in 2012.

CCRCs - Rental operating expenses increased $32.2 million, or 13.0%, primarily due to the inclusion of expenses from communities acquired during the prior year, an increase in salaries and wages due to wage rate increases and an increase in hours worked year over year, and an increase in skilled therapy services expense due to an adverse change in the allowable method for delivering therapy services to skilled nursing patients.

CCRCs - Entry Fee operating expenses increased $10.8 million, or 5.1%, primarily due to an increase in salaries and wages due to wage rate increases and an increase in hours worked year over year, as well as an increase in skilled therapy services expense due to an adverse change in the allowable method for delivering therapy services to skilled nursing patients. These increases were partially offset by a decrease in bad debt expense.

Brookdale Ancillary Services operating expenses increased $28.9 million, or 19.6%, primarily due to an increase in expenses incurred in connection with the continued expansion of our ancillary services programs and an increase in therapy direct labor expenses.

General and administrative expense increased $30.5 million, or 20.6%, primarily as the result of an increase in the number of employees in connection with the Horizon Bay and HCP transactions that occurred during the third quarter of 2011, an increase in integration, transaction-related and electronic medical records ("EMR") roll-out costs, and an increase in non-cash stock-based compensation expense. General and administrative expense as a

percentage of total revenue, including revenue generated by the communities we manage and excluding non-cash stock-based compensation expense and integration, transaction-related and EMR roll-out costs, was 4.3% and 4.4% for the years ended December 31, 2012 and 2011, respectively, calculated as follows (dollars in thousands):

Facility lease expense increased $9.2 million, or 3.3%, primarily as a result of the acquisition of 12 leased communities in connection with the Horizon Bay and HCP transactions that occurred in the third quarter of 2011. These increases were partially offset by decreased lease expense as a result of the purchase of twelve previously leased communities in 2012.

Depreciation and amortization expense decreased by $16.2 million, or 6.0%, primarily as a result of the management contract and therapy services intangibles related to a 2006 acquisition reaching full amortization during 2011.

During 2012, we recognized $27.7 million of impairment charges related to asset impairments for property, plant and equipment and leasehold intangibles for certain communities within the Retirement Centers and Assisted Living segments primarily due to lower than expected performance of the underlying business and the amount by which the carrying values of the assets exceed the estimated fair value. During 2011, we recognized $16.9 million of impairment charges related to asset impairments for property, plant and equipment and leasehold intangibles for certain communities within the Assisted Living and Retirement Center segments. We compared the estimated fair value of the assets to their carrying value and recorded an impairment charge for the excess of carrying value over estimated fair value.

During 2011, we recognized $2.0 million as a gain on acquisition related to the acquisition of Horizon Bay. The loss on acquisition recognized during the year ended December 31, 2012 relates to the reduction of the prior-year gain for adjustments to pre-acquisition self-insurance reserves.

Costs incurred on behalf of managed communities increased $172.4 million, or 113.0%, primarily due to a full year of results related to management agreements entered into or acquired in conjunction with the Horizon Bay and HCP transactions in September 2011. We added 78 new managed communities in connection with these transactions.

~~Interest income increased $0.5 million, or 13.4%, primarily due to realized gains from the liquidation of the marketable securities – restricted in 2012.~~

Interest expense increased $4.6 million, or 3.2%, primarily due to increased interest expense from the amortization of our debt discount on our convertible notes issued during 2011 and increased interest expense on our line of credit, which had a higher average outstanding balance drawn year over year. These increases were partially offset by a decrease in interest expense recorded from the change in fair value of interest rate swaps due to fewer instruments in place during 2012.

~~During 2011, we recognized an $18.9 million as a loss on extinguishment of debt, related to costs incurred in connection with the early repayment of first and second mortgage notes.~~

The increase in the effective tax rate to (2.3)% in 2012 from (2.6)% in 2011 is primarily due to a decrease in our loss before income taxes in 2012. We recorded a valuation allowance against deferred tax benefits generated during 2012.

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

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

We are subject to various legal proceedings and claims that arise in the ordinary course of our business. Although we maintain general liability and professional liability insurance policies for our owned, leased and managed communities under a master insurance program, our 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 $18.6 million and letters of credit aggregating $34.2 million as of December 31, 2013. We operate a wholly-owned captive insurance company, Senior Services Insurance Limited ("SSIL") for the purpose of insuring certain portions of the risk retention under our general liability and professional liability insurance program, but SSIL's coverage is currently limited to claims made prior to 2010. Third-party insurers are responsible for claim costs above program deductibles and retentions.

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

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

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

~~We account for income taxes under the provisions of ASC 740~~ ~~Income Taxes~~. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are expected to be realized. As of December 31, 2013 and 2012, we have a valuation allowance against deferred tax assets of approximately $72.4 million and $65.3 million, respectively. When we determine that it is more likely than not that we will be able to realize our deferred tax assets in the futureCompany had achieved in excess of ~~our net recorded amount, an adjustment to~~ the ~~deferred tax asset would be made and reflected in income. This determination will be made by considering various factors, including the reversal~~targeted level of ~~existing temporary differences, tax planning strategies and estimates of future taxable income exclusive of the reversal of temporary differences.~~

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

~~We determine whether to account for our leases as either operating or capital leases depending~~performance. Based on the underlying terms. As of December 31, 2013, we operated 329 communities under long-term leases with operating, capital and financing lease obligations. The determination of this classification is complex and in certain situations requires a significant level of judgment. Our classification criteria is based on estimates regardingCompany’s actual results, the fair value of the leased communities, minimum lease payments, effective cost of funds, the economic life of the community and certain other terms in the lease agreements as stated in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Communities under operating leases are accounted for in our consolidated statements of operations as lease expenses for actual rent paid plus or minus straight-line adjustments for fixed or estimated minimum lease escalators and amortization of deferred gains. For communities under capital lease and lease financing obligation arrangements, a liability is established on our balance sheets and a corresponding long-term

asset is recorded. Lease payments are allocated between principal and interest on the remaining base lease obligations and the lease asset is depreciated over the shorter of its useful life or the term of the lease. In addition, we amortize leasehold improvements purchased during the term of the lease over the shorter of their economic life or the lease term. Sale-leaseback transactions are recorded as lease financing obligations when the transactions include a form of continuing involvement, such as purchase options.

One of our leases provides for various additional lease payments based on changes in the interest rates on the debt underlying the lease. All of our leases contain fixed or formula based rent escalators. To the extent that the escalator increases are tied to a fixed index or rate, lease payments are accounted for on a straight-line basis over the life of the lease. In addition, we recognize all rent-free or rent holiday periods in operating leases on a straight-line basis over the lease term, including the rent holiday period.

For leases in which we are involved with the construction of the building, we account for the lease during the construction period under the provisions of ASC 840. If we conclude that we have substantively all of the risks of ownership during construction of a leased property and therefore we are deemed the owner of the project for accounting purposes, we record an asset and related financing obligation for the amount of total project costs related to construction in progress and the pre-existing asset. Once construction is complete, we consider the requirements under ASC 840-40 – ~~Leases – Sale-Leaseback Transactions. If the arrangement does not qualify for sale-leaseback accounting, we continue to amortize the financing obligation and depreciate the building over the lease term.~~

Accounts receivable are reported net of an allowance for doubtful accounts, and represent our estimate of the amount that ultimately will be realized in cash. The allowance for doubtful accounts was $17.7 million and $15.3 million as of December 31, 2013 and 2012, respectively. The adequacy of our allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Recent changes in legislation are not expected to have a material impact on the collectability of our accounts receivable; however, changes in economic conditions could have an impact on the collection of existing receivable balances or future allowance calculations.

Approximately 80.0% and 80.1% of our resident fee revenues for the years ended December 31, 2013 and 2012, respectively, were derived from private pay customers and 20.0% and 19.9% of our resident fee revenues for the years ended December 31, 2013 and 2012, respectively, were derived from services covered by various third-party payor programs, including Medicare and Medicaid. Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any, under reimbursement programs. Revenue related to these billings is recorded on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. We accrue contractual or cost related adjustments from Medicare or Medicaid when assessed (without regard to when the assessment is paid or withheld), even if we have not agreed to or are appealing the assessment. Subsequent positive or negative adjustments to these accrued amounts are recorded in net revenues when known.

As of December 31, 2013 and 2012, our long-lived assets were comprised primarily of $3.9 billion of net property, plant and equipment and leasehold intangibles. In accounting for our long-lived assets, other than goodwill, we apply the provisions of ASC 360 ~~Property, Plant and Equipment~~. In connection with our formation transactions, for financial reporting purposes we recorded the non-controlling stockholders' interest at fair value. Acquisitions are accounted for using the purchase method of accounting and the purchase prices are allocated to acquired assets and liabilities based on their estimated fair values. Goodwill associated with our acquisition of ARC and our formation transactions was allocated to the respective reporting unit and included in our application of the provisions of ASC 350 ~~Intangibles – Goodwill and Other~~ ~~("ASC 350"). We account for goodwill under the provisions of ASC 350. As of December 31, 2013 and 2012, we had $109.6 million of goodwill.~~

We test long-lived assets other than goodwill and indefinite-lived intangible assets for recoverability annually during our fourth quarter or whenever changes in circumstances indicate the carrying value may not be recoverable. Recoverability of an asset (group) is estimated by comparing its carrying value to the future net undiscounted cash flows expected to be generated by the asset (group). If this comparison indicates that the carrying value of an asset

(group) is not recoverable, we are required to recognize an impairment loss. The impairment loss is measured by the amount by which the carrying amount of the asset (group) exceeds its estimated fair value. When an impairment loss is recognized for assets to be held and used, the carrying amount of those assets is permanently adjusted and depreciated over its remaining useful life. During the years ended December 31, 2013 and 2012, we evaluated long-lived depreciable assets andCommittee determined that the undiscounted cash flows exceeded the carrying value of these assets for all except a small number of communities. Estimated fair values were determined and non-cash asset impairment charges of $12.9 million and $27.7 million were taken for the years ended December 31, 2013 and 2012, respectively. These impairment charges are primarily due to lower than expected performance of the underlying communities and the amount by which the carrying values of the assets exceed the estimated fair value.

Goodwill is not amortized, but is subject to annual or more frequent impairment testing. We test goodwill for impairment annually during our fourth quarter, or whenever indicators exist that our goodwill may not be recoverable. We first assess qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. Based on a qualitative assessment, it is more likely than not that its fair value is greater than its carrying amount.

Indefinite-lived intangible assets are tested for impairment annually during our fourth quarter or more frequently as required. The impairment test consists of a comparison of the estimated fair value of the indefinite-lived intangible asset with its carrying value. If the carrying amount exceeds its fair value, an impairment loss is recognized for that difference.

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

In using the income approach to estimate the fair value of long-lived assets (groups) and reporting units for purposes of our goodwill impairment test, we make certain key assumptions. Those assumptions include future revenues and future facility operating expenses, and future cash flows that weeach named executive officer would receive ~~upon a sale~~112.5% of ~~the communities using estimated capitalization rates. We corroborate the capitalization rates we use in these calculations with capitalization rates observable from recent market transactions.~~

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

Although we make every reasonable effort to ensure the accuracy of our estimate of the fair value of our reporting units, future changes in the assumptions used to make these estimates could result in the recording of an impairment loss.

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

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

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

Litigation is inherently uncertain and the outcome of individual litigation matters is not predictable with assurance. As described in Note 19 to the consolidated financial statements, we are involved in various legal actions and claims incidental to the conduct of our business which are comparable to other companies in the senior living and healthcare industries. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. In other instances, we may not be able to make a reasonable estimate of any liability because of uncertainties related to the outcome and/or the amount or range of losses. Changes in our current estimates, due to unanticipated events or otherwise, could have a material impact on our financial condition and results of operations.

~~The information required by this Item is provided in Note 2 of the notes to the consolidated financial statements contained in "Item 8. Financial Statements and Supplementary Data".~~

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

The increase in cash provided by operating activities was attributable primarily to improved operating results, primarily due to increases in occupancy and average monthly revenue per unit, including an increase in our ancillary services revenue and controlling our cost growth.

The decrease in cash used in investing activities was primarily attributable to a decrease in cash paid for acquisitions. The decrease was partially offset by an increase in spending on property, plant, equipment, and leasehold intangibles and by additional investments in unconsolidated ventures. The current year also includes cash received from the sale of four communities.

The change in cash related to financing activities year over year was primarily attributable to net repayment of debt, including our line of credit, and related financing costs in connection with refinancing transactions during the current year.

~~Our principal sources of liquidity have historically been from:~~

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

~~Our liquidity requirements have historically arisen from:~~

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

We are highly leveraged and have significant debt and lease obligations. As of December 31, 2013, we have three principal corporate-level debt obligations: our $250.0 million revolving credit facility, our $316.3 million convertible senior notes due 2018 and separate secured and unsecured letter of credit facilities providing for up to $92.5 million of letters of credit in the aggregate. The remainder of our indebtedness is generally comprised of non-recourse property-level mortgage financings.

At December 31, 2013, we had $2.3 billion of debt outstanding, excluding capital lease obligations and our line of credit, at a weighted-average interest rate of 4.5% (calculated using an imputed interest rate of 7.5% for our $316.3 million convertible senior notes due 2018). At December 31, 2013, we had $299.8 million of capital and financing lease obligations, $30.0 million was drawn on our revolving credit facility, and $72.5 million of letters of credit had been issued under our letter of credit facilities. Approximately $202.0 million of our debt and capital lease obligations are due on or before December 31, 2014. We also have substantial operating lease obligations and capital expenditure requirements. For the year ending December 31, 2014, we will be required to make approximately $279.0 million of payments in connection with our existing operating leases.

We had $58.5 million of cash and cash equivalents at December 31, 2013, excluding cash and escrow deposits-restricted and lease security deposits of $136.4 million in the aggregate. As of that date, we also had $250.0 million of availability on our revolving credit facility (of which $30.0 million had been drawn as of December 31, 2013).

At December 31, 2013, we had $576.0 million of negative working capital, which includes the classification of $168.8 million of mortgage notes payable and $278.2 million of refundable entrance fees as current liabilities. Although the mortgage notes payable are scheduled to mature on or prior to December 31, 2014, we have the option, subject to the satisfaction of customary conditions (such as the absence of a material adverse change), to extend the maturity of approximately $140.0 million of certain mortgages payable included in such debt until 2015, as the instruments associated with such mortgages payable provide that we can extend the respective maturity dates for terms of one year from the existing maturity dates. We presently anticipate that we will either satisfy the conditions precedent for extending these obligations and will exercise the extension options or we will refinance or repay the $140.0 million of mortgage notes payable at or prior to maturity. Based upon our historical operating experience, we anticipate that only 9.0% to 12.0% of the refundable entrance fee liabilities will actually come due, and be

required to be settled in cash, during the next 12 months. We expect that any entrance fee liabilities due within the next 12 months will be fully offset by the proceeds generated by subsequent entrance fee sales. Entrance fee sales, net of refunds paid, provided $57.0 million of cash for the year ended December 31, 2013.

For the year ending December 31, 2014, we anticipate that we will make investments of approximately $165.0 million to $180.0 million for net capital expenditures on our current portfolio (excluding expenditures related to our Program Max initiative discussed below), comprised of approximately $40.0 million to $45.0 million of net recurring capital expenditures and approximately $125.0 million to $135.0 million of expenditures relating to other major projects (including corporate initiatives). These major projects include unusual or non-recurring capital projects, projects which create new or enhanced economics, such as major renovations or repositioning projects at our communities, integration related expenditures (including the cost of developing information systems), and expenditures supporting the expansion of our ancillary services programs. For the year ended December 31, 2013, we spent approximately $42.9 million for net recurring capital expenditures and approximately $143.7 million for expenditures relating to other major projects and corporate initiatives.

In addition, we have increased our efforts with respect to the expansion, redevelopment and repositioning of our communities through our Program Max initiative. We anticipate making net investments of approximately $55.0 million to $65.0 million over the next 12 months in connection with recently initiated or currently planned projects. For the year ended December 31, 2013, we spent approximately $31.8 million in connection with our Program Max initiative, net of third party lender or lessor reimbursement.

~~During 2014, we anticipate that our capital expenditures will be funded from cash on hand, cash flows from operations, lessor reimbursement and amounts drawn on our credit facility.~~

As opportunities arise, we plan to continue to take advantage of the fragmented senior housing and care sectors by selectively purchasing existing operating companies, asset portfolios, home health agencies and communities. We may also seek to acquire the fee interest 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 our existing resources are insufficient to satisfy our liquidity requirements, or if we enter into an acquisition or strategic arrangement with another company, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the interests of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our business development activities, any of which could reduce the growth of our business.

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

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

~~As of December 31, 2013, we are in compliance with the financial covenants of our outstanding debt and lease agreements.~~

As of December 31, 2013, we have three principal corporate-level debt obligations: our $250.0 million revolving credit facility, our $316.3 million convertible senior notes due 2018 and separate secured and unsecured letter of credit facilities providing for up to $92.5 million of letters of credit in the aggregate. The remainder of our indebtedness is generally comprised of non-recourse property-level mortgage financings.

As of December 31, 2013 and 2012, our outstanding property-level secured debt and capital leases were $2.3 billion. In accordance with applicable accounting pronouncements, as of December 31, 2013, the current portion of long-term debt within our consolidated financial statements reflects approximately $168.6 million and $33.4 million of our mortgage notes payable and capital lease obligations, respectively, due within the next 12 months. Although the mortgage notes payable are scheduled to mature on or prior to December 31, 2014, we have the option, subject to the satisfaction of customary conditions (such as the absence of a material adverse change), to extend the maturity of approximately $140.0 million of certain mortgages payable included in such debt until 2015, as the instruments associated with such mortgages payable provide that we can extend the respective maturity dates for terms of one year from the existing maturity dates. We presently anticipate that we will either satisfy the conditions precedent for extending these obligations and will exercise the extension options or we will refinance or repay the $140.0 million of mortgage notes payable at or prior to maturity.

During 2013, we incurred $678.8 million of property-level debt primarily related to the financing of acquisitions, the expansion of certain communities, the refinancing of existing debt and the releveraging of certain assets. Approximately $577.4 million of the new debt was issued at a variable interest rate and the remaining $101.4 million was issued at a fixed interest rate. Refer to the notes to the consolidated financial statements for a detailed discussion of the new debt and related terms.

We have secured self-insured retention risk under workers' compensation and general liability and professional liability programs with cash and letters of credit. Cash deposits securing the programs aggregated $18.6 million and $16.1 million as of December 31, 2013 and 2012, respectively. Letters of credit securing the programs aggregated $34.2 million and $40.7 million as of December 31, 2013 and 2012, respectively.

~~As of December 31, 2013, we are in compliance with the financial covenants of our outstanding debt agreements.~~

On March 28, 2013, we entered into a second amended and restated credit agreement with General Electric Capital Corporation, as administrative agent and lender, and the other lenders from time to time parties thereto. The amended credit agreement extended the maturity date of the facility to March 31, 2018 and decreased the interest rate payable on advances and the fee payable on the unused portion of the facility. The amended credit agreement provided an option to increase the committed amount initially from $230.0 million to $250.0 million, which we exercised on June 28, 2013, and provides an additional option to increase the committed amount from $250.0 million to up to $350.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The amended credit agreement also permits reduction of the committed amount or termination of the facility during the last two years of the five year term without payment of a premium or penalty. The amended credit agreement was further amended and restated effective September 20, 2013 to, among other things, incorporate a $25.0 million swingline feature to permit same-day borrowing.

Amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin. The applicable margin varies with the percentage of the total commitment drawn, with a 3.25% margin at 25% or lower utilization, a 3.75% margin at utilization greater than 25% but less than or equal to 50%, and a 4.25% margin at greater than 50% utilization. For purposes of determining the interest rate, in no event will LIBOR be less than 0.5% per annum. We are also required to pay a quarterly commitment fee of 0.5% per annum on the unused portion of the facility.

~~The revolving line of credit can 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 our communities. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance

~~of the communities securing the facility.~~

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

As of December 31, 2013, we had an available secured line of credit with a commitment and available amount of $250.0 million (of which $30.0 million had been drawn as of that date). We also had secured and unsecured letter of credit facilities of up to $92.5 million in the aggregate as of December 31, 2013. Letters of credit totaling $72.5 million had been issued under these facilities as of that date.

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

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

The Notes bear interest at 2.75% per annum, payable semi-annually in cash. The Notes are convertible at an initial conversion rate of 34.1006 shares of our common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $29.325 per share), subject to adjustment. Holders may convert their Notes at their option prior to the close of business on the second trading day immediately preceding the stated maturity date only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending September 30, 2011, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the "measurement period"), in which the trading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; or (iii) upon the occurrence of specified corporate events. On and after March 15, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. Unconverted Notes mature at par in June 2018.

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

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

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

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

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

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

As of December 31, 2013, we have 329 communities operated under long-term leases. The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or tied to changes in leased property revenue or the consumer price index.

~~For the year ended December 31, 2013, our minimum annual cash lease payments for our capital/financing leases and operating leases were $56.3 million and $276.5 million, respectively.~~

~~As of December 31, 2013, we are in compliance with the financial covenants of our capital and operating leases.~~

In the normal course of business, we use a variety of financial instruments to mitigate interest rate risk. We have entered into certain interest rate protection and swap agreements to effectively cap or convert floating rate debt to a fixed rate basis. As of December 31, 2013, we have $703.2 million in aggregate notional amount of interest rate caps, $27.0 million in aggregate notional amount of swaps and $227.0 million of variable rate debt, excluding our secured line of credit and capital lease obligations, that is not subject to any cap or swap agreements. Refer to the notes to the consolidated financial statements for a detailed discussion of the interest rate protection and swap agreements.

~~All derivative instruments are recognized as either assets or liabilities in the consolidated balance sheet at fair value.~~

~~The following table presents a summary of our material indebtedness, including the related interest payments, lease and other contractual commitments, as of December 31, 2013.~~

~~The foregoing amounts exclude outstanding letters of credit of $72.5 million as of December 31, 2013.~~

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

At December 31, 2013, approximately $950.5 million of our indebtedness, excluding our line of credit, bears interest at floating rates. We have mitigated our exposure to floating rates by using interest rate swaps and interest rate caps under our debt/lease arrangements. Inflation, and its impact on floating interest rates, could affect the amount of interest payments due on our line of credit.

The equity method of accounting has been applied in the accompanying financial statements with respect to our investment in unconsolidated ventures that are not considered VIEs as we do not possess a controlling financial interest. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. In this report, we define and use the non-GAAP financial measures Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income, as set forth below.

~~We define Adjusted EBITDA as follows:~~

In the first quarter of 2012, we revised the definition of Adjusted EBITDA to clarify the point at which first generation entrance fee receipts and refunds at recently opened entrance fee CCRCs will be included. We determine the stabilization date of recently opened entrance fee communities to be the first day of the first full fiscal quarter occurring two years subsequent to the community's opening date for occupancy of all levels of care on the campus.

As a result of this change, beginning in the first quarter of 2012, we include all net entrance fee activity from a recently opened entrance fee CCRC in our non-GAAP financial measures. For the years ended December 31, 2013 and 2012, first generation net entrance fee receipts which would have been excluded under the previous definition of Adjusted EBITDA were $0.9 million and $3.6 million, respectively.

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

Adjusted EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term, such as the change in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), taxation and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the 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 the financial 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 our industry.

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

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

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

~~The table below shows the reconciliation of our net loss to Adjusted EBITDA for the years ended December 31, 2013, 2012, and 2011 (dollars in thousands):~~

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

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

~~In the first quarter of 2012, we revised the definition of~~his target CFFO to clarify the point at which first generation entrance fee receipts and refunds at recently opened entrance fee CCRCs will be included. We determine the stabilization date of recently opened entrance fee communities to be the first day of the first full fiscal quarter occurring two years subsequent to the community's opening date for occupancy of all levels of care on the campus.

As a result of this change, beginning in the first quarter of 2012, we include all net entrance fee activity from a recently opened entrance fee CCRC in our non-GAAP financial measures. For the years ended December 31, 2013 and 2012, first generation net entrance fee receipts which would have been excluded under the previous definition of CFFO were $0.9 million and $3.6 million, respectively.

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

This metric measures our liquidity based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. CFFO is one of the metrics used by our senior management and board of directors (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 to stockholders, (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 various covenants in our credit agreements. These agreements generally require us to escrow or spend a minimum of between $250 and $450 per unit per year. Historically, we have spent in excess of these per unit amounts; however, there is no assurance that we will have funds available to escrow or spend these per unit amounts in the future. If we do not escrow or spend the required minimum annual amounts, we would be in default of the applicable debt or lease agreement which could trigger cross default provisions in our outstanding indebtedness and lease arrangements.

CFFO has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of cash flow from operations. CFFO does not represent cash available for dividends or discretionary expenditures, since we may have mandatory debt service requirements or other non-discretionary expenditures not reflected in the measure. Material limitations in making the adjustment to our cash flow from operations to calculate CFFO, and using this non-GAAP financial measure as compared to GAAP operating cash flows, include:

We believe CFFO is useful to investors because it assists their ability to meaningfully evaluate (1) our ability to service our outstanding indebtedness, including our credit facilities and capital and financing leases, (2) our ability to pay dividends to stockholders and (3) our ability to make regular recurring capital expenditures to maintain and improve our communities.

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

bonus opportunity.

The table below shows the reconciliation of net cash provided by operating activities to CFFO for the ~~years~~year ended December 31, 2013 ~~2012~~ and ~~2011 (dollars in thousands):~~

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

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

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

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

~~A number of our debt and lease agreements contain covenants measuring Facility Operating Income to gauge debt or lease coverages. The debt or lease coverage covenants are generally~~not calculated ~~as facility net operating income (defined as total operating revenue less operating expenses, all as determined on an accrual basis~~ in accordance with ~~GAAP). For purposes of the coverage calculation, the lender~~generally accepted accounting principles, or ~~lessor will further require a pro forma adjustment to facility operating income to include a management fee (generally 4% to 5% of operating revenue)~~GAAP, and an annual capital reserve (generally $250 to $450 per unit). An investor or potential investor may find this item important in evaluating our performance, results of operations and financial position, particularly on a facility-by-facility basis.

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

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

~~Facility Operating Income is not an alternative to net income, income from operations or~~ cash flows provided by or used in operations, as ~~calculated and presented~~determined in accordance with GAAP. ~~You should not rely~~Annual CFFO per share is calculated as the sum of the quarterly amounts for the year. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” in the Original Filing for additional information regarding how we define and use CFFO and the limitations on ~~Facility Operating Income as~~the use of this non-GAAP financial measure.


	Three Months Ended												Year Ended
(in thousands, except per share data)	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013			December 31, 2013
Net cash provided by operating activities	$	64,485		$	80,343		$	104,247		$	117,046		$	366,121
Changes in operating assets and liabilities		16,446			(707	)		(21,464	)		(27,473	)		(33,198	)
Refundable entrance fees received		7,636			11,754			9,875			18,875			48,140
Entrance fee refunds disbursed		(9,320	)		(7,456	)		(7,728	)		(10,821	)		(35,325	)
Recurring capital expenditures, net		(9,324	)		(10,664	)		(12,127	)		(10,786	)		(42,901	)
Lease financing debt amortization with fair market value or no purchase options		(3,371	)		(3,444	)		(3,518	)		(3,594	)		(13,927	)
Distributions from unconsolidated ventures from cumulative share of net earnings		(668	)		(773	)		(648	)		(602	)		(2,691	)
Cash From Facility Operations from unconsolidated ventures		1,958			2,099			1,922			1,825			7,804

Reported Cash From Facility Operations	$	67,842		$	71,152		$	70,559		$	84,470		$	294,023
Add: integration, transaction-related and EMR roll-out costs		2,105			3,626			4,661			4,078			14,470

Adjusted Cash From Facility Operations	$	69,947		$	74,778		$	75,220		$	88,458		$	308,493


Weighted Average Shares		122,823			123,405			124,128			124,308			123,671
CFFO per share	$	0.55		$	0.58		$	0.57		$	0.68		$	2.38
Add: integration, transaction-related and EMR roll-out costs		0.02			0.03			0.04			0.03			0.12

Adjusted CFFO per share	$	0.57		$	0.61		$	0.61		$	0.71		$	2.50

The amounts paid to each named executive officer with respect to the 2013 CFFO bonus opportunity are set forth below:


Name	Total CFFO Bonus Payment
T. Andrew Smith	$	697,118
W.E. Sheriff	$	109,817
Mark W. Ohlendorf	$	312,750
Gregory B. Richard	$	252,861
Bryan D. Richardson	$	225,000
Glenn O. Maul	$	156,434

The Company achieved year-over-year same community senior housing NOI growth of 8.35% for 2013. Accordingly, the Committee determined that each of the named executive officers (other than Mr. Maul) was eligible for a ~~substitute for any such GAAP financial measure. We strongly urge you to review~~bonus payment based on the reconciliation of Facility Operating Income to GAAP net income (loss), along with our consolidated financial statements included herein. We also strongly urge you to not rely on any single financial measure to evaluate our business. In addition, because Facility Operating Income is not a measure of financialsame community NOI growth performance ~~under GAAP and is susceptible to varying calculations, the Facility Operating Income~~ measure, as ~~presented~~the Company had achieved in ~~this report, may differ from~~excess of the threshold level of performance. Based on the Company’s actual results, the Committee determined that each named executive officer would receive 142.3% of his target same community NOI growth bonus opportunity.

The amounts paid to each of Messrs. Smith, Sheriff, Ohlendorf, Richard and ~~may not be comparable~~Richardson with respect to ~~similarly titled measures used by other companies.~~

~~The table below shows~~ the ~~reconciliation~~2013 same community NOI growth bonus opportunity are set forth below:


Name	Total Same Community NOI Growth Bonus Payment
T. Andrew Smith	$	135,657
W.E. Sheriff	$	15,437
Mark W. Ohlendorf	$	69,739
Gregory B. Richard	$	57,581
Bryan D. Richardson	$	51,237

Following conclusion of ~~net loss to Facility Operating Income for~~ the ~~years ended December 31,~~ 2013 ~~2012 and 2011 (dollars in thousands):~~

We are subject to market risks from changes in interest rates charged on our credit facilities, other floating-rate indebtedness and lease payments subject to floating rates. The impact on earnings andfiscal year, 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, 2013, we had approximately $1.4 billion of long-term fixed rate debt, $0.9 billion of long-term variable rate debt, excluding our line of credit, and $299.8 million of capital and financing lease obligations. As of December 31, 2013, our total fixed-rate debt and variable-rate debt outstanding had a weighted-average interest rate of 4.5% (calculated using an imputed interest rate of 7.5% for our $316.3 million convertible senior notes due 2018).

We enter into certain interest rate swap agreements with major financial institutions to manage our risk on variable rate debt. Additionally, we have entered into certain cap agreements to effectively manage our risk above certain interest rates. As of December 31, 2013, $1.4 billion, or 60.0%, of our debt, excluding our line of credit and capital and financing lease obligations, either has fixed rates or variable rates that are subject to swap agreements. As of December 31, 2013, $696.6 million, or 30.2%, of our debt, excluding our line of credit and capital and financing lease obligations, is subject to cap agreements. The remaining $227.0 million, or 9.8%, of our debt is variable rate debt, not subject to any 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 line of credit and capital and financing lease obligations, as follows (after consideration of hedging instruments currently in place): a 100 basis point increase in interest rates would have an impact of $9.4 million, a 500 basis point increase in interest rates would have an impact of $43.1 million and a 1,000 basis point increase in interest rates would have an impact of $55.0 million.

~~We have audited the accompanying consolidated balance sheets of Brookdale Senior Living Inc. (the Company) as of December 31, 2013 and 2012,~~his individual objectives bonus opportunity. In addition, based upon Mr. Smith’s recommendation and the ~~related consolidated statements~~Committee’s own evaluation of ~~operations, comprehensive income, equity,~~each named executive officer’s performance against the individual performance objectives that had been previously established, the Committee determined that Messrs. Ohlendorf and ~~cash flows for~~Richardson had earned 98.0% of their respective individual objectives bonus opportunities, that Mr. Richard had earned 80.0% of his individual objectives bonus opportunity and that Mr. Maul had earned 96.0% of his individual objectives bonus opportunity.

The amounts paid to each of Messrs. Smith, Ohlendorf, Richard, Richardson and Maul with respect to the 2013 individual objectives bonus opportunity are set forth below:


Name	Total Individual Objectives Bonus Payment
T. Andrew Smith	$	226,415
Mark W. Ohlendorf	$	159,740
Gregory B. Richard	$	111,483
Bryan D. Richardson	$	121,520
Glenn O. Maul	$	57,210

2013 Long-Term Incentive Awards

The Committee granted the following shares of time-based and performance-based restricted stock to each of the ~~three years~~named executive officers (other than Mr. Sheriff) as part of their 2013 annual compensation in ~~the period ended December 31, 2013. Our audits also included the financial statement schedule~~2013:


Name	No. of Time-Based Shares Awarded		No. of Performance- Based Shares Awarded
T. Andrew Smith		55,804		65,104
Mark W. Ohlendorf		17,474		17,473
Gregory B. Richard		13,117		13,116
Bryan D. Richardson		13,117		13,116
Glenn O. Maul		6,531		6,530

The time-based shares listed in the ~~accompanying index~~table generally vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017, subject only to an officer’s continued employment.

Seventy-five percent (75%) of the performance-based shares listed in the table will generally vest on February 27, 2016 and the other twenty-five percent (25%) will generally vest on February 27, 2017, in each case subject to an officer’s continued employment and dependent upon the level of achievement of performance goals established for each tranche by the Committee.

The Committee granted an additional 10,429 shares of time-based restricted stock and 10,428 shares of performance-based restricted stock to Mr. Richard in connection with his promotion to Chief Operating Officer in June 2013. The time-based shares will generally vest ratably in four installments on May 20, 2014, May 20, 2015, May 20, 2016 and May 20, 2017, subject in each case to his continued employment. Seventy-five percent (75%) of the performance-based shares will generally vest on May 20, 2016, and the other twenty-five percent (25%) will generally vest on May 20, 2017, in each case subject to his continued employment and dependent upon the level of achievement of performance goals established for each tranche by the Committee.

The Committee also granted an additional 10,000 shares of time-based restricted stock to Mr. Maul in connection with his promotion to Executive Vice President and Chief People Officer in March 2013 and his subsequent relocation to the ~~financial statements.~~Nashville, Tennessee area (as described in greater detail below). These ~~financial statements~~shares will generally vest ratably in four installments on November 19, 2014, November 19, 2015, November 19, 2016 and ~~schedule~~November 19, 2017, in each case subject to his continued employment.

The performance targets for the performance-based shares vesting in 2016 are ~~the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.~~

Brookdale Senior Living Inc. ("Brookdale" or the "Company") is a leading owner and operator of senior living communities throughout the United States. The Company provides an exceptional living experience through properties that are designed, purpose-built and operated to provide the highest quality service, care and living accommodations for residents. The Company owns, leases and operates retirement centers, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through Brookdale Ancillary Services, the Company also offers a range of outpatient therapy, home health and hospice services, primarily to residents of its communities.

The Company was formed as a Delaware corporation on June 28, 2005. Under its Certificate of Incorporation, the Company was initially authorized to issue up to 5,000,000 shares of common stock and 5,000,000 shares of preferred stock. On September 30, 2005, the Company's Certificate of Incorporation was amended and restated to authorize up to 200,000,000 shares of common stock and 50,000,000 shares of preferred stock.

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

The consolidated financial statements include the accounts of Brookdale and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Investments in affiliated companiesextent that the Company ~~does not control, but has~~becomes a federal income taxpayer in future periods.

The performance targets for the ~~ability to exercise significant influence over governance and operation, are accounted for by the equity method.~~

~~The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for~~performance-based shares vesting in ~~Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810 -~~ ~~Consolidation of Variable Interest Entities~~ ("ASC 810"). ASC 810 broadly defines a VIE as an entity where either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance or (ii) the equity investment at risk is insufficient 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 of the 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 or receive 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 where it is determined to be the primary beneficiary. At December 31, 2013, the Company did not have any unconsolidated VIEs.

The preparation of the financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue, goodwill and asset impairments, future service obligations, self-insurance reserves, performance-based compensation, the allowance for doubtful accounts, depreciation and amortization, income taxes and other contingencies. Although these estimates2017 are based on ~~management's best knowledge~~the Company’s calendar year 2016 return on investment (ROI) on all Program Max projects approved in 2013 and completed prior to the end of ~~current events and actions that~~2014.

With respect to each performance-based tranche, achievement of the ~~Company may undertake~~threshold level of performance would result in the ~~future, actual results may differ from the original estimates.~~

~~Resident fee revenue is recorded when services are rendered and consists~~vesting of fees for basic housing, support services and fees associated with additional services such as personalized health 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 nursing services and ancillary charges is recognized as services are provided and is billed monthly in arrears.

~~Certain~~40% of the ~~Company's communities have residency agreements which require the resident to pay an upfront fee prior to occupying the community. In addition,~~shares in ~~connection with the Company's MyChoice program, new and existing residents are allowed to pay additional entrance fee amounts in return for a reduced monthly service fee. The non-refundable portion~~that performance-based tranche. Achievement of the ~~entrance fee is recorded as deferred revenue and amortized over~~targeted level of performance would result in the ~~estimated stay~~vesting of 100% of the resident based on an actuarial valuation. The refundable portion of a resident's entrance fee is generally refundable within a certain number of months or days following contract termination or upon the sale of the unit. The refundable portion of the fee isshares in that performance-based tranche. Any performance-based shares which do not ~~amortized and included~~vest in ~~refundable entrance fees. All refundable amounts due to residents at any time in the future are classified as current liabilities.~~

Substantially all community fees received are non-refundable and are recorded initially as deferred revenue. The deferred amounts, including both the deferred revenue and the related direct resident lease origination costs, are amortized over the estimated stay of the resident which is consistent with the implied contractual terms of the resident lease.

~~Management 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).~~

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

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

~~Current assets and current liabilities assumed are valued at carryover basis which approximates fair value.~~

~~Property, plant and equipment are valued utilizing discounted cash flow projections of future revenue and costs, and capitalization and discount rates using current market conditions.~~

The Company allocates a portion of the purchase price to the value of resident leases acquired based on the difference between the communities valued with existing in-place leases adjusted to market rental rates and the communities valued with current leases in place based on current contractual terms. Factors management considers in its analysis include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar resident leases. In estimating carrying costs, management includes estimates of lost rentals during the lease-up period and estimated costs to execute similar leases. The value of in-place leases is amortized to expense over the remaining initial term of the respective leases.

Leasehold operating intangibles are valued utilizing discounted cash flow projections that assume certain future revenues and costs over the remaining lease term. The value assigned to leasehold operating intangibles is amortized on a straight-line basis over the lease term.

Community purchase options are valued at the estimated value of the underlying community less the cost of the option payment discounted at current market rates. Management contracts and other acquired contracts are valued at a multiple of management fees and operating income or are valued utilizing discounted cash flow projections that assume certain future revenues and costs over the remaining contract. The assets are then amortized over the estimated term of the agreement.

Long-term debt assumed is recorded at fair market value based on the current market rates and collateral securing the indebtedness. Any debt premium or discount recorded is amortized over the related debt maturity period.

Capital lease obligations are valued based on the present value of the minimum lease payments applying a discount rate equal to the Company's estimated incremental borrowing rate at the date of acquisition.

~~Deferred entrance fee revenue is valued at the estimated cost of providing services to residents over~~either tranche will be forfeited.

Under the terms of the ~~current contracts~~time-based restricted stock awards granted to ~~provide~~these officers (other than certain awards granted to Mr. Smith in connection with his appointment as Chief Executive Officer), if an officer’s employment is terminated by the Company without cause, the next tranche of unvested shares will immediately vest. All other time-based shares would be forfeited in such ~~services. Refundable entrance fees are valued~~event. Upon the occurrence of a change in control, the next tranche of unvested time-based shares will immediately vest. All other shares would remain outstanding and would vest on the previously established vesting dates (subject only to continued employment). In addition, in the event an executive’s employment is terminated without cause by the Company, or the executive terminates employment for good reason, within 12 months following such change in control, all remaining unvested time-based shares will immediately vest. In the event an executive’s employment terminates by reason of death or disability, the tranche of shares subject to vesting at ~~cost pursuant~~the next vesting date will remain outstanding until such date, at which time the shares in that tranche will vest.

Under the terms of the performance-based restricted stock awards granted to these officers (other than certain awards granted to Mr. Smith in connection with his appointment as Chief Executive Officer), if an officer’s employment is terminated by the Company without cause or terminates by reason of death or disability, all shares eligible to vest on the next vesting date would remain outstanding until the next vesting date (with all other shares from the performance-based grant being immediately forfeited) and would vest only if and to the ~~resident lease plus~~extent that the ~~resident's share~~relevant performance targets for such tranche are achieved. If the termination occurs on or prior to February 27, 2015, however, the officer would only be able to achieve vesting of ~~any appreciation~~up to 50% of the ~~community unit at~~performance shares (depending on the date of ~~acquisition, if applicable.~~

~~A deferred tax liability is recognized at statutory rates~~termination and the actual CAGR of CFFO per share during 2013-2014). The actual number of shares that would remain outstanding and be eligible to vest on February 27, 2015 would be determined assuming the performance target for the ~~difference between the book and tax bases~~first tranche of the ~~acquired assets and liabilities.~~

~~The excess~~performance-based restricted shares was based only on the CAGR of CFFO per share during 2013-2014.

Pursuant to the terms of these performance-based restricted stock awards, upon the occurrence of a change in control, all of the ~~fair value~~shares will automatically convert to time-based vesting. In addition, upon the date of ~~liabilities assumed~~the change in control, the next tranche of these shares would immediately vest. If the change in control occurs after February 27, 2014 but on or prior to February 27, 2015, 50% of these shares would vest. All other shares would remain outstanding and ~~cash paid over~~would vest on the ~~fair value~~previously established vesting dates (subject only to continued employment). In the event an executive’s employment is terminated without cause by the Company, or the executive terminates employment for good reason, within 12 months following such change in control, all remaining unvested shares will immediately vest.

The restricted share agreements associated with the awards granted to these officers contain non-competition, non-solicitation, non-disparagement and confidentiality covenants.

Each of ~~assets acquired is allocated~~these officers will also be entitled to ~~goodwill.~~

~~Contingent consideration is valued using~~receive dividends on unvested shares granted to them, to the extent that any such dividends are declared in the future.

For a ~~probability-weighted discounted cash flow model.~~

~~Deferred financing~~description of the terms of the time-based restricted stock awards and ~~lease costs are recorded~~performance based restricted awards granted to Mr. Smith in ~~other assets~~connection with his appointment as Chief Executive Officer in February 2013, see the section below entitled “— Employment Agreements with Named Executive Officers — Employment Agreement and ~~amortized on~~Related Arrangements with T. Andrew Smith.”

As discussed in greater detail below, in connection with entering into an amended and restated employment agreement with Mr. Sheriff, the Committee granted Mr. Sheriff 500,000 restricted stock units, or RSUs, in 2009, which became fully vested in February 2013. In granting the award, the Committee indicated that the award was a ~~straight-line basis, which approximates the effective yield method, over~~one-time grant intended to cover multiple years of service and, as such, it was anticipated that Mr. Sheriff would not receive any additional equity awards during the term of his amended employment agreement (although the ~~related debt or lease.~~

I~~ncome taxes are accounted for under~~Committee retained the ~~asset and liability approach which requires recognition of deferred tax assets and liabilities for~~discretion to make additional awards if the ~~differences between~~circumstances warrant such awards).

2011 Performance-Based Long-Term Incentive Awards

As previously disclosed, the financial reporting and tax bases of assets and liabilities. A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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

~~ASC 820 -~~ ~~Fair Value Measurement~~ ("ASC 820") establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

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

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

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

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

The Company's derivative assets and liabilities include interest rate swaps and caps that effectively convert a portion of the Company's variable rate debt to fixed rate debt. The derivative positions are valued using models developed internally by the respective counterparty that use as their basis readily observable market parameters (such as forward yield curves) and are classified within Level 2 of the valuation hierarchy. The Company considers its own credit risk as well as the credit risk of its counterparties when evaluating the fair value of its derivatives. Any adjustments resulting from credit risk are recorded as a change in fair value of derivatives and amortization in the current period statement of operations.

The Company estimates the fair value of its long-term debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding debt with a carrying value of approximately $2.6 billion and $2.7 billion as of December 31, 2013 and 2012, respectively. Fair value approximated carrying value in both years. The Company's fair value of debt disclosure is classified within Level 2 of the valuation hierarchy.

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

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

~~Accounts receivable are reported net~~shares of an allowance for doubtful accounts, to represent the Company's estimate of the amount that ultimately will be realized in cash. The allowance for doubtful accounts was $17.7 million and $15.3 million as of December 31, 2013 and 2012, respectively. The adequacy of the Company's allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary.

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

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

Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Renovations and improvements, which improve and/or extend the useful life of the asset, are capitalized and depreciated over their estimated useful life, or if the renovations or improvements are made with respect to communities subject to an operating lease, over the shorter of the estimated useful life of the renovations or improvements, or the term of the

~~operating lease. Facility operating expense excludes depreciation and amortization directly attributable to the operation of the facility.~~

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

~~The Company follows ASC 350 -~~ ~~Goodwill and Other Intangible Assets~~, and tests goodwill for impairment annually or whenever indicators of impairment arise. The Company first assesses qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

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

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

~~During 2013, 2012 and 2011, the Company performed its annual impairment review of goodwill and intangible assets and determined that no impairment charge was necessary.~~

~~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:~~

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

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

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

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. The Company has entered into certain interest rate protection and swap agreements to effectively cap or convert floating rate debt to a fixed rate basis. All derivative instruments are recognized as either assets or liabilities in the consolidated balance sheets at fair value. The change in mark-to-market of the value of the derivative is recorded as an adjustment to income.

Derivative contracts are not entered into for trading or speculative purposes. Furthermore, the Company has a policy of only entering into contracts with major financial institutions based upon their credit rating and other factors. Under certain circumstances, the Company may be required to replace a counterparty in the event that the counterparty does not maintain a specified credit rating.

Annually, the Company calculates the present value of the net cost of future services and the use of communities to be provided to current residents of certain of its CCRCs and compares that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the net cost of future services and the use of communities exceeds the related anticipated revenues including non-refundable deferred revenue from entrance fees, a liability is recorded (obligation to provide future services and use of communities) with a corresponding charge to income.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the Company maintains general liability and professional liability insurance policies for its owned, leased and managed communities under a master insurance program, the Company's current policies provide for deductibles for each and every claim. As a result, the Company is, in effect, self-insured for claims that are less than the deductible amounts. In addition, the Company maintains a large-deductible workers compensation program and a self-insured employee medical program. The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third party administrator estimates, consultants, advice from legal counsel and industry data, and adjusts accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

~~In 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 substantive ability to dissolve the venture or otherwise~~

remove the general partner or managing member without cause or (2) substantive participating rights in significant decisions of the venture, including authorizing operating and capital decisions of the venture, including budgets, in the ordinary course of business. The Company has reviewed all ventures where it is the general partner or managing member and has determined that in all cases the limited partners or other members have substantive participating rights such as those set forth above and, therefore, no ventures are consolidated.

The Company's reported share of earnings is adjusted for the impact, if any, of basis differences between its carrying value of the equity investment and its share of the venture's underlying assets. The Company generally does not have future requirements to contribute additional capital over and above the original capital commitments, and therefore, 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 the venture subsequently reports net income, the equity method of accounting is resumed only after the Company's share of that net income equals the share of net losses not recognized during the period the equity method was suspended.

When the majority equity partner in one of the Company's ventures sells its equity interest to a third party, the venture frequently refinances its senior debt and distributes the net proceeds to the equity partners. All distributions received by the Company are first recorded as a reduction of the Company's investment. Next, the Company records a liability for any contractual or implied future financial support to the venture including obligations in its role as a general partner. Any remaining distributions are recorded as the Company's share of earnings and return on investment in unconsolidated ventures in the consolidated statements of operations.

~~The Company evaluates realization of its investment in ventures accounted for using the equity method if circumstances indicate that the Company's investment is other than temporarily impaired.~~

~~The Company, as lessee, makes a determination with respect~~ to each of the ~~community leases whether~~named executive officers (other than Mr. Sheriff) in 2011:


Name	No. of Shares Eligible to Vest in May 2014		No. of Shares Eligible to Vest in May 2015		Total Number of Shares
T. Andrew Smith		25,619		8,540		34,159
Mark W. Ohlendorf		25,619		8,540		34,159
Gregory B. Richard		19,230		6,411		25,641
Bryan D. Richardson		19,230		6,411		25,641
Glenn O. Maul		2,814		939		3,753

Seventy-five percent (75%) of the shares are eligible to vest on May 20, 2014 (“2014 Awards”) and twenty-five percent (25%) are eligible to vest on May 20, 2015 (“2015 Awards”), in each ~~should~~case subject to an officer’s continued employment and dependent upon the level of achievement of performance goals established for each tranche by the Committee.

With respect to each tranche of awards, achievement of the threshold level of performance would result in the vesting of 40% of the shares in that tranche. Achievement of the targeted level of performance would result in the vesting of 100% of the shares in that tranche. Any shares which do not vest in either tranche will be ~~accounted~~forfeited.

The performance targets for ~~as an operating lease or capital lease. The classification criteria is~~the 2014 Awards were based on ~~estimates regarding~~ the ~~fair value~~Company’s three year CAGR of CFFO per share, measured based on the Company’s CFFO per share in 2013. For purposes of the ~~leased community, minimum lease payments, effective cost~~calculation, CFFO per share excludes acquisition, integration and other transaction costs and federal income taxes. The 2014 Awards were scheduled to fully vest if the Company achieved CFFO of ~~funds,~~$2.92 per share for 2013, with a threshold level of performance of $2.48 per share (40% vesting) and with additional incremental levels of performance of $2.62 per share (55% vesting) and $2.76 per share (75% vesting). Based on the ~~economic life~~Company’s actual 2013 results ($2.50 per share of CFFO), approximately 42.7% of the ~~community~~2014 Awards are eligible to vest on May 20, 2014, subject to the officer’s continued employment, which represented 10,946 shares for Messrs. Smith and ~~certain~~Ohlendorf, 8,216 shares for Messrs. Richard and Richardson and 1,202 shares for Mr. Maul.

The performance targets for the 2015 Awards are based on the Company’s calendar year 2014 return on investment (ROI) on all Program Max projects approved in 2011 and completed prior to the end of 2012.

Under the terms of these awards, if an officer’s employment is terminated by the Company without cause or terminates by reason of death or disability, all shares eligible to vest on the next vesting date would remain outstanding until the next vesting date (with all other shares from the performance-based grant being immediately forfeited) and would vest only if (and to the extent) that the relevant performance targets for such tranche have been achieved.

Pursuant to the terms of these awards, upon the occurrence of a change in control, all of the shares will automatically convert to time-based vesting. In addition, upon the date of the change in control, the next tranche of these shares would immediately vest.

Section 162(m) Limits on Deductibility

Section 162(m) of the Internal Revenue Code of 1986, as amended, places a limit of $1,000,000 on the amount of compensation that a company may deduct in any one year with respect to its chief executive officer and each of its next three most highly paid executive officers other than the chief executive officer and chief financial officer.

Certain performance-based compensation approved by stockholders is not subject to the compensation deduction limit. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Committee has not adopted a policy that all compensation must be deductible.

Stock Ownership Guidelines

During 2007, our Board of Directors initially adopted Stock Ownership Guidelines applicable to each of the Company’s officers, including our named executive officers, in an effort to further align the interests of our executives with the interests of our stockholders.

Under the guidelines (as amended to date), each of our current named executive officers is expected to hold at least the number of shares listed below associated with his position with the Company, as set forth below:


Position	Ownership Guideline
Chief Executive Officer		150,000
Chief Financial Officer or Chief Operating Officer		100,000
Chief Administrative Officer		50,000
Executive Vice President		35,000

The expected level of ownership may be met through stock purchased by the officer or his or her spouse in the ~~lease agreements. In~~market (whether held individually or jointly) and/or through stock received upon vesting of equity awards. Unvested equity awards do not count toward satisfaction of the guidelines.

Stock ownership levels were to have been achieved by the later of (i) May 9, 2012 (i.e., five (5) years after the initial adoption of the guidelines) or (ii) the fifth anniversary of such officer’s appointment or promotion. Until the expected ownership level is achieved, each officer is expected to retain at least 50% of Profit Shares obtained through our stock incentive plans. “Profit Shares” are the number of shares obtained from the vesting of restricted stock, less the number of shares an officer sells to pay all applicable income and payroll taxes in connection with such vesting.

As of the date hereof, each of our current named executive officers holds a ~~business combination,~~number of shares in excess of the number required by the guidelines.

Employment Agreements with Named Executive Officers

As described below, we entered into an employment agreement with Mr. Smith in connection with his appointment as Chief Executive Officer in February 2013. We entered into an amended and restated employment agreement with Mr. Sheriff on June 23, 2009 and terminated the existing employment agreements with our other named executive officers (other than Mr. Maul) on August 6, 2010 in connection with entering into letter agreements with such officers.

Employment Agreement and Related Arrangements with T. Andrew Smith

On February 11, 2013, we entered into an employment agreement with Mr. Smith. The employment agreement superseded and replaced the severance pay policy letter agreement, dated as of August 6, 2010, between the Company ~~assumes~~and Mr. Smith (as described below).

The employment agreement has a three year term, subject to automatic extensions for additional one year periods, unless either Mr. Smith or the ~~lease classification previously determined~~Company gives written notice to the other no less than 90 days prior to the expiration of the term that the term will not be so extended.

Mr. Smith’s initial base salary was $480,000 per year, which was increased to $825,000 per year as of the date that his service as Chief Executive Officer began. In addition, Mr. Smith is eligible to receive an annual cash bonus opportunity targeted at 125% of base salary, subject to the terms of our incentive compensation plan for senior executive officers. Mr. Smith is eligible to participate in the various Company benefit plans made available to our senior executive officers. In addition, we provide Mr. Smith with basic term life insurance benefits of at least 100% of his base salary, at no cost to Mr. Smith.

In the event Mr. Smith’s employment is terminated by us without “cause” or he resigns for “good reason” (each as defined in the employment agreement) (in each case other than within 12 months following a “change in control” (as defined in the employment agreement)), upon signing a release of claims in a form adopted by the ~~prior lessee absent a modification,~~Company and continuing to comply with all applicable restrictive covenants, he will be entitled to receive the following severance payments and benefits: (i) 250% of his base salary paid in installments over 18 months, (ii) an annual bonus for the year of termination (to the extent earned under the terms of the bonus plan), pro-rated based on the number of days he was employed by us (the “Pro-Rated Annual Bonus”), and (iii) if then eligible for, and he elects continuation of health coverage under COBRA, we will pay the employer portion of Mr. Smith’s COBRA premium payments for 18 months as ~~determined~~if he were still an active employee (the “Severance Benefits”).

If Mr. Smith’s employment is terminated by ~~ASC 840 –~~ ~~Leases~~ ~~("ASC 840"),~~reason of his death or “disability” (as defined in the ~~assumed lease agreement. Payments made under operating leases are accounted for~~employment agreement), Mr. Smith (or his beneficiary or estate, as applicable) will be entitled to receive the Pro-Rated Annual Bonus, subject, in the ~~Company's consolidated statements~~event of ~~operations as lease expense~~termination by reason of disability, to Mr. Smith signing a release of claims in a form adopted by the Company and continuing to comply with all applicable restrictive covenants.

In the event Mr. Smith’s employment is terminated by us without cause or he resigns for ~~actual rent~~good reason, in each case within 12 months following a change in control, upon signing a release of claims in a form adopted by the Company and continuing to comply with all applicable restrictive covenants, he will be entitled to receive the following severance payments and benefits: (i) 300% of his base salary paid ~~plus or minus a straight-line adjustment for estimated minimum lease escalators~~in installments over 18 months, (ii) the Pro-Rated Annual Bonus, and ~~amortization~~(iii) the Severance Benefits.

Termination of deferred gains in situations where sale-leaseback transactions have occurred. For communities under capital lease and lease financing obligation arrangements, a liability is established on the Company's consolidated balance sheets representing the present valueMr. Smith’s employment within 30 days of the ~~future minimum lease payments~~end of the initial term or any renewal term of the employment agreement following the provision of written notice of non-renewal by us will be treated as a termination of Mr. Smith’s employment without cause for purposes of the employment agreement and a corresponding long-term asset is recorded in property, plant and equipment and leasehold intangibles in the consolidated balance sheets. The asset is depreciated over the remaining lease term unless there is a bargain purchase option in which case the asset is depreciated over the useful life. Leasehold improvements purchasedfor purposes of any equity awards previously granted to Mr. Smith or granted to him during the term of the ~~lease~~employment agreement.

With respect to any termination of Mr. Smith’s employment, treatment of restricted stock awards will be as provided in the applicable award agreement governing such awards, the terms of which are ~~amortized over~~described below.

Any payments that are not deductible to the ~~shorter of their economic life or the lease term.~~

~~All~~Company under Section 280G of the ~~Company's leases contain fixed or formula-based rent escalators. To~~Internal Revenue Code will be cut back only to the extent that the ~~escalator increases~~cutback results in a better after tax position for Mr. Smith.

The employment agreement contains customary non-competition, non-solicitation, confidentiality and mutual non-disparagement covenants. The non-competition restrictions will continue in effect during Mr. Smith’s employment and for one year following his termination of employment; the non-solicitation restrictions will continue in effect during his employment and for two years following his termination of employment. The confidentiality and mutual non-disparagement obligations will apply during his employment and at all times thereafter.

The non-competition provisions provide that Mr. Smith shall not directly or indirectly, either as a principal, agent, employee, employer, consultant, partner, shareholder of a closely held corporation or shareholder in excess of five percent (5%) of a publicly traded corporation, corporate officer or director, or in any other individual or representative capacity, engage or otherwise participate in any manner or fashion in any business that is a Competing Business in the Area (each as defined below). For purposes of this provision: “Area” means a fifteen (15) mile radius of any senior living facility owned, managed or operated by the Company (or its successor) at the time Mr. Smith’s employment is terminated; and “Competing Business” means the business of owning, operating or managing senior living facilities having gross annualized revenues of at least $35 million or owning, operating or managing, in the aggregate, at least 1,000 units/beds provided that at least 750 units/beds owned, operated or managed by such business are ~~tied~~located within the Area.

In connection with entering into the employment agreement, Mr. Smith was granted 55,804 shares of time-based restricted stock under the terms of our Omnibus Stock Incentive Plan, as amended and/or restated form time to time (the “Plan”). The time-based shares of restricted stock were granted pursuant to the terms of a ~~fixed index or rate, lease payments are accounted for on a straight-line basis over the life~~restricted share agreement, dated as of the ~~lease.~~February 11, 2013, between the Company and Mr. Smith.

The time-based shares of restricted stock vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017, subject only to Mr. Smith’s continued employment. In the event that (i) Mr. Smith’s employment is terminated without “cause” (as defined in the Plan), (ii) he resigns for “good reason” (as defined in the employment agreement), or (iii) his employment is terminated by death or “disability” (as defined in the Plan), the tranche of restricted stock scheduled to vest on the next vesting date will immediately vest, with any remaining unvested restricted stock being immediately forfeited. Upon the occurrence of a “change in control” (as defined in the Plan), the tranche of restricted stock scheduled to vest on the next vesting date will immediately vest. All other shares would remain outstanding and would vest on the previously established vesting dates (subject only to continued employment). In addition, ~~all rent-free~~in the event that Mr. Smith’s employment is terminated without cause or ~~rent holiday periods are recognized~~he resigns for good reason, in ~~lease expense on~~each case within 12 months following a ~~straight-line basis over~~change in control, any restricted stock that is not vested as of the ~~lease term, including~~date of such termination will immediately vest.

In connection with entering into the ~~rent holiday period.~~

~~Sale-leaseback accounting is applied~~employment agreement, Mr. Smith was also granted 65,104 shares of performance-based restricted stock under the terms of the Plan. The performance-based shares of restricted stock were granted pursuant to ~~transactions in which an owned community is sold and leased back from~~ the ~~buyer. Under sale-leaseback accounting,~~terms of a restricted share agreement, dated as of February 11, 2013, between the Company ~~removes~~and Mr. Smith.

Up to 75% of the ~~community~~performance-based shares of restricted stock are eligible to vest on February 27, 2016, and ~~related liabilities from~~up to 25% of such shares of restricted stock are eligible to vest on February 27, 2017, in each case subject to Mr. Smith’s continued employment and dependent upon the ~~consolidated balance sheets. Gain~~level of achievement of performance targets established for each tranche by the Committee.

The performance targets for the first tranche of performance-based shares are based on the ~~sale is deferred~~Company’s three-year CAGR of CFFO per share, with results to be measured based on our CFFO per share in 2015. The performance targets for the second tranche of performance-based shares are based on the Company’s calendar year 2016 return on investment (ROI) on all Program Max projects approved in 2013 and ~~recognized as~~completed prior to the end of 2014. Any performance-based shares which do not vest in either tranche will be forfeited.

Upon the occurrence of a ~~reduction~~“change in control” (as defined in the Plan), the tranche of ~~facility lease expense for operating leases and a reduction of interest expense for capital leases.~~

~~For leases in which~~restricted stock scheduled to vest on the ~~Company is involved with~~next vesting date will immediately vest upon the ~~construction~~date of the ~~building,~~change in control; provided, however, if the ~~Company accounts for the lease during the construction period under the provisions of ASC 840. If the Company concludes that it has substantively all~~change in control occurs after February 27, 2014 but on or prior to February 27, 2015, 50% of the ~~risks~~restricted stock will immediately vest. In addition, upon a change in control, any remaining tranches of ~~ownership during construction~~restricted stock will be converted into time-vesting tranches, vesting on the same vesting dates initially established for each such tranche, subject only to Mr. Smith’s continued employment, and regardless of whether any performance targets are achieved.

In the event that (i) Mr. Smith’s employment is terminated without “cause” (as defined in the Plan), (ii) he resigns for “good reason” (as defined in the employment agreement), or (iii) his employment is terminated by death or “disability” (as defined in the Plan) (either before or after a ~~leased property~~change in control), the tranche of restricted stock scheduled to vest on the next vesting date will remain outstanding until such vesting date (with any remaining restricted stock being immediately forfeited) and ~~therefore is deemed~~would vest only if (and to the ~~owner~~extent) that the relevant performance targets for such tranche have been achieved; provided, however, if the termination occurs after February 27, 2014 but on or prior to February 27, 2015, 50% of the ~~project for accounting purposes, it records an asset~~restricted stock will remain outstanding and ~~related financing obligation for~~be eligible to vest on February 27, 2015 upon achievement of the ~~amount of~~

~~total project costs related to construction in progress. Once construction is complete, the Company considers the requirements under ASC 840-40 –~~ ~~Leases – Sale-Leaseback Transactions~~applicable performance targets (with any remaining unvested restricted stock being immediately forfeited). If the ~~arrangement qualifies~~tranche of restricted stock scheduled to vest on the next vesting date is subject only to time-vesting (as a result of a previous change in control), such restricted stock will immediately vest. Notwithstanding the foregoing, in the event that Mr. Smith’s employment is terminated without cause or he resigns for ~~sale-leaseback accounting,~~good reason, in each case within 12 months following a change in control, any restricted stock that is not vested as of the date of such termination will immediately vest.

The restricted share agreements also contain non-competition, non-solicitation, confidentiality and mutual non-disparagement covenants. Mr. Smith will be entitled to receive dividends on any unvested shares of restricted stock, to the extent that any such dividends are declared in the future.

Employment Agreement and Related Arrangements with W.E. Sheriff

Pursuant to his amended and restated employment agreement (as amended to date), Mr. Sheriff was to be employed as Chief Executive Officer of the Company ~~removes~~during the ~~assets~~five year term of the agreement. However, at any time during the term, Mr. Sheriff had the ability to elect to resign as Chief Executive Officer and ~~related liabilities~~serve the Company as a consultant for the balance of the term by providing the Company with at least six months’ prior notice. In August 2012, Mr. Sheriff notified the Board of Directors of his intent to retire as Chief Executive Officer. Mr. Sheriff’s retirement became effective on February 20, 2013. Mr. Sheriff currently serves as a consultant pursuant to the terms of the employment agreement and as a member of the Company’s Board of Directors.

Under the terms of the amended and restated employment agreement, Mr. Sheriff receives a consulting fee of $300,000 per year, but is not eligible to receive an annual cash bonus. However, he received a pro rata portion of the annual bonus for the portion of 2013 during which he served as Chief Executive Officer, as described above. During Mr. Sheriff’s consultancy, he is eligible to participate in any benefit plans made available to the Company’s similarly-situated former executives. The term of Mr. Sheriff’s consulting arrangement is scheduled to expire in June 2014.

The employment agreement provides that, in the event Mr. Sheriff’s consultancy is terminated by us without cause, or by Mr. Sheriff for “good reason” (as defined therein), upon signing a release of claims in a form adopted by the Company and continuing to comply with all applicable restrictive covenants, he is entitled to receive the following severance payments and benefits: (i) continuation of his then-current base compensation for the lesser of 24 months from the ~~consolidated balance sheets. If~~date of termination or the ~~arrangement does not qualify~~scheduled expiration of the term and (ii) if he is eligible for ~~sale-leaseback accounting,~~and elects continuation of health care coverage under COBRA, the Company ~~continues to amortize~~will pay the ~~financing obligation~~employer portion of his COBRA premium payments for the length of the COBRA coverage period.

The employment agreement contains non-competition, non-solicitation, non-disparagement and ~~depreciate~~confidentiality covenants. The non-competition and non-solicitation restrictions will continue in effect during Mr. Sheriff’s consultancy and for two years following his termination as a consultant. The non-disparagement and confidentiality obligations apply during his consultancy and at all times thereafter.

The non-competition provisions provide that Mr. Sheriff shall not directly or indirectly, either as a principal, agent, employee, employer, consultant, partner, shareholder of a closely held corporation or shareholder in excess of five percent (5%) of a publicly traded corporation, corporate officer or director, or in any other individual or representative capacity, engage or otherwise participate in any manner or fashion in any business that is a Competing Business in the ~~assets over~~Area (each as defined below). For purposes of this provision: “Area” means a fifteen (15) mile radius of any senior living facility owned, managed or operated by the ~~lease term.~~

~~The~~ Company ~~accounts for treasury stock~~(or its successor) at the time Mr. Sheriff’s consultancy is terminated; and “Competing Business” means the business of owning, operating or managing senior living facilities having gross annualized revenues of at least $35 million or owning, operating or managing, in the aggregate, at least 1,000 units/beds provided that at least 750 units/beds owned, operated or managed by such business are located within the Area.

In connection with entering into the employment agreement, Mr. Sheriff was granted 500,000 RSUs under the ~~cost method and includes treasury stock as a component of stockholders' equity.~~

~~In July 2013, the FASB issued Accounting Standards Update 2013-11,~~ ~~Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists~~ ("ASU 2013-11"). ASU 2013-11 changes the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax lawterms of the ~~applicable jurisdiction~~Plan. Each RSU represented the right to ~~settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law~~receive one share of the ~~applicable jurisdiction does not require~~Company’s common stock. These RSUs vested in five equal annual installments, with the ~~entity to use,~~first installment vesting on December 15, 2009 and the ~~entity does not intend~~final installment initially scheduled to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance in ASU 2013-11 is effective for public companies for fiscal years, and interim periods within those years, beginning aftervest on December 15, 2013. The final installment actually vested in February 2013 as a result of Mr. Sheriff’s retirement as Chief Executive Officer.

Agreements with Other Named Executive Officers

On August 6, 2010, the Committee adopted the Brookdale Senior Living Inc. Severance Pay Policy, Tier I (the “Policy”). The Policy applies to each of the members of our senior management executive committee (excluding Messrs. Smith and Sheriff) and other officers of the Company ~~does not believe~~who have a title of Executive Vice President or higher. Additionally, on August 6, 2010, the Committee approved letter agreements for certain of these executives,

including each of the named executive officers (other than Messrs. Sheriff and Maul). The letter agreements, which became effective as of August 6, 2010, terminated each of the named executive officers’ then-existing employment agreements (other than the agreement with Mr. Sheriff) in consideration of our adoption of the Policy. The letter agreements also provide for certain modifications to the Policy as it is applied to the named executive officers and state that the ~~adoption~~Policy will not be amended in a manner that is disadvantageous to a named executive officer without such executive’s prior written consent. Mr. Smith’s letter agreement was terminated in February 2013 upon the execution of ~~ASU 2013-11~~his new employment agreement, as described above.

Pursuant to the Policy, as modified by the letter agreements, following a “separation from service” (as defined in the Policy) by us without “cause” (as defined in the Policy) or by a named executive officer with “good reason” (as defined in the Policy), the named executive officer is entitled to: (1) 250% of the such officer’s annual salary at the current rate of base salary in effect at the separation from service (or, if greater, before the occurrence of circumstances giving rise to good reason); and (2) continued health insurance benefits for 18 months (or until a breach of the Policy or such officer becomes eligible for other medical coverage, if earlier). Pursuant to the Policy, as modified by the letter agreements, following a separation from service by us without cause or by a named executive officer with good reason within 12 months following a “change in control” (as defined in the Policy), the named executive officer is entitled to: (1) 300% of such officer’s annual salary at the current rate of base salary in effect at the separation from service (or, if greater, before the occurrence of circumstances giving rise to good reason); and (2) continued health insurance benefits for 18 months (or until a breach of the Policy or such officer becomes eligible for other medical coverage, if earlier). If payments pursuant to the Policy and other arrangements are not deductible by us under Section 280G of the Internal Revenue Code, such payments shall be reduced (or repaid) in order to ensure the Company’s deduction of payments in connection with a change in control.

Severance pay will ~~have a material impact~~be paid to the named executive officers in equal periodic installments on our regular payroll dates, spanning 18 months and commencing on the ~~consolidated financial statements~~60th day following an executive’s “qualifying separation from service” (as defined in the Policy and modified by the letter agreements) so long as such executive has signed and returned a waiver and release and the seven day revocation period for the signed release has expired. A named executive officer must acknowledge in such release that all restrictive covenants to which he is a party will remain in force for the period specified in such covenants and the severance pay such executive is entitled to is additional consideration for such restrictive covenants. A breach of such covenants will result in the cessation of severance pay and benefits and may result in such officer being required to repay certain severance pay and benefits already provided as well as certain costs and expenses.

Mr. Maul, who is not a party to a letter agreement, is generally eligible to receive the same payments and benefits under the policy as the individuals who are a party to a letter agreement, except that he is not eligible to terminate employment with “good reason” and receive such payments and benefits prior to a change in control.

Glenn O. Maul Relocation

In 2013, Mr. Maul relocated from his prior residence in Wisconsin to a residence near the Company’s Nashville, Tennessee office. Since this relocation was requested by the Company, the Committee determined to provide certain relocation benefits to Mr. Maul, as set forth in the Summary Compensation Table for 2013, below.

2014 Compensation Decisions

In late 2013, the Committee engaged Frederic W. Cook & Co., Inc. (“F.W. Cook”) to conduct a review of the Company’s overall executive compensation plans and programs for 2014 to determine whether any changes needed to be made to ensure that we continue to provide a proper level of compensation to our named executive officers and other executives. Following F.W. Cook’s review and subsequent discussion with the Committee, it was determined by the Committee that no material changes needed to be made. F.W. Cook reported directly to the Committee and did not provide any other services to the Company. The Committee conducted a specific review of its relationship with F.W. Cook, and determined that its work for the Committee did not raise any conflicts of interest, consistent with the guidance provided under the Dodd-Frank Act of 2010, by the SEC and by the NYSE.

While the Committee did not make any material changes to the Company’s executive compensation plans and programs for 2014, it did decide to provide each named executive officer with a cost of living base salary increase equal to approximately two percent of the base salary in effect for 2013.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the disclosure set forth above under the heading “Compensation Discussion and Analysis” with management and, based on the review and discussions, it has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included herein.

Respectfully submitted by the Compensation Committee of the Board of Directors,

COMPENSATION COMMITTEE

Frank M. Bumstead, Chairman

Jackie M. Clegg

Dr. Samuel Waxman

Summary Compensation Table for 2013

The following summary compensation table sets forth information concerning the compensation earned by, awarded to or ~~disclosures.~~

~~Certain prior period~~paid to our named executive officers for the periods indicated.


Name and Principal Position	Year	Salary ($)		Stock Awards ($)(1)		Non-Equity Incentive Plan Compensation ($)(2)		All Other Compensation ($)(3)		Total ($)

T. Andrew Smith, Chief Executive Officer⁽⁴⁾	2013 2012 2011		762,635 480,000 480,000		3,250,007 939,369 1,085,935		1,059,190 440,551 148,000		10,841 9,699 7,174		5,082,673 1,869,619 1,721,109

W.E. Sheriff, Former Chief Executive Officer⁽⁵⁾	2013 2012 2011		154,615 600,000 600,000		— — 293,125		125,254 558,689 —		104 9,110 7,847		279,973 1,167,799 900,972

Mark W. Ohlendorf, President and Chief Financial Officer	2013 2012 2011		490,000 480,000 480,000		939,375 939,369 1,085,935		542,229 440,551 148,000		10,635 9,699 7,174		1,982,239 1,869,619 1,721,109

Gregory B. Richard, Executive Vice President and Chief Operating Officer	2013 2012 2011		404,577 350,000 350,000		1,265,154 705,113 705,128		421,925 323,502 96,000		9,958 9,092 6,567		2,101,614 1,387,707 1,157,695

Bryan D. Richardson, Executive Vice President and Chief Administrative Officer	2013 2012 2011		360,000 350,000 346,539		705,143 705,113 705,128		397,757 321,102 106,800		8,453 7,043 4,518		1,471,353 1,383,258 1,162,985

Glenn O. Maul, Executive Vice President and Chief People Officer	2013		250,000		620,279		213,644		195,230		1,279,153

⁽¹⁾

Represents the aggregate grant date fair value of time-based and performance-based restricted stock awards computed in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718. See Note 14 to our Consolidated Financial Statements included in the Original Filing for a summary of the assumptions made in the valuation of these awards. As described above in “—2013 Named Executive Officer Compensation—2013 Long-Term Incentive Awards,” a portion of the amounts listed in 2013 for Messrs. Richard and Maul relate to grants made in connection with their respective promotions in 2013.

⁽²⁾

Represents the payout of each executive’s annual cash incentive opportunity with respect to performance in 2011, 2012 and 2013. Mr. Sheriff received a pro rata portion of the annual bonus he was eligible to receive as Chief Executive Officer for the portion of 2013 during which he served as Chief Executive Officer prior to his retirement.

⁽³⁾

The amount represents the employer matching contribution to our 401(k) Plan for each of our named executive officers other than for Mr. Sheriff and premiums on Company-provided life and disability insurance. For Mr. Maul, the amount also includes $187,387 in relocation benefits relating to his relocation from Wisconsin to the Nashville, Tennessee area. As part of the relocation benefits, the Company agreed to purchase Mr. Maul’s prior residence in Wisconsin for its independently appraised value of approximately $335,000. The Company subsequently sold the residence for approximately $326,000, which resulted in a net amount to the Company of approximately $293,218 after reduction for all costs and expenses of the sale, including broker commissions. The difference between the Company’s purchase price and the ultimate amount it received net of all applicable costs and expenses of the sale is included as part of the relocation benefits reflected in this column. The remainder of the relocation benefits for Mr. Maul consisted of a cash relocation allowance ($135,000) and the use of a moving service ($10,605).

⁽⁴⁾

Mr. Smith served as Executive Vice President, General Counsel and Secretary until February 20, 2013, when he became Chief Executive Officer. For a summary of his compensation as Chief Executive Officer, see “— Employment Agreements with Named Executive Officers — Employment Agreement and Related Arrangements with T. Andrew Smith,” above.

⁽⁵⁾

Mr. Sheriff retired from his position as Chief Executive Officer effective February 20, 2013. The 2013 compensation information represented in these tables reflect the salary (of which $46,154 represents payment of accrued but unused paid time off upon his retirement), annual cash incentive opportunity and all other compensation he received for the portion of 2013 during which he served as Chief Executive Officer. For a description of the compensation he received for the portion of 2013 during which he served as a consultant pursuant to the terms of his employment agreement and as a member of the Company’s Board of Directors, see the section below entitled “Compensation of Directors.”

Grants of Plan-Based Awards for 2013

The following table summarizes grants of plan-based awards made to our named executive officers in 2013. All of our named executive officers are eligible to receive dividends on unvested shares of stock that have been ~~reclassified~~granted to ~~conform to~~them (to the ~~current financial statement presentation, with no effect~~extent that dividends are declared on ~~the Company's consolidated financial position or results of operations.~~

~~Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of~~our shares of common ~~stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect~~stock).

Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards

Estimated Possible Payouts Under
Equity Incentive Plan Awards

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)

Grant
Date
Fair Value
Of Stock
Awards
($)

Name

Grant
Date

Threshold
($)

Target ($)

Maximum
($)

Threshold
(#)

Target (#)

Maximum
(#)

T. Andrew Smith

123,928

⁽¹⁾

619,641

⁽¹⁾

19,066

⁽²⁾

95,329

⁽²⁾

⁽³⁾

238,324

⁽³⁾

238,324

⁽³⁾

02/11/2013

⁽⁴⁾

65,104

⁽⁴⁾

65,104

⁽⁴⁾

1,749,996

02/11/2013

55,804

⁽⁵⁾

1,500,012

W.E. Sheriff

19,523

⁽¹⁾

97,615

⁽¹⁾

2,169

⁽²⁾

10,846

⁽²⁾

Mark W. Ohlendorf

55,600

⁽¹⁾

278,000

⁽¹⁾

9,800

⁽²⁾

49,000

⁽²⁾

⁽³⁾

163,000

⁽³⁾

163,000

⁽³⁾

02/11/2013

⁽⁴⁾

17,473

⁽⁴⁾

17,473

⁽⁴⁾

469,674

02/11/2013

17,474

⁽⁵⁾

469,701

Gregory B. Richard

44,953

⁽¹⁾

224,765

⁽¹⁾

8,092

⁽²⁾

40,458

⁽²⁾

⁽³⁾

139,354

⁽³⁾

139,354

⁽³⁾

02/11/2013

⁽⁴⁾

13,116

⁽⁴⁾

13,116

⁽⁴⁾

352,558

02/11/2013

13,117

⁽⁵⁾

352,585

06/13/2013

⁽⁶⁾

10,428

⁽⁶⁾

10,428

⁽⁶⁾

279,992

06/13/2013

10,429

⁽⁷⁾

280,019

Bryan D. Richardson

40,000

⁽¹⁾

200,000

⁽¹⁾

7,200

⁽²⁾

36,000

⁽²⁾

⁽³⁾

124,000

⁽³⁾

124,000

⁽³⁾

02/11/2013

⁽⁴⁾

13,116

⁽⁴⁾

13,116

⁽⁴⁾

352,558

02/11/2013

13,117

⁽⁵⁾

352,585

Glenn O. Maul

28,000

⁽¹⁾

140,000

⁽¹⁾

⁽³⁾

60,000

⁽³⁾

60,000

⁽³⁾

02/11/2013

⁽⁴⁾

6,530

⁽⁴⁾

6,530

⁽⁴⁾

175,526

02/11/2013

6,531

⁽⁵⁾

175,553

11/06/2013

10,000

⁽⁸⁾

269,200

⁽¹⁾

Represents the amounts which would have been payable in cash at threshold and target under the CFFO portion of the Company’s 2013 annual cash incentive bonus program for the named executive officers, the terms of which are summarized above. Achievement in excess of the targeted level of performance would have resulted in a payout in excess of 100% of the target bonus opportunity. In order to ensure that amounts paid under the program could qualify as “performance-based” compensation under Section 162(m) of the Internal Revenue Code, the maximum award that any named executive officer could receive with respect to 2013 performance under the 2013 annual cash incentive bonus program was $2,000,000. As reported in the Summary Compensation Table, the named executive officers actually earned the following cash amounts with respect to 2013 performance under this portion of the bonus program: Mr. Smith – $697,118; Mr. Sheriff – $109,817; Mr. Ohlendorf – $312,750; Mr. Richard – $252,861; Mr. Richardson – $225,000; and Mr. Maul – $156,434.

⁽²⁾

Represents the amounts which would have been payable in cash at threshold and target under the year-over-year same community NOI growth portion of the Company’s 2013 annual cash incentive bonus program for certain of the named executive officers, the terms of which are summarized above. Achievement in excess of the targeted level of performance would have resulted in a payout in excess of 100% of the target bonus opportunity. In order to ensure that amounts paid under the program could qualify as “performance-based” compensation under Section 162(m) of the Internal Revenue Code, the maximum award that any named executive officer could receive with respect to 2013 performance under the 2013 annual cash incentive bonus program was $2,000,000. As reported in the Summary Compensation Table, the named executive officers actually earned the following

cash amounts with respect to ~~dilutive common stock equivalents. For purposes of calculating basic and diluted earnings per share, vested restricted stock~~

awards are considered outstanding. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units and convertible debt instruments and warrants (Note 8).

~~During fiscal~~ 2013 ~~2012 and 2011, the Company reported a consolidated net loss. As a result~~performance under this portion of the ~~net loss, unvested~~bonus program: Mr. Smith – $135,657; Mr. Sheriff – $15,437; Mr. Ohlendorf – $69,739; Mr. Richard – $57,581; and Mr. Richardson – $51,237.

⁽³⁾

Represents the amounts which would have been payable in cash at target and maximum under the individual objectives portion of the Company’s 2013 annual cash incentive bonus program for certain of the named executive officers, the terms of which are summarized above. The individual objectives portion of the bonus program did not specify a minimum threshold level of performance. As reported in the Summary Compensation Table, the named executive officers actually earned the following cash amounts with respect to 2013 performance under this portion of the bonus program: Mr. Smith – $226,415; Mr. Ohlendorf – $159,740; Mr. Richard – $111,483; Mr. Richardson – $121,520; and Mr. Maul – $57,210.

⁽⁴⁾

Represents shares of restricted stock subject to performance-based vesting conditions. As described above, seventy-five percent (75%) of the performance-based shares will vest on February 27, 2016 and twenty-five percent (25%) of the performance-based shares will vest on February 27, 2017 in each case subject to an officer’s continued employment and dependent upon the level of achievement of performance goals established for each tranche by the Committee. The performance targets for the first tranche of performance-based shares are based on the Company’s three-year CAGR of CFFO per share, with results to be measured based on the Company’s CFFO per share in 2015. The performance targets for the second tranche of performance-based shares are based on the Company’s calendar year 2016 return on investment (ROI) on all Program Max projects approved in 2013 and completed prior to the end of 2014. With respect to each performance-based tranche, achievement of the threshold level of performance would result in the vesting of 40% of the shares in that performance-based tranche. Achievement of the targeted level of performance would result in the vesting of 100% of the shares in that performance-based tranche. Any performance-based shares which do not vest in either tranche will be forfeited.

⁽⁵⁾	Represents time-based restricted shares that vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017, subject only to an officer’s continued employment.

⁽⁶⁾

⁽⁷⁾	Represents time-based restricted shares that vest ratably in four installments on May 20, 2014, May 20, 2015, May 20, 2016 and May 20, 2017, subject only to the officer’s continued employment.

⁽⁸⁾	Represents time-based restricted shares that vest ratably in four installments on November 19, 2014, November 19, 2015, November 19, 2016 and November 19, 2017, subject only to the officer’s continued employment.

Outstanding Equity Awards Fiscal Year-End for 2013

The following table summarizes the number of outstanding equity awards held by each of our named executive officers as of December 31, 2013. The market value is based on the closing market price of the Company’s stock ~~restricted stock unit~~on December 31, 2013. Mr. Sheriff did not hold any outstanding equity awards ~~and convertible debt instruments and warrants were antidilutive~~as of December 31, 2013.


	Stock Awards
Name	Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)			Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
T. Andrew Smith		102,082	⁽¹⁾		2,774,589		123,892	⁽²⁾		3,367,385
Mark W. Ohlendorf		63,752	⁽³⁾		1,732,779		76,261	⁽⁴⁾		2,072,774
Gregory B. Richard		58,283	⁽⁵⁾		1,584,132		67,672	⁽⁶⁾		1,839,325
Bryan D. Richardson		47,854	⁽⁷⁾		1,300,672		57,244	⁽⁸⁾		1,555,892
Glenn O. Maul		31,198	⁽⁹⁾		847,962		12,989	⁽¹⁰⁾		353,041

⁽¹⁾

Represents shares of restricted stock subject to time-based vesting. Subject to continued employment: (i) 10,725 of the shares vest on May 20, 2014; (ii) 17,080 of the shares vest ratably in two installments on May 20, 2014 and May 20, 2015; (iii) 18,473 of the shares vested or will vest ratably in three installments on February 27, 2014, February 27, 2015 and February 27, 2016; and (iv) 55,804 of the shares vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017.

⁽²⁾

Represents shares of restricted stock subject to performance-based vesting. Subject to continued employment and the achievement of specified performance targets: (i) 25,619 of the shares are eligible to vest on May 20, 2014; (ii) 8,540 of the shares are eligible to vest on May 20, 2015; (iii) 18,471 of the shares are eligible to vest on February 27, 2015; (iv) 6,158 of the shares are eligible to vest on February 27, 2016; (v) 48,828 of the shares are eligible to vest on February 27, 2016; and (vi) 16,276 of the shares are eligible to vest on February 27, 2017.

⁽³⁾

Represents shares of restricted stock subject to time-based vesting. Subject to continued employment: (i) 10,725 of the shares vest on May 20, 2014; (ii) 17,080 of the shares vest ratably in two installments on May 20, 2014 and May 20, 2015; (iii) 18,473 of the shares vested or will vest ratably in three installments on February 27, 2014, February 27, 2015 and February 27, 2016; and (iv) 17,474 of the shares vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017.

⁽⁴⁾

Represents shares of restricted stock subject to performance-based vesting. Subject to continued employment and the achievement of specified performance targets: (i) 25,619 of the shares are eligible to vest on May 20, 2014; (ii) 8,540 of the shares are eligible to vest on May 20, 2015; (iii) 18,471 of the shares are eligible to vest on February 27, 2015; (iv) 6,158 of the shares are eligible to vest on February 27, 2016; (v) 13,104 of the shares are eligible to vest on February 27, 2016; and (vi) 4,369 of the shares are eligible to vest on February 27, 2017.

⁽⁵⁾

Represents shares of restricted stock subject to time-based vesting. Subject to continued employment: (i) 8,050 of the shares vest on May 20, 2014; (ii) 12,821 of the shares vest ratably in two installments on May 20, 2014 and May 20, 2015; (iii) 13,866 of the shares vested or will vest ratably in three installments on February 27, 2014, February 27, 2015 and February 27, 2016; (iv) 13,117 of the shares vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017; and (v) 10,429 of the shares vest ratably in four installments on May 20, 2014, May 20, 2015, May 20, 2016 and May 20, 2017.

⁽⁶⁾

Represents shares of restricted stock subject to performance-based vesting. Subject to continued employment and the achievement of specified performance targets: (i) 19,230 of the shares are eligible to vest on May 20, 2014; (ii) 6,411 of the shares are eligible to vest on May 20, 2015; (iii) 13,865 of the shares are eligible to vest on February 27, 2015; (iv) 4,622 of the shares are eligible to vest on February 27, 2016; (v) 9,837 of the shares are eligible to vest on February 27, 2016; (vi) 3,279 of the shares are eligible to vest on February 27, 2017; (vii) 7,821 of the shares are eligible to vest on May 20, 2016; and (viii) 2,607 of the shares are eligible to vest on May 20, 2017.

⁽⁷⁾

Represents shares of restricted stock subject to time-based vesting. Subject to continued employment: (i) 8,050 of the shares vest on May 20, 2014; (ii) 12,821 of the shares vest ratably in two installments on May 20, 2014 and May 20, 2015; (iii) 13,866 of the shares vested or will vest ratably in three installments on February 27, 2014, February 27, 2015 and February 27, 2016; and (iv) 13,117 of the shares vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017.

⁽⁸⁾

Represents shares of restricted stock subject to performance-based vesting. Subject to continued employment and the achievement of specified performance targets: (i) 19,230 of the shares are eligible to vest on May 20, 2014; (ii) 6,411 of the shares are eligible to vest on May 20, 2015; (iii) 13,865 of the shares are eligible to vest on February 27, 2015; (iv) 4,622 of the shares are eligible to vest on February 27, 2016; (v) 9,837 of the shares are eligible to vest on February 27, 2016; and (vi) 3,279 of the shares are eligible to vest on February 27, 2017.

⁽⁹⁾

Represents shares of restricted stock subject to time-based vesting. Subject to continued employment: (i) 2,950 of the shares vest on May 20, 2014; (ii) 5,629 of the shares vest ratably in two installments on May 20, 2014 and May 20, 2015; (iii) 6,088 of the shares vested or will vest ratably in three installments on February 27, 2014, February 27, 2015 and February 27, 2016; (iv) 6,531 of the shares vested or will vest ratably in four installments on February 27, 2014, February 27, 2015, February 27, 2016 and February 27, 2017; and (v) 10,000 of the shares will vest ratably in four installments on November 19, 2014, November 19, 2015, November 19, 2016 and November 19, 2017.

⁽¹⁰⁾

Represents shares of restricted stock subject to performance-based vesting. Subject to continued employment and the achievement of specified performance targets: (i) 2,814 of the shares are eligible to vest on May 20, 2014; (ii) 939 of the shares are eligible to vest on May 20, 2015; (iii) 2,029 of the shares are eligible to vest on February 27, 2015; (iv) 677 of the shares are eligible to vest on February 27, 2016; (v) 4,897 of the shares are eligible to vest on February 27, 2016; and (vi) 1,633 of the shares are eligible to vest on February 27, 2017.

Stock Vested for 2013

The following table summarizes the ~~year and were not included in the computation~~vesting of ~~diluted weighted average shares. The weighted average~~ restricted stock and restricted stock unit awards ~~excluded from~~and the ~~calculations~~value realized by our named executive officers as a result of ~~diluted net loss per share were 3.9 million, 4.5 million~~such vesting during 2013.


	Stock Awards
Name	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)
T. Andrew Smith		57,922		1,699,514	⁽¹⁾
W.E. Sheriff		100,000		2,803,000	⁽²⁾
Mark W. Ohlendorf		45,422		1,330,514	⁽³⁾
Gregory B. Richard		39,082		1,145,936	⁽⁴⁾
Bryan D. Richardson		34,082		998,336	⁽⁵⁾
Glenn O. Maul		12,794		374,270	⁽⁶⁾

⁽¹⁾	The value realized is based on the closing market price of the underlying stock on February 27, 2013 (6,157 shares) and May 20, 2013 (51,765 shares), the dates the shares vested.

⁽²⁾	The value realized is based on the closing market price of the underlying stock on February 20, 2013, the date the restricted stock units became vested due to Mr. Sheriff’s retirement.

⁽³⁾	The value realized is based on the closing market price of the underlying stock on February 27, 2013 (6,157 shares) and May 20, 2013 (39,265 shares), the dates the shares vested.

⁽⁴⁾	The value realized is based on the closing market price of the underlying stock on February 27, 2013 (4,622 shares) and May 20, 2013 (34,460 shares), the dates the shares vested.

⁽⁵⁾	The value realized is based on the closing market price of the underlying stock on February 27, 2013 (4,622 shares) and May 20, 2013 (29,460 shares), the dates the shares vested.

⁽⁶⁾	The value realized is based on the closing market price of the underlying stock on February 27, 2013 (2,029 shares) and May 20, 2013 (10,765 shares), the dates the shares vested.

Pension Benefits

None of our named executive officers participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by us. The Committee may elect to adopt qualified or non-qualified defined benefit plans in the future if it determines that doing so is in our best interests.

Nonqualified Deferred Compensation

None of our named executive officers participates in or has an accrued benefit in non-qualified defined contribution plans or other non-qualified deferred compensation plans maintained by us. The Committee may elect to adopt non-qualified defined contribution plans or other non-qualified deferred compensation plans in the future if the Committee determines that doing so is in our best interests.

Potential Payments Upon Termination or Change in Control

The following table and ~~3.9 million for~~summary set forth potential amounts payable to our named executive officers upon termination of employment or a change in control. The Committee may in its discretion revise, amend or add to the ~~years ended~~benefits if it deems advisable. The table below reflects amounts payable to our named executive officers assuming termination of employment on December 31, 2013, ~~2012 and 2011, respectively.~~

~~The calculation~~with equity based amounts valued at a common share price of ~~diluted weighted average~~$27.18, the reported closing price for our common shares ~~excludes~~on the ~~impact of conversion~~NYSE on December 31, 2013.


	Circumstances of Termination
Name/Benefit	Voluntary Resignation by Executive ($)		Termination by us for Cause ($)		Termination by us without Cause ($)		Termination by us without Cause following Change in Control ($)		Termination by Executive for Good Reason ($)		Disability ($)		Death ($)
T. Andrew Smith⁽¹⁾
Salary		—		—		2,062,500		2,475,000		2,062,500		—		—
Bonus⁽²⁾		—		—		—		—		—		—		—
PTO		63,462		63,462		63,462		63,462		63,462		63,462		63,462
COBRA		—		—		13,950		13,950		13,950		—		—
Market Value of Accelerated Vesting of Restricted Stock⁽³⁾		—		—		1,853,268		6,141,973		821,570		2,144,774		2,144,774
Total		63,462		63,462		3,993,180		8,694,385		2,961,482		2,208,236		2,208,236

W.E. Sheriff⁽¹⁾
Salary		—		—		145,859		145,859		145,859		—		—
Bonus⁽²⁾		—		—		—		—		—		—		—
PTO		—		—		—		—		—		—		—
COBRA		—		—		8,481		8,481		8,481		—		—
Market Value of Accelerated Vesting of RSUs		—		—		—		—		—		—		—
Total		—		—		154,340		154,340		154,340		—		—

Mark W. Ohlendorf
Salary		—		—		1,225,000		1,470,000		1,225,000		—		—
PTO		37,692		37,692		37,692		37,692		37,692		37,692		37,692
COBRA		—		—		13,950		13,950		13,950		—		—
Market Value of Accelerated Vesting of Restricted Stock⁽³⁾		—		—		1,269,170		3,805,553		—		1,560,676		1,560,676
Total		37,692		37,692		2,545,812		5,327,195		1,276,642		1,598,368		1,598,368

Gregory B. Richard
Salary		—		—		1,125,000		1,350,000		1,125,000		—		—
PTO		34,615		34,615		34,615		34,615		34,615		34,615		34,615
COBRA		—		—		10,350		10,350		10,350		—		—
Market Value of Accelerated Vesting of Restricted Stock⁽³⁾		—		—		1,094,348		3,423,457		—		1,313,147		1,313,147
Total		34,615		34,615		2,264,313		4,818,422		1,169,965		1,347,762		1,347,762

Bryan D. Richardson
Salary		—		—		900,000		1,080,000		900,000		—		—
PTO		27,692		27,692		27,692		27,692		27,692		27,692		27,692
COBRA		—		—		13,950		13,950		13,950		—		—
Market Value of Accelerated Vesting of Restricted Stock⁽³⁾		—		—		952,632		2,856,564		—		1,171,431		1,171,431
Total		27,692		27,692		1,894,274		3,978,206		941,642		1,199,123		1,199,123

Glenn Maul
Salary		—		—		625,000		750,000		—		—		—
PTO		19,231		19,231		19,231		19,231		19,231		19,231		19,231
COBRA		—		—		10,350		10,350		10,350		—		—
Market Value of Accelerated Vesting of Restricted Stock⁽³⁾		—		—		357,743		1,201,003		—		437,924		437,924
Total		19,231		19,231		1,012,324		1,980,584		29,581		457,155		457,155

⁽¹⁾

As noted above, Mr. Sheriff retired from his position as Chief Executive Officer effective February 20, 2013 and became a consultant. Mr. Smith served as our Executive Vice President, General Counsel and Secretary until February 20, 2013, when he became Chief Executive Officer upon Mr. Sheriff’s retirement. The table above reflects amounts payable assuming termination of employment (or consulting, as applicable) on December 31, 2013 based on the agreements applicable to such individuals at that date. See “—Employment Agreements with Named Executive Officers” above for a summary of amounts payable to Mr. Sheriff in connection with his consultancy and a summary of Mr. Smith’s new employment agreement and restricted share agreements.

⁽²⁾

In accordance with the terms of the agreements applicable to each of Messrs. Smith and Sheriff, any bonus payments would have been payable in full, to the extent earned, as of December 31, 2013. Since no additional amount would become payable as a result of any termination of employment (or consulting, as applicable) on December 31, 2013, no amount has been included in the table, in respect of such bonuses.

⁽³⁾

A portion of the amounts listed in the applicable columns relate to the potential vesting of performance-based restricted shares following a termination of the executive’s employment by us without cause (other than in connection with a change in control), as a result of the executive’s death or disability and with respect to the grant made to Mr. Smith in 2013, upon his termination of employment with good reason. As described in more detail below, upon each of these events, the performance-based restricted shares eligible to vest on the next vesting date would remain outstanding until the next vesting date and would vest only if and to the extent the relevant performance targets for such tranche are achieved. The amounts in the applicable columns in respect of the potential vesting of these performance-based restricted shares consists of $1,074,588 for Mr. Smith, $750,929 for Mr. Ohlendorf, $634,517 for Mr. Richard, $563,659 for Mr. Richardson and $113,803 for Mr. Maul, and (i) is based on the actual level of achievement of the performance target with respect to the shares granted in 2011, as described above in “—2011 Performance-Based Long-Term Incentive Awards,” and (ii) assumes that the relevant performance targets for the shares granted in 2012 and 2013 are ultimately achieved at the target level. The remainder of the applicable amounts consists of the accelerated vesting of time-based restricted shares, and in the column under the heading “Termination by us without Cause following Change in Control,” additional vesting of performance-based restricted shares, each as described in more detail below.

See “— Employment Agreements with Named Executive Officers” above for a summary of the ~~Company's $316.3 million~~provisions of ~~convertible senior notes. As~~the employment agreements, severance letters or severance policies applicable to our named executive officers relating to severance, termination and change in control.

Upon any termination of ~~December 31, 2013, 2012 and 2011,~~a named executive officer’s employment, the ~~maximum number~~executive will be entitled to receive a payout of up to 160 hours of his paid time off (PTO) balance.

Under the terms of the restricted stock awards granted to each of the named executive officers (other than Mr. Sheriff) in 2010, upon the occurrence of a change in control, the next tranche of unvested shares will vest. In addition, in the event an executive’s employment is terminated without cause by the Company following such change in control, all remaining unvested shares will vest. In the event an executive’s employment terminates by reason of death or disability, the tranche of shares ~~issuable upon conversion~~subject to vesting at the next vesting date will remain outstanding until such date, at which time the shares in that tranche will vest.

See “— 2013 Long-Term Incentive Awards” above for a summary of the ~~notes is approximately 13.8 million (after giving effect~~terms of the 2013 time-based and performance-based restricted stock awards relating to ~~additional make-whole shares issuable upon conversion~~termination and change in control. Similar terms applied to the 2011 and 2012 time-based and performance-based restricted stock awards granted to each of the named executive officers (other than Mr. Sheriff).

Under Mr. Smith’s and Mr. Sheriff’s agreements, the Company’s Omnibus Stock Incentive Plan and the severance letters applicable to the other named executive officers, a “change in control” shall be deemed to have occurred if (a) any person (other than, for purposes of Mr. Sheriff’s agreements and the Omnibus Stock Incentive Plan, certain affiliates of Fortress Investment Group LLC) becomes the beneficial owner of securities representing fifty percent (50%) or more of the combined voting power of the Company’s outstanding securities (not including in the securities beneficially owned by such person, any securities acquired directly from the Company or any of its affiliates); (b) the Company or any subsidiary merges or consolidates with any other corporation, except when the individuals who comprise the Company’s Board of Directors immediately prior to the transaction constitute at least a majority of the Board of Directors of the surviving entity (or its ultimate parent); or (c) the Company’s stockholders approve a plan of liquidation or dissolution or the Company completes the sale of all or substantially all of its assets (other than a sale to an entity, at least fifty percent (50%) of the combined voting power of the securities of which are owned by stockholders of the Company after the transaction in substantially the same proportions as their ownership of the Company prior to the transaction, or other than a sale immediately following which the individuals who comprise the Company’s Board of Directors immediately prior to the transaction

constitute at least a majority of the Board of Directors of the entity to which the assets are sold (or its ultimate parent)). In any event, a “change of control” shall not be deemed to have occurred by virtue of the consummation of any transaction (or series of integrated transactions) immediately following which the Company’s stockholders prior to the transaction(s) continue to have substantially the same proportionate ownership in any entity which owns all or substantially all of the assets of the Company immediately following such transaction(s).

Under Mr. Sheriff’s employment agreement, “cause” means (a) conviction of, or guilty plea concerning, or confession of, any felony; (b) any act of dishonesty committed by the executive in connection with the ~~occurrence of certain events); however it is~~Company’s business; (c) any material breach by the ~~Company's current intent and policy to settle the principal amount~~executive of the ~~notes~~employment agreement after written notice and reasonable opportunity to cure; (d) any material breach of any reasonable and lawful rule or directive of the Company; (e) the gross or willful neglect of duties or gross misconduct by the executive; or (f) the habitual use of drugs or the habitual, excessive use of alcohol that, in the Board of Director’s good faith determination, materially interferes with the performance of the executive’s duties.

Under Mr. Smith’s employment agreement and the severance letters applicable to the other named executive officers, “cause” means (a) conviction of, guilty plea concerning or confession of any felony; (b) any act of fraud, theft or embezzlement committed by the executive in connection with the Company’s or its subsidiaries’ business, (c) any material breach of any reasonable and lawful rule or directive of the Company; (d) the gross or willful neglect of duties or gross misconduct by the executive; or (e) the habitual use of drugs or habitual, excessive use of alcohol to the extent that any of such uses in the Board’s good faith determination materially interferes with the performance of the executive’s duties. For purposes of Mr. Smith’s employment agreement, “cause” is also defined to include any material breach by Mr. Smith of the agreement, after notice and opportunity to cure.

Under Mr. Smith’s and Mr. Sheriff’s employment agreements and the severance letters applicable to the other named executive officers, “good reason” means the occurrence, without the executive’s written consent, of any of the following circumstances, unless such circumstances are fully corrected by the Company within thirty (30) days following written notice by the executive that he intends to terminate his employment for one of the reasons set forth below: (i) the failure by the Company to pay to the executive any portion of his base salary or bonus within thirty (30) days of the date such compensation is due; (ii) the relocation of the executive’s principal office at the Company to a location outside a fifty (50) mile radius from the executive’s principal office location at the time of entering into the employment agreement or severance letter (as applicable); or (iii) the executive is assigned duties, compensation or responsibilities that are materially and significantly reduced with respect to the scope or nature of the duties, compensation and/or responsibilities associated with the executive’s position. In any event, a termination by Mr. Sheriff for “good reason” shall not be deemed to have occurred by virtue of changes in the executive’s duties, benefits and responsibilities resulting upon (or shortly thereafter) the consummation of any transaction (or series of integrated transactions) immediately following which the Company’s stockholders prior to the transaction(s) continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction(s). For purposes of Mr. Smith’s employment agreement, “good reason” is also defined to include any material breach by the Company of the agreement.

Compensation Committee Interlocks and Insider Participation

During 2013, the Committee was composed of Mr. Bumstead, Ms. Clegg and Dr. Waxman. None of these persons has at any time been an officer or employee of the Company or any of its subsidiaries. In addition, there are no relationships among the Company’s executive officers, members of the Committee or entities whose executives serve on the Board of Directors or the Committee that require disclosure under applicable SEC regulations.

COMPENSATION OF DIRECTORS

Under the compensation program for the members of our Board of Directors (other than Mr. Sheriff), each non-affiliated director receives an annual cash ~~upon conversion.~~retainer of $100,000. Any director serving as Non-Executive Chairman of the Board receives an additional annual cash retainer of $25,000, the Chair of the Audit Committee receives an additional annual cash retainer of $15,000 and the chairs of any other committees of the Board each receive an additional annual cash retainer of $10,000. Each Board and committee member also receives a $1,500 cash meeting fee for each Board and committee meeting that he or she attends (whether he or she attends in person or telephonically). All cash amounts are payable quarterly in arrears, with payments to be made on April 1, July 1, October 1 and January 1. Affiliated directors are not separately compensated by us. In addition, following his retirement in February 2013, Mr. Sheriff is compensated for his service as a director and a consultant to the Company under the terms of his employment agreement as described above in “Employment Agreements with Named Executive Officers—Employment Agreement and Related Arrangements with W. E. Sheriff” and is not otherwise separately compensated by us.

Under the compensation program, each director also has the opportunity to elect to receive either immediately vested shares or restricted stock units in lieu of up to 50% of their quarterly cash compensation. Any immediately vested shares or restricted stock units are issued at the same time that cash payments are made. The ~~maximum~~ number of shares ~~issuable upon conversion~~or restricted stock units to be issued is based on the closing price of the ~~notes~~Company’s common stock on the date of issuance (i.e., April 1, July 1, October 1 and January 1), or if such date is not a trading date, on the previous trading day’s closing price. Fractional amounts are to be paid in ~~excess~~cash. Each restricted stock unit will be payable in the form of one share of the ~~amount~~Company’s common stock following the director’s termination of ~~principal that would be settled in cash~~service as a member of the Company’s Board of Directors.

Each director of the Company who is ~~approximately 3.0 million.~~

not (i) an officer or employee of the Company or of any of its parents or subsidiaries or (ii) the beneficial owner, whether directly or indirectly, of ten percent or more of our common stock (an “eligible director”) is also eligible to receive additional stock grants under our Omnibus Stock Incentive Plan. In addition, each of our independent directors (other than Mr. Schulte) received grants of time-based restricted stock under our Omnibus Stock Incentive Plan promptly following their initial election to the ~~calculation of diluted weighted average shares excludes the impact~~Board.

On February 7, 2008, we entered into a Separation Agreement and General Release with Mr. Schulte, pursuant to which Mr. Schulte resigned in his capacity as Co-Chief Executive Officer of the ~~exercise of warrants~~Company effective February 7, 2008. Pursuant to ~~acquire~~ the ~~Company's common stock. As of December 31, 2013, 2012~~Separation Agreement, we agreed to provide, at our expense, continued group health plan coverage for Mr. Schulte and ~~2011,~~his dependents for so long as he serves as a non-employee director. Under the ~~number of shares issuable upon exercise~~terms of the ~~warrants was approximately 10.8 million.~~

~~Effective May 24, 2013, the Company acquired the underlying real estate interest~~confidentiality previously made by him in an entrance fee CCRC that the Company previously managed for an aggregate purchase price of $15.4 million, which included the assumption of the existing mortgage debt and certain liabilities in addition to cash paid. The Companyconnection with his restricted stock award agreements. These restrictive covenants will continue to ~~manage~~apply until the ~~CCRC and report the results of operations of such community in the Management Services segment until necessary license approvals are obtained.~~

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

~~Effective October 1,~~period ending nine months after the date he is no longer serving us as either an employee or as a member of our Board of Directors.

Director Compensation for 2013 ~~the Company acquired seven communities~~

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

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

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

Effective February 2, 2012, the Company acquired the underlying real estate associated with nine communities that were previously leased for an aggregate purchase price of $121.3 million. The results of operations of these communities, prior and subsequent to the acquisition, are reported in the Retirement Centers segment. The Company financed the transaction with $77.9 million of first mortgage financing secured by seven of the communities and $15.0 million of seller-financing secured by two of the communities (Note 8). The purchase price of the acquisitions has primarily been ascribed to the basis of the buildings acquired and recorded on the consolidated balance sheet under property, plant and equipment and leasehold intangibles, net.

During the month ended December 31, 2012, the Company acquired the underlying real estate interest in 12 communities that the Company previously leased for an aggregate purchase price of $162.1 million. The results of operations of the previously leased communities are included in the consolidated financial statements from the effective dates of the respective lease agreements and are reported in the Assisted Living and Retirement Centers segments. The purchase price of the acquisitions has primarily been ascribed to the basis of the buildings acquired and recorded on the consolidated balance sheet under property, plant and equipment and leasehold intangibles, net.

During the year ended December 31, 2012, the Company recognized an $11.6 million net gain on facility lease termination from the reversal of deferred lease liabilities associated with the termination of operating lease contracts in connection with the acquisition of the underlying real estate of the previously leased communities.

~~During the year ended December 31, 2012, the Company purchased four home health agencies and an existing~~

skilled nursing facility as part of its growth strategy for an aggregate purchase price of approximately $7.0 million. The purchase price of the acquisitions has primarily been ascribed to an indefinite useful life intangible asset and recorded on the consolidated balance sheet under other intangible assets, net.

During the year ended December 31, 2012, the Company sold one community for an aggregate selling price of $8.9 million. The results of operations of the community were previously reported in the Assisted Living segment.

~~The Company had investments in unconsolidated joint ventures of 20% and 10% in ventures owning 15 and 20 communities, respectively, at December 31, 2013.~~

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

~~As of December 31, 2013 and 2012, net property, plant and equipment and leasehold intangibles, which include assets under capital leases, consisted of the following (dollars in thousands):~~

During the years ended December 31, 2013, 2012 and 2011, the Company evaluated property, plant and equipment and leasehold intangibles for impairment. The Company compared the estimated fair value of the assets to their carrying value for properties with impairment indicators and recorded an impairment charge for the excess of carrying value over fair value. For the years ended December 31, 2013, 2012 and 2011, $12.9 million primarily within the CCRCS - Rental and Assisted Living segments, $27.7 million within the Retirement Centers and Assisted Living segments and $16.9 million within the Retirement Centers and Assisted Living segments, respectively, of non-cash charges were recorded in the Company's operating results. These impairment charges are primarily due to the amount by which the carrying values of the assets exceeded their estimated fair value.

For the years ended December 31, 2013, 2012 and 2011, the Company recognized depreciation and amortization expense on its property, plant and equipment and leasehold intangibles of $264.1 million, $248.5 million and $247.1 million, respectively.

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

~~The following is a summary of changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 presented on an operating segment basis (dollars in thousands):~~

~~The following is a summary of other intangible assets at December 31, 2013 and 2012 (dollars in thousands):~~

~~Amortization expense related to definite-lived intangible assets for the years ended December 31, 2013, 2012 and 2011 was $4.7 million, $3.8 million and $21.3 million, respectively.~~

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

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

As of December 31, 2013, the current portion of long-term debt within the Company's consolidated financial statements reflects approximately $140.0 million of mortgage notes payable due within the next 12 months. Although these debt obligations are scheduled to mature on or prior to December 31, 2014, the Company has the option, subject to the satisfaction of customary conditions (such as the absence of a material adverse change), to extend the maturity until 2015, as the instruments associated with such mortgages payable provide that the Company can extend the respective maturity dates for terms of one year from the existing maturity dates.

On March 28, 2013, the Company entered into a second amended and restated credit agreement with General Electric Capital Corporation, as administrative agent and lender, and the other lenders from time to time parties thereto. The amended credit agreement extended the maturity date of the facility to March 31, 2018 and decreased the interest rate payable on advances and the fee payable on the unused portion of the facility. The amended credit agreement provided an option to increase the committed amount initially from $230.0 million to $250.0 million, which the Company exercised on June 28, 2013, and provides an additional option to increase the committed amount from $250.0 million to up to $350.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The amended credit agreement also permits reduction of the committed amount or termination of the facility during the last two years of the five year term without payment of a premium or penalty. The amended credit agreement was further amended and restated effective September 20, 2013 to, among other things, incorporate a $25.0 million swingline feature to permit same-day borrowing.

Amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin. The applicable margin varies with the percentage of the total commitment drawn, with a 3.25% margin at 25% or lower utilization, a 3.75% margin at utilization greater than 25% but less than or equal to 50%, and a 4.25% margin at greater than 50% utilization. For purposes of determining the interest rate, in no event will LIBOR be less than 0.5% per annum. The Company is also required to pay a quarterly commitment fee of 0.5% per annum on the unused portion of the facility.

~~The revolving line of credit can 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. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance of the communities securing the facility.

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

As of December 31, 2013, the Company had an available secured line of credit with a commitment and available amount of $250.0 million (of which $30.0 million had been drawn as of that date). The Company also had secured and unsecured letter of credit facilities of up to $92.5 million in the aggregate as of December 31, 2013. Letters of credit totaling $72.5 million had been issued under these facilities as of that date.

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

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

~~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 $29.325 per share), subject to adjustment. Holders may convert their Notes at their option prior to the close of business on the second trading day immediately preceding the stated maturity date only under the following circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending September 30, 2011, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the "measurement period"), in which the trading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such day; or (iii) upon the occurrence of specified corporate events. On and after March 15, 2018, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. 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 cash and shares of the Company's common stock at the Company's election. It is the Company's current intent and policy to settle the principal amount of the Notes (or, if less, the amount of the conversion obligation) in cash upon conversion.

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

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

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

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

~~As of December 31, 2013, the "if converted" value of the Notes does not exceed its principal amount.~~

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

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

the strike price of the Convertible Note Hedges, which corresponds to the initial conversion price of the Notes and is similarly subject to customary anti-dilution adjustments. If, however, the price per share of common stock exceeds the strike price of the Sold Warrant Transactions when they expire, there would be additional dilution from the issuance of common stock pursuant to the warrants.

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

~~These hedging transactions had a net cost~~paid to our directors. Information regarding compensation awarded to, earned by, or paid to Mr. Sheriff for his service through February 20, 2013 as Chief Executive Officer is included in “Compensation of ~~approximately $31.9 million, which was~~Executive Officers” above. Information regarding compensation awarded to, earned by, or paid ~~from the proceeds of the Notes~~to Mr. Sheriff for his service on and ~~recorded~~after February 20, 2013 as a ~~reduction of additional paid-in capital. The Company has contractual rights,~~consultant and at execution of the related agreements, had the ability to settle its obligations under the conversion feature of the Notes, the Convertible Note Hedges and Sold Warrant Transactions, with the Company's common stock. Accordingly, these transactions are accounted for as equity, with no subsequent adjustment for changes in the value of these obligations.

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

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

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

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

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

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

On December 18, 2013, the Company obtained a $14.0 million first mortgage loan, secured by two communities. The loan bears interest at a fixed rate of 4.5% and matures in December 2018. In connection with the transaction, the Company repaid $14.2 million of existing variable rate debt.

On December 20, 2013, the Company obtained a $25.0 million first mortgage loan, secured by two communities. The loan bears interest at a fixed rate of 4.35% and matures in January 2019. In connection with the transaction, the Company repaid $30.3 million of existing variable rate debt.

On January 5, 2012, the Company obtained a $63.0 million first mortgage loan, secured by the underlying community. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 300 basis points and matures in January 2017. In connection with the transaction, the Company repaid $62.8 million of existing variable rate debt.

On February 29, 2012, the Company obtained a $20.0 million first mortgage loan, secured by the underlying community. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 275 basis points and matures in February 2017.

As discussed in Note 4, the Company financed an acquisition with a $77.9 million first mortgage. The first mortgage facility has a ten year term and 75% of it bears interest at a fixed rate of 4.2% and the remaining 25% bears interest at a variable rate of 30-day LIBOR plus a margin of 276 basis points. The $15.0 million mortgage loan used to partially finance the acquisition had a two year term and bore interest at a fixed rate of 7.0%.

On June 29, 2012, the Company obtained a $15.0 million first mortgage loan, secured by two communities that the Company acquired in February 2012. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 425 basis points and matures in June 2017. In connection with the transaction, the Company repaid $15.0 million of seller-financed debt that had been obtained at the time of closing of the acquisition (Note 4).

On December 28, 2012, the Company obtained a $171.3 million first mortgage loan secured by nine of the Company's communities, including eight recently-acquired communities. The loan has a ten-year term and bears interest at a variable rate equal to 30-day LIBOR plus a margin of 259 basis points. In connection with the transaction, the Company repaid $37.4 million of mortgage loans scheduled to mature in 2013.

~~As of December 31, 2013, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.~~

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. Interest rate protection and swap agreements were entered into to effectively cap or convert floating rate debt to a fixed rate basis, as well as to hedge anticipated future financing transactions.

~~The following table summarizes the Company's swap instrument at December 31, 2013 (dollars in thousands):~~

~~The following table summarizes the Company's cap instruments at December 31, 2013 (dollars in thousands):~~

~~During the year ended December 31, 2013, the Company purchased six new cap agreements with an aggregate notional amount of $515.3 million for $2.9 million.~~

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

The Company has entered into sale leaseback and lease agreements with certain real estate investment trusts (REITs). Under these agreements communities are either sold to the REIT and leased back or a long-term lease agreement is entered into for the communities. The initial lease terms vary from 10 to 20 years and include renewal options ranging 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 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 and the lease may include performance covenants, such as net worth, minimum capital expenditure requirements per community per annum and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of default. Certain leases contain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is not met.

As of December 31, 2013 and 2012, the Company operated 329 communities under long-term leases (275 operating leases and 54 capital and financing leases). The remaining base lease terms vary from one year to 14 years and generally provide for renewal, extension and purchase options.

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

~~The aggregate amounts of all future minimum operating lease payments, including community and office leases, as of December 31, 2013, are as follows (dollars in thousands):~~

~~The Company has a $17.0 million purchase option commitment payable for the purchase of three communities in 2014.~~

The Company has employment or letter agreements with certain officers of the Company that grant these employees the right to receive their base salary and continuation of certain benefits, for a defined period of time, in the event of certain terminations of the officers' employment, as described in those agreements.

The Company obtains various insurance coverages from commercial carriers at stated amounts as defined in the applicable policy. Losses related to deductible amounts are accrued based on the Company's estimate of expected losses plus incurred but not reported claims. As of December 31, 2013 and 2012, the Company accrued $76.6 million and $77.7 million, respectively, for the self-insured portions of these programs, of which $45.3 million and $40.0 million is classified as long-term as of December 31, 2013 and 2012, respectively.

The Company has secured self-insured retention risk under workers' compensation and general liability and professional liability programs with cash deposits of $18.6 million and $16.1 million as of December 31, 2013 and 2012, respectively. Letters of credit securing the programs aggregated $34.2 million and $40.7 million as of December 31, 2013 and 2012, respectively.

The Company maintains a 401(k) Retirement Savings Plan for all employees that meet minimum employment criteria. The plan provides that the participants may defer eligible compensation on a pre-tax basis subject to certain Internal Revenue Code maximum amounts. The Company makes matching contributions in amounts equal to ~~25%~~ of the employee's contribution to the plan, up to a maximum of 4.0% of contributed compensation. An additional matching contribution of 12.5%, subject to the same limit on contributed compensation, may be made at the discretion of the Company, based upon the Company's performance. For the years ended December 31, 2013, 2012 and 2011, the Company's expense to the plan was $6.6 million, $4.8 million and $3.1 million, respectively.

Under the terms of the registration rights provisions of the Company's Stockholders Agreement, the Company is generally obligated to pay all fees and expenses incurred in connection with certain public offerings by affiliates of Fortress Investment Group LLC (other than underwriting discounts, commissions and transfer taxes).

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

For all awards with graded vesting other than awards with performance-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis (or, if applicable, on the accelerated method) over the requisite service period. For graded-vesting awards with performance-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement. Performance goals are evaluated quarterly. If such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed.

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

As of December 31, 2013, there was $46.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted. That cost is expected to be recognized 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 cumulative forfeiture rate from 0% to 10% over the requisite service period of the awards. That

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

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

The Company has an employee stock purchase plan for all eligible employees. The plan became effective on October 1, 2008. Under the plan, eligible employees of the Company can purchase shares of the Company's common stock on a quarterly basis at a discounted price through accumulated payroll deductions. Each eligible employee may elect to deduct up to 15% of his or her base pay each quarter. Subject to certain limitations specified in the plan, on the last trading date of each calendar quarter, the amount deducted from each participant's pay over the course of the quarter will be used to purchase whole shares of the Company's common stock at a purchase price equal to 90% of the closing market price on the New York Stock Exchange on that date. The Company reserved 1,800,000 shares of common stock for issuance under the plan. The impact on the Company's current year consolidated financial statements is not material.

~~The following table provides the Company's derivative assets and liabilities carried at fair value as measured on a recurring basis as of December 31, 2013 (dollars in thousands):~~

On 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 the Company'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 block trades, or by any combination of these methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended, modified or discontinued at any time at the Company's discretion without prior notice. Shares of stock repurchased under the program will be held as treasury shares.

Pursuant to this authorization, during the year ended December 31, 2011, the Company purchased 1,217,100 shares at a cost of approximately $17.6 million. No shares were purchased pursuant to this authorization during the years ended December 31, 2013 and 2012. As of December 31, 2013, approximately $82.4 million remains available under this share repurchase authorization.

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

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

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

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

As of December 31, 2013 and 2012, the Company had net federal operating loss carryforwards of approximately $427.4 million and $454.6 million, respectively, which are available to offset future taxable income through 2031. The Company concluded that the additional benefits generated during 2013 and 2012 did not meet the more likely than not criteria for realization. The conclusion was determined solely based on the reversal of current timing differences and did not consider future taxable income to be generated by the Company. Therefore, the Company has recorded a valuation allowance of $44.7 million against federal net operating losses at December 31, 2013. The Company continues to maintain that the deferred tax assets recorded as of December 31, 2013, primarily related to net operating losses generated prior to December 31, 2010, are more likely than not to be realized based on the reversal of deferred tax liabilities recorded. However, if the Company continues its current trend of improved GAAP earnings before taxes, this valuation allowance may be reduced in future years.

The Company has recorded valuation allowances of $7.0 million and $7.2 million at December 31, 2013 and 2012, respectively, against its state net operating losses, as the Company anticipates these losses will not be utilized prior to expiration. The carryforward period for some states is considerably shorter than the period which is allowed for federal purposes. The Company also recorded a valuation allowance against federal and state credits of $20.6 million and $8.5 million as of December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, the Company had $53.5 million and $31.9 million, respectively, included in its net operating loss carryforward relating to restricted stock grants. Under ASC 718-10, this loss will be recorded in additional paid-in capital in the period in which the loss is effectively used to reduce taxes payable.

The formation of the Company, the reorganization of a predecessor company and the acquisitions of several wholly-owned subsidiaries constituted ownership changes under Section 382 of the Internal Revenue Code, as amended. As a result, the Company's ability to utilize the net operating loss carryforward to offset future taxable income is subject to certain limitations and restrictions. Furthermore, the Company had an ownership change under Section 382 in May 2010 which resulted in an additional annual limitation to the utilization of the net operating loss in an

~~amount of $92 million. The Company expects the net operating loss to be fully released before expiration and therefore does not anticipate a financial statement impact~~ as a ~~result~~member of ~~the limitation.~~

~~At December 31, 2013, the Company had gross tax affected unrecognized tax benefits~~our Board of $1.6 million, which, if recognized, would result in an income tax benefit in accordance with ASC 805. Interest and penalties related to these tax positions are classified as tax expense in the Company's financial statements. Total interest and penalties reservedDirectors is $0.6 million at December 31, 2013. Tax returns for years 2010 through 2012 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination. The Company does not expect that unrecognized tax benefits for tax positions taken with respect to 2013 and prior years will significantly change in 2014.

~~A reconciliation of the unrecognized tax benefits for the year 2013 is as follows (dollars in thousands):~~

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

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

~~for each claim. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts.~~

~~The Company currently has~~ ~~six~~ reportable segments: retirement centers; assisted living; CCRCs – rental; CCRCs – entry fee; Brookdale Ancillary Services; and management services. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

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

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

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

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

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

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

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

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

~~The following is a summary of quarterly results of operations for~~Directors adopted Stock Ownership Guidelines that requires each of ~~the fiscal quarters in 2013 and 2012 (in thousands, except per share amounts):~~

~~On February 20, 2014, the Company entered into an Agreement and Plan~~our non-affiliated directors to maintain ownership of Merger (the "Merger Agreement") with Emeritus Corporation, a Washington corporation ("Emeritus"), and Broadway Merger Sub Corporation, a Delaware corporation and a wholly owned subsidiary of the Company ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Emeritus (the "Merger"), with Emeritus continuing as the surviving corporation and wholly owned subsidiary of the Company. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of common stock, par value $0.0001 per share ("Emeritus Common Stock"), of Emeritus (including each restricted share of Emeritus Common Stock, but not including any shares (x) held by the Company or Emeritus or any of the Company's or Emeritus' wholly owned subsidiaries and (y) with respect to which appraisal rights are properly demanded and not withdrawn under Washington law ("Dissenting Shares")), will be automatically converted into the right to receive 0.95 of a share (the "Exchange Ratio") of the Company's common stock.

The expected level of ownership may be met through stock purchased by the non-affiliated director or his or her spouse in the market (whether held individually or jointly) and/or through stock received upon vesting of equity awards. Unvested equity awards do not generally count toward satisfaction of the guidelines unless elected to be received by the non-affiliated director in lieu of cash compensation.

Stock ownership levels are required ~~withholding taxes) equal~~to be achieved by the later of (i) February 5, 2019 (i.e., five (5) years after their initial adoption) or (ii) the fifth anniversary of the non-affiliated director’s initial appointment or election to the ~~product~~Board of ~~(x)~~Directors. Until the expected ownership level is achieved, each non-affiliated director is expected to retain at least 50% of any shares obtained through our stock incentive plans.

As of the date hereof, each of our current non-affiliated directors holds a number of shares ~~of Emeritus Common Stock subject to the Emeritus Option multiplied by (y) the~~in excess of the implied dollar value of the per share consideration (based on the volume weighted average described above) over the exercise price of the Emeritus Option. Any Emeritus Option with an exercise price that is equal to or greater than the implied dollar value of the per share consideration to be received in the Merger as described above will be canceled without the payment of any consideration.

The consummation of the Merger is subject to satisfaction or waiver of certain conditions, including, among others: (i) the approval of the Company's and Emeritus' stockholders; (ii) the absence of any law or order prohibiting the

closing; (iii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iv) the receipt of certain federal and state government approvals necessary for the ownership, operation and management of Emeritus' senior living facilities and expiration of notice periods for the same, subject to certain exceptions; (v) the continuing effectiveness or receipt, as applicable, of certain third-party consents, subject to certain exceptions; (vi) the accuracy of each party's representations and warranties, subject to certain materiality qualifiers; (vii) the performance in all material respects of each party's obligations under the Merger Agreement; (viii) no more than 7.5% of the shares of Emeritus Common Stock being Dissenting Shares; and (ix) the absence of any change, event or development that would reasonably be expected to have either a Parent Material Adverse Effect or a Company Material Adverse Effect (each as defined in the Merger Agreement). The Merger is expected to close during the third quarter of 2014, although there can be no assurance that the Merger will close or, if it does, when the actual closing will occur.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issuednumber required by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2013. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K and incorporated herein by reference.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of December 31, 2012, our disclosure controls and procedures were effective.

There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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) Beneficial Ownership Reporting Compliance" in our Definitive Proxy Statement for the 2014 Annual Meeting of Stockholders. Pursuant to General Instruction G(3), certain information concerning our executive officers is contained in the discussion entitled "Executive Officers of the Registrant" under Item 4 of Part I of this report.

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, our principal accounting officer or controller, or persons performing similar functions, as well as a Code of Ethics for Chief Executive and Senior Financial Officers, which applies to our Chief Executive Officer, President, Chief Financial Officer, Treasurer and Controller, both of which are available on our website at www.brookdale.com. Any amendment to, or waiver from, a provision of such codes of ethics granted to a principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions, will be posted on our website.

The information required by this item is incorporated by reference from the discussions under the headings "Compensation of Directors" and "Compensation of Executive Officers" in our Definitive Proxy Statement for the 2014 Annual Meeting of Stockholders.

The ~~information required~~following table sets forth, as of April 25, 2014, the total number of shares of our common stock beneficially owned, and the percent so owned, by ~~this item regarding security ownership~~(1) each person known by us to own more than 5% of ~~certain~~our common stock, (2) each of our directors and named executive officers and (3) all directors and executive officers as a group, based on 128,669,019 shares of our common stock (including restricted shares) outstanding as of that date. Unless otherwise indicated, each of the beneficial owners listed has, to the Company’s knowledge, sole voting and ~~management~~investment power with respect to the indicated shares of common stock. Unless otherwise indicated, the address of each person named in the table 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 2014 Annual Meeting of Stockholders.

c/o Brookdale Senior Living Inc., 111 Westwood Place, Suite 400, Brentwood, Tennessee 37027.


	Nature and Amount of Beneficial Ownership
Name of Beneficial Owner	Shares Owned⁽¹⁾		Percentage

Executive Officers and Directors

T. Andrew Smith		555,811			*

Mark W. Ohlendorf		635,622			*

Gregory B. Richard		260,758			*

Bryan D. Richardson		229,800			*

Glenn O. Maul		96,312			*

Jeffrey R. Leeds		38,891			*

Frank M. Bumstead		68,444			*

Jackie M. Clegg⁽²⁾		11,082			*

Wesley R. Edens⁽³⁾		20,285,916		15.77	%

Randal A. Nardone⁽⁴⁾		20,285,916		15.77	%

Mark J. Schulte⁽⁵⁾		336,713			*

James R. Seward		60,598			*

W.E. Sheriff⁽⁶⁾		564,528			*

Samuel Waxman⁽⁷⁾		35,025			*

All directors and executive officers as a group (21 persons)		23,921,013		18.59	%

5% Stockholders

Fortress Operating Entity I LP⁽⁸⁾		20,285,916		15.77	%

Invesco Ltd.⁽⁹⁾		10,077,509		7.83	%

FMR LLC⁽¹⁰⁾		7,247,108		5.63	%

Brookfield Investment Management Inc.⁽¹¹⁾		6,774,155		5.26	%

Visium Asset Management, LP⁽¹²⁾		6,318,500		4.91	%

Senator Investment Group LP⁽¹³⁾		6,238,615		4.85	%

The Vanguard Group⁽¹⁴⁾		6,235,788		4.85	%

*	Less than 1%

⁽¹⁾	Consists of shares held, including all restricted shares held (whether or not such restricted shares have voting restrictions).

⁽²⁾	Excludes 6,850 restricted stock units held by Ms. Clegg.

⁽³⁾	Includes 831,069 shares held by Mr. Edens and other ownership as set forth in Footnote 8.

⁽⁴⁾	Includes 913,289 shares held by Mr. Nardone and other ownership as set forth in Footnote 8.

⁽⁵⁾	Includes 191,550 shares held by Mr. Schulte and 145,163 shares held by a grantor retained annuity trust.

⁽⁶⁾	Includes 424,141 shares held by Mr. Sheriff, 118,387 shares held by Sheriff Financial, LLC and 22,000 shares held by the W.E. Sheriff Family Partnership.

⁽⁷⁾	Includes 24,136 shares held by Dr. Waxman and 10,889 shares held by Dr. Waxman’s defined benefit pension plan.

⁽⁸⁾

Includes 8,793,392 shares held by Fortress RIC Coinvestment Fund LP, 3,026,435 shares held by Fortress Investment Fund IV (Fund A) L.P., 1,222,077 shares held by Fortress Investment Fund IV (Fund B) L.P., 289,968 shares held by Fortress Investment Fund IV (Fund C) L.P., 1,810,004 shares held by Fortress Investment Fund IV (Fund D) L.P., 211,916 shares held by Fortress Investment Fund IV (Fund E) L.P., 95,084 shares held by Fortress Investment Fund IV (Fund F) L.P., 114,081 shares held by Fortress Investment Fund IV (Fund G) L.P., 790,673 shares held by Fortress Investment Fund IV (Coinvestment Fund A) L.P., 492,823 shares held by Fortress Investment Fund IV (Coinvestment Fund B) L.P., 98,164 shares held by Fortress Investment Fund IV (Coinvestment Fund C) L.P., 473,183 shares held by Fortress Investment Fund IV (Coinvestment Fund D) L.P., 40,635 shares held by Fortress Investment Fund IV (Coinvestment Fund F) L.P., 135,391 shares held by Fortress Investment Fund IV (Coinvestment Fund G) L.P. and 947,732 shares held by Drawbridge Special Opportunities Fund LP and Drawbridge Special Opportunities Fund Ltd. FIG LLC is the investment manager of Fortress RIC Coinvestment Fund LP, Fortress Investment Fund IV (Fund A) L.P., Fortress Investment Fund IV (Fund B) L.P., Fortress Investment Fund IV (Fund C) L.P., Fortress Investment Fund IV (Fund D) L.P., Fortress Investment Fund IV (Fund E) L.P., Fortress Investment Fund IV (Fund F) L.P., Fortress Investment Fund IV (Fund G) L.P., Fortress Investment Fund IV (Coinvestment Fund A) L.P., Fortress Investment Fund IV (Coinvestment Fund B) L.P., Fortress Investment Fund IV (Coinvestment Fund C) L.P., Fortress Investment Fund IV (Coinvestment Fund D) L.P., Fortress Investment Fund IV (Coinvestment Fund F) L.P., and Fortress Investment Fund IV (Coinvestment Fund G) L.P. Fortress Operating Entity I LP (“FOE I”) is the sole managing member of FIG LLC. FIG Corp. is the general partner of FOE I. FIG Corp. is a wholly-owned subsidiary of Fortress Investment Group LLC (“Fortress”). By virtue of their ownership interests in Fortress and certain of its affiliates, Wesley R. Edens and Randal A. Nardone, members of our Board of Directors, may be deemed to beneficially own the shares listed as beneficially owned by Fortress and/or certain of its affiliates. Messrs. Edens and Nardone disclaim beneficial ownership of such shares except to the extent of their respective pecuniary interests therein. Mr. Edens directly owns and has sole dispositive power over 831,069 shares. Mr. Nardone directly owns and has sole dispositive power over 913,289 shares. As a result of being parties to our Stockholders Agreement, the affiliates of Fortress and Messrs. Edens and Nardone may be deemed to be a group within the meaning of Section 13(d)(3) of the Exchange Act and to be the beneficial owners of 20,285,916 shares. The address for each of Fortress and the other parties listed above is 1345 Avenue of the Americas, 46th Floor, New York, New York 10105.

⁽⁹⁾ Information regarding Invesco Ltd. (“Invesco”) is based solely on a Schedule 13G filed with the SEC on February 10, 2014. According to such Schedule 13G, Invesco, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, reported that it has sole voting power with respect to 9,518,521 shares, shared voting power with respect to 29,271 shares, sole dispositive power with respect to 10,055,717 shares and shared dispositive power with respect to 21,792 shares. The address for Invesco is 1555 Peachtree Street NE, Atlanta, Georgia 30309.
⁽¹⁰⁾ Information regarding FMR LLC (“FMR”) is based solely on an amended Schedule 13G filed with the SEC on February 14, 2014. According to such Schedule 13G, FMR, a parent holding company, reported that it has sole voting power with respect to 272,790 shares and sole dispositive power with respect to 7,247,108 shares. Members of the Edward C. Johnson 3d family together own approximately 49% of the voting power of FMR. Edward C. Johnson 3d is the Chairman of FMR. Fidelity Management & Research Company, a wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 5,916,998 shares. Fidelity SelectCo, LLC, a wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 1,057,320 shares. Pyramis Global Advisors, LLC, an indirect wholly-owned subsidiary of FMR and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 264,350 shares. Pyramis Global Advisors Trust Company, an indirect wholly-owned subsidiary of FMR and a bank as defined in Section 3(a)(6) of the Exchange Act, is the beneficial owner of 8,440 shares. The address for each of FMR and Fidelity Management & Research Company is 245 Summer Street, Boston, Massachusetts 02210. The address for Fidelity SelectCo, LLC is 1225 17^th Street, Suite 1100, Denver, Colorado 80202. The address for each of Pyramis Global Advisors, LLC and Pyramis Global Advisors Trust Company is 900 Salem Street, Smithfield, Rhode Island 02917.
⁽¹¹⁾ Information regarding Brookfield Investment Management Inc. (“Brookfield”) is based solely on a Schedule 13G filed with the SEC on February 14, 2012. According to such Schedule 13G, Brookfield, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, reported that it has sole voting power with respect to 1,640,064 shares and sole dispositive power with respect to 6,774,155 shares. The address for Brookfield is Three World Financial Center, 200 Vesey Street, New York, New York 10281.
⁽¹²⁾ Information regarding Visium Asset Management, LP (“Visium”) is based solely on a Schedule 13G filed with the SEC on April 21, 2014. According to such Schedule 13G, Visium, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, reported that it has shared voting power with respect to 6,318,500 shares and shared dispositive power with respect to 6,318,500 shares. JG Asset, LLC (“JG Asset”) is the General Partner of Visium, and Jacob Gottlieb (“Gottlieb”), is the Managing Member of JG Asset. Accordingly, JG Asset, by virtue of its position as General Partner of Visium, and Gottlieb, by virtue of its position as Managing Member of JG Asset, each may be deemed to beneficially own the 6,318,500 shares owned by Visium. The address for Visium, JG Asset and Gottlieb is 888 Seventh Avenue, New York, NY 10019.
⁽¹³⁾ Information regarding Senator Investment Group LP (“Senator”) is based solely on a Schedule 13G filed with the SEC on February 26, 2014. According to such Schedule 13G, Senator, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, reported that it has sole voting power with respect to 6,238,615 shares and sole dispositive power with respect to 6,238,615 shares. The address for Senator is 510 Madison Avenue, 28^th Floor, New York, NY 10022.
⁽¹⁴⁾ Information regarding The Vanguard Group (“Vanguard”) is based solely on a Schedule 13G filed with the SEC on February 11, 2014. According to such Schedule 13G, Vanguard, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, reported that it has sole voting power with respect to 62,472 shares, sole dispositive power with respect to 6,180,116 shares and shared dispositive power with respect to 55,672 shares. The address for Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.

The following table provides certain information as of December 31, 2013 with respect to our equity compensation plans (after giving effect to shares issued and/or vesting on such date):

Stockholders Agreement

Upon the consummation of our initial public offering, we entered into a Stockholders Agreement with Fortress Brookdale Acquisition LLC, Fortress Investment Trust II, FIT-ALT Investor LLC and Health Partners (as has been and may be from time to time amended, the “Stockholders Agreement”). The ~~information~~Stockholders Agreement provides these stockholders with certain rights with respect to the designation of directors to our Board of Directors as well as registration rights for our securities owned by them. Upon consummation of the merger with ARC, and the related underwritten public offering, Health Partners no longer beneficially owned more than 5% of the voting power of the Company and is no longer a “Stockholder” for purposes of the Stockholders Agreement. Fortress Brookdale Acquisition LLC, Fortress Investment Trust II, FIT-ALT Investor LLC, RIC Coinvestment Fund LP and their respective affiliates and permitted transferees are collectively referred to in this Amendment as the “Fortress Stockholders.”

In connection with the Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 20, 2014, by and among the Company, Broadway Merger Sub Corporation, a wholly owned subsidiary of the Company, and Emeritus Corporation, pursuant to which Merger Sub will merge with and into Emeritus and Emeritus will be the surviving corporation and a wholly owned subsidiary of the Company (the “Merger”), the Company concurrently entered into a letter agreement (the “Fortress Letter Agreement”) with the Fortress Stockholders. The Fortress Letter Agreement provides for the Fortress Stockholders’ agreement to vote all of the shares of Company common stock to the extent held by them as of the applicable record date for the Company’s special meeting in favor of the transactions contemplated by the Merger Agreement. The Fortress Letter Agreement also amended certain terms of the Stockholders Agreement, as described below.

Designation of Directors

Under our Stockholders Agreement, as amended, FIG LLC, an affiliate of Fortress, is permitted to designate a specified number of individuals to be elected to our board of directors depending on the percentage of voting power of our securities beneficially owned by the Fortress Stockholders. In connection with the approval of an amendment to our Amended and Restated Certificate of Incorporation in November 2009, we and the Fortress Stockholders entered into Amendment Number Two to the Stockholders Agreement, which provided, among other things, that so long as the Fortress Stockholders beneficially own (i) more than 35% of the voting power of the Company, FIG LLC shall be entitled to designate four directors to our board, or, if the board shall be composed of eight or nine members, five directors; (ii) less than 35% but more than 25% of the voting power of the Company, FIG LLC shall be entitled to designate three directors; (iii) less than 25% but more than 10% of the voting power of the Company, FIG LLC shall be entitled to designate two directors; and (iv) less than 10% but more than 5% of the voting power of the Company, FIG LLC shall be entitled to designate one director.

Following completion of a public equity offering of our shares by certain of the Fortress Stockholders in November 2010, the Fortress Stockholders collectively own between 10% and 25% of the voting power of the Company. As a result, in accordance with our amended Stockholders Agreement, FIG LLC is currently entitled to designate two directors. In accordance with the Stockholders Agreement, FIG LLC (or its predecessor) has designated Wesley R. Edens and Randal A. Nardone to our Board of Directors.

The Fortress Letter Agreement provides that, notwithstanding anything in the Stockholders Agreement to the contrary, in the event that at any time the Fortress Stockholders have beneficial ownership of (i) less than 10% of the voting power of the Company, FIG LLC shall cause one director designated by it to immediately resign from our board, and (ii) less than 5,000,000 shares of the Company’s common stock, FIG LLC shall cause the remaining director designated by it to immediately resign from our board.

Registration Rights

Demand Rights. For so long as the Fortress Stockholders collectively and beneficially own an amount of our common stock at least equal to 5% or more of our common stock issued and outstanding immediately after the consummation of our initial public offering (a “Registrable Amount”), they will retain “demand” registration rights that allow them at any time after six months following the consummation of our initial public offering to request that we register under the Securities Act of 1933, as amended, an amount equal to or greater than 5% of our stock that they own. The Fortress Stockholders are entitled to an aggregate of two demand registrations. We are not required to maintain the effectiveness of the registration statement for more than 60 days. We are also not required to effect any demand registration within six months of a “firm commitment” underwritten offering to which the requestor held “piggyback” rights and which included at least 50% of the securities requested by the requestor to be included. We are not obligated to grant a request for a demand registration within four months of any other demand registration, and may refuse a request for demand registration if in our reasonable judgment, it is not feasible for us to proceed with the registration because of the unavailability of audited financial statements.

Piggyback Rights. For so long as the Fortress Stockholders beneficially own an amount of our common stock at least equal to 1% of our common stock issued and outstanding immediately after the consummation of our initial

public offering, the Fortress Stockholders have “piggyback” registration rights that allow them to include the shares of common stock that they own in any public offering of equity securities initiated by us (other than those public offerings pursuant to registration statements on Forms S-4 or S-8) or by any of our other stockholders that have registration rights. The “piggyback” registration rights of these stockholders are subject to proportional cutbacks based on the manner of the offering and the identity of the party initiating such offering.

Shelf Registration. For so long as the Fortress Stockholders beneficially own a Registrable Amount, they have a right to request a shelf registration on Form S-3, providing for an offering to be made on a continuous basis, subject to a time limit on our efforts to keep the shelf registration statement continuously effective and our right to suspend the use of the shelf registration prospectus for a reasonable period of time (not exceeding 60 days in succession or 90 days in the aggregate in any 12 month period) if we determine that certain disclosures required by ~~this item~~the shelf registration statement would be detrimental to us or our stockholders. In addition, the Fortress Stockholders that have not made a request for a shelf registration may elect to participate in such shelf registration within ten days after notice of the registration is ~~incorporated~~given.

Indemnification; Expenses. We have agreed to indemnify the Fortress Stockholders against any losses or damages resulting from any untrue statement or omission of material fact in any registration statement or prospectus pursuant to which they sell shares of our common stock, unless such liability arose from their misstatement or omission, and they have agreed to indemnify us against all losses caused by ~~reference~~their misstatements or omissions. We will pay all expenses incident to our performance under the Stockholders Agreement, and the Fortress Stockholders will pay all underwriting discounts, commissions and transfer taxes relating to the sale of their shares under the Stockholders Agreement.

Fortress Letter Agreement. We have agreed, pursuant to the Fortress Letter Agreement, (i) following the filing of our Registration Statement on Form S-4 relating to the Merger (the “Form S-4”) and prior to the closing of the Merger, not to exercise our right under the Stockholders Agreement to suspend the Fortress Stockholders’ use of the prospectus under our Registration Statement on Form S-3 (No. 333-174766) (the “Form S-3”); (ii) from the ~~discussions~~date of the Merger Agreement until the expiration of a period of thirty consecutive days following the filing of the Form S-4 during which the financial information set forth in the Form S-4 and Form S-3 is not “stale” (such period, the “Restricted Period”), not to issue any Company equity securities, subject to certain exceptions; and (iii) during the thirty day period following any sale by the Fortress Stockholders of at least 5,000,000 shares of Company common stock during the Restricted Period, not to issue any Company equity securities, subject to certain exceptions.

Leases with Holiday Retirement

During 2008, we began leasing space in a number of communities owned by Holiday Retirement so that we could establish outpatient rehabilitation clinics and/or home health agencies therein. Holiday Retirement is owned by funds affiliated with Fortress. We have agreed with Holiday that the terms and provisions of any leases entered into between us must clearly be at fair market value and that certain agreed upon mechanisms will be used to price the fair market rent for leases in particular Holiday communities. We will only be leasing the amount of space that we reasonably believe is necessary. For each lease, the rent will be determined at the inception of the applicable lease, and will be subject to a reasonable, annual escalation factor. All of the leases will be on the same form agreed upon by the parties, and will be based upon the standard form previously approved by Holiday’s lenders. Under the terms of the leases that either are currently in effect or were in effect during 2013, we are required to pay Holiday periodic rental payments aggregating approximately $93,000 (calculated as the aggregate amount of periodic rental payments since the beginning of 2013 through the remaining terms of each lease). We currently lease space in four of Holiday’s communities.

Employment of Glenn E. Sheriff

From the date of our acquisition of ARC until March 20, 2014, we employed Glenn E. Sheriff as a Senior Director. He previously served as Senior Director of Marketing Analytics/Market Research and most recently served as Senior Director—Integration Office. Mr. Sheriff is the son of W.E. Sheriff, a member of our Board of Directors and our former Chief Executive Officer. Mr. Sheriff was previously employed in a substantially similar capacity for ARC. Mr. Sheriff’s 2013 annual base salary was $153,765 until June 16, 2013. Beginning on June 16, 2013, Mr. Sheriff elected to continue on a part-time basis at an hourly wage of $82.50. Mr. Sheriff voluntarily resigned on March 20, 2014. Until his resignation, Mr. Sheriff also participated in our bonus program for similarly-situated management level employees and, like other similarly-situated employees, was eligible to receive awards of restricted stock under our Omnibus Stock Incentive Plan. In addition, Mr. Sheriff was eligible to participate in the other benefit plans and programs we offer from time to time to similarly-situated employees.

Policies and Procedures for Related Party Transactions

Our Board of Directors has adopted a written Policy and Procedures with Respect to Related Person Transactions, which we refer to as our Related Person Policy. Pursuant to the terms of the Related Person Policy, we will enter into or ratify related person transactions only when the Audit Committee of our Board of Directors determines that the transaction in question is in, or is not inconsistent with, the best interests of the Company and our stockholders.

Related person transactions that are identified as such prior to the consummation thereof or amendment thereto may be consummated or amended only if the transaction has been reviewed and approved in advance by the Audit Committee (or in those instances where the General Counsel determines that it is not practicable or desirable for the Company to wait until the next Audit Committee meeting, by the chair of the Audit Committee). All Related Persons (defined below) and all business unit leaders responsible for a proposed transaction are required to report to our legal department any potential related person transaction prior to entering into the transaction. The legal department will determine whether the transaction is a related person transaction and, therefore, should be submitted to the Audit Committee for consideration. In the event our Chief Executive Officer, Chief Financial Officer or General Counsel becomes aware of a pending or ongoing related person transaction that has not been previously approved or ratified, the transaction will promptly be submitted to the Audit Committee or its chair, which will evaluate all available options, including ratification, amendment or termination of the transaction. In the event any of such persons become aware of a completed related person transaction that has not been previously approved or ratified, the Audit Committee or its chair shall evaluate the transaction to determine if rescission of the transaction and/or any disciplinary action is appropriate.

At the Audit Committee’s first meeting of each fiscal year, the committee will review any previously approved or ratified related person transactions that remain ongoing and have a remaining term of more than six months or remaining amounts payable to or receivable from the Company of more than $120,000 and, taking into consideration the Company’s contractual obligations, will determine whether to continue, modify or terminate each such transaction.

Our Related Person Policy covers all transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in which the Company (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $120,000, and in which any Related Person had, has or will have a direct or indirect material interest.

A “Related Person”, as defined in our Related Person Policy, means any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company; any person who is known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.

Our Related Person Policy also requires Audit Committee pre-approval of proposed charitable contributions, or pledges of charitable contributions, by the Company to a charitable or non-profit organization for which a Related Person is actively involved in fundraising or otherwise serves as a director, trustee or in a similar capacity.

Because our Related Person Policy was initially adopted in early 2007, several of the transactions described above were not subject to the policy’s pre-approval requirements. Since the policy has been in place, the Committee has pre-approved all new related party transactions and has ratified each of the transactions described above that remains ongoing.

Director Independence

Our Board of Directors has affirmatively determined that Ms. Clegg, Messrs. Bumstead, Leeds, Schulte and Seward and Dr. Waxman are “independent” under Section 303A.02(b) of the New York Stock Exchange, or NYSE, listing standards because none of them had a material relationship with Brookdale. In making these determinations, our Board of Directors considered all relevant facts and circumstances, as required by applicable NYSE listing standards.

The NYSE rules require that the Board of Directors consist of a majority of “independent directors” and that the Nominating and Corporate Governance Committee, the Compensation Committee and the Audit Committee of the Board of Directors consist entirely of “independent directors.” Under NYSE listing standards, whether a director is an “independent director” is a subjective determination to be made by the Board of Directors, and a director of Brookdale only qualifies as “independent” if the Board of Directors affirmatively determines that the director has no material relationship with Brookdale (either directly or as a partner, shareholder or officer of an organization that has a relationship with Brookdale). While the test for independence is a subjective one, the NYSE rules also contain objective criteria that preclude directors from being considered independent in certain situations.

Specifically, persons meeting the following objective criteria are deemed to be not independent:

A director who is an employee, or whose immediate family member is an executive officer, of Brookdale (including any consolidated subsidiary), may not be considered independent until three years after the end of such employment relationship;

A director who has received, or whose immediate family member has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from Brookdale (including any consolidated subsidiary), other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

A director who (i) is, or whose immediate family is, a current partner of a firm that is the internal or external auditor of Brookdale; (ii) is a current employee of such a firm; (iii) a director whose immediate family member is a current employee of such firm and who personally works on Brookdale’s audit; or (iv) was, or whose immediate family member was, within the last three years (but is no longer) a partner or employee of such a firm and personally worked on Brookdale’s audit within that time;

A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of Brookdale’s present executives serve on that company’s compensation committee may not be considered independent until three years after the end of such service or the employment relationship; and

A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company (or a consolidated subsidiary of such company) that makes payments to, or receives payments from, Brookdale for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues may not be considered an independent director until three years after falling below such threshold.

Ownership of a significant amount of Brookdale’s stock, by itself, does not constitute a material relationship.

The Board of Directors has not established additional guidelines to assist it in determining whether a director has a material relationship with Brookdale under NYSE rules, but instead evaluates each director or nominee for director under the ~~headings "Certain Relationships~~tests set forth by the NYSE and ~~Related Transactions"~~through a broad consideration and ~~"Director Independence"~~evaluation of all relevant facts and circumstances. The Board of Directors, when assessing the materiality of a director’s relationship with Brookdale, also considers the issue not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation.

There were no transactions, relationships or arrangements not disclosed pursuant to Item 404(a) of Regulation S-K that were considered by our Board of Directors in ~~our Definitive Proxy Statement for~~making the ~~2014 Annual Meeting~~required independence determinations. None of ~~Stockholders.~~


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value Per Share		~~Name of Each Exchange on Which Registered~~ New York Stock Exchange

		~~PAGE~~
				PAGE
~~PART I~~
EXPLANATORY NOTE
	1
~~Item 1~~	~~Business~~		5
~~Item 1A~~	~~Risk Factors~~	20
~~Item 1B~~	~~Unresolved Staff Comments~~	39
~~Item 2~~	~~Properties~~	39
~~Item 3~~	~~Legal Proceedings~~	40
~~Item 4~~	~~Mine Safety Disclosures~~	40
PART II
~~PART II~~

~~Item 5~~	~~Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	42
~~Item 6~~	~~Selected Financial Data~~	43
~~Item 7~~	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~	44
~~Item 7A~~	~~Quantitative and Qualitative Disclosures About Market Risk~~	73
~~Item 8~~	~~Financial Statements and Supplementary Data~~	74
~~Item 9~~	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	~~114~~
Item 9A		Controls and Procedures	~~114~~
~~Item 9B~~	~~Other Information~~	~~114~~

~~PART III~~	2

PART III

Item 10		Directors, Executive Officers and Corporate Governance	~~114~~		3
Item 11		Executive Compensation	~~115~~		8
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~115~~		35
Item 13		Certain Relationships and Related Transactions, and Director Independence	~~116~~		38
Item 14		Principal Accounting Fees and Services	~~116~~

~~PART IV~~	43

PART IV

Item 15		Exhibits and Financial Statement Schedules	~~116~~		44

	For the Years Ended December 31,
	2013			2012			2011
Total revenues	$	2,892.0		$	2,768.7		$	2,456.5
Net loss⁽¹⁾	$	(3.6	)	$	(66.5	)	$	(69.1	)
Adjusted EBITDA⁽²⁾	$	463.2		$	409.9		$	402.7
Cash From Facility Operations⁽³⁾	$	294.0		$	239.0		$	239.9
Facility Operating Income⁽²⁾	$	812.2		$	758.8		$	757.8

	Fiscal 2013
	High		Low
First Quarter	$	29.92	$	25.04
Second Quarter	$	30.31	$	25.31
Third Quarter	$	30.65	$	24.42
Fourth Quarter	$	30.00	$	25.46

	Occupancy				Ownership Status
State	Units		Rate⁽¹⁾⁽²⁾		Owned		Leased		Managed		Total
Florida		13,337		86.2%		36		36		26		98
Texas		9,883		86.5%		22		33		23		78
Colorado		3,695		89.5%		6		17		8		31
Ohio		3,318		87.8%		23		16		3		42
California		3,284		89.3%		12		6		3		21
Illinois		3,234		92.5%		1		9		4		14
North Carolina		3,200		90.9%		4		51		—		55
Michigan		2,945		88.0%		9		24		3		36
Arizona		2,545		84.9%		5		11		3		19
Tennessee		1,815		91.2%		14		8		3		25
Virginia		1,611		84.5%		4		2		1		7
Oklahoma		1,474		85.2%		11		16		2		29
Kansas		1,462		93.6%		10		11		2		23
Alabama		1,450		94.3%		6		3		1		10
Washington		1,319		90.0%		4		8		2		14
Indiana		1,301		86.7%		9		8		—		17
Rhode Island		1,184		86.6%		1		4		4		9
New York		1,157		92.7%		6		10		—		16
Pennsylvania		1,012		83.2%		6		2		1		9
Missouri		1,008		87.8%		3		—		1		4
Georgia		848		93.3%		6		—		2		8
Oregon		765		95.9%		7		5		—		12
Minnesota		723		88.7%		2		14		1		17
Kentucky		586		87.5%		—		2		—		2
New Jersey		579		79.4%		2		6		1		9
Wisconsin		524		93.1%		6		11		—		17
South Carolina		508		91.5%		2		8		—		10
New Mexico		429		84.9%		2		1		—		3
Connecticut		424		82.8%		2		2		—		4
Massachusetts		280		84.3%		—		1		—		1
Idaho		228		93.8%		2		1		—		3
Nevada		142		91.5%		—		2		—		2
Louisiana		84		93.9%		1		—		—		1
Maryland		79		72.6%		—		—		1		1
Delaware		54		97.2%		1		—		—		1
Mississippi		37		65.4%		—		1		—		1
Total		66,524		88.1%		225		329		95		649

	Fiscal 2012
	High		Low
First Quarter	$	19.96	$	15.43
Second Quarter	$	19.78	$	14.99
Third Quarter	$	23.97	$	15.62
Fourth Quarter	$	26.11	$	21.28

	As of December 31,
	2013		2012		2011		2010		2009
(in millions)
Cash and cash equivalents	$	58.5	$	69.2	$	30.8	$	81.8	$	66.4
Total assets	$	4,737.8	$	4,706.8	$	4,503.4	$	4,565.8	$	4,684.2
Total debt	$	2,636.6	$	2,679.4	$	2,463.6	$	2,570.3	$	2,625.5
Total stockholders' equity	$	1,020.9	$	997.0	$	1,035.3	$	1,056.0	$	1,083.5

	Years Ended December 31,						Increase (Decrease)
	2013			2012			Amount			Percent
Total revenue	$	2,892.0		$	2,768.7		$	123.2			4.5	%
Net loss⁽¹⁾	$	(3.6	)	$	(66.5	)	$	(62.9	)		(94.6	)%
Adjusted EBITDA	$	463.2		$	409.9		$	53.3			13.0	%
Cash From Facility Operations	$	294.0		$	239.0		$	55.1			23.0	%
Facility Operating Income	$	812.2		$	758.8		$	53.3			7.0	%


Name	2012 Annual Base Salary		2013 Annual Base Salary
T. Andrew Smith	$	480,000	$	825,000
W.E. Sheriff	$	600,000	$	600,000
Mark W. Ohlendorf	$	480,000	$	490,000
Gregory B. Richard	$	350,000	$	450,000
Bryan D. Richardson	$	350,000	$	360,000
Glenn O. Maul	$	210,000	$	250,000

(dollars in thousands, except average monthly revenue per unit)	Years Ended December 31,						Increase (Decrease)
	2013			2012			Amount			Percent
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers	$	526,284		$	503,902		$	22,382			4.4	%
Assisted Living		1,051,868			1,013,337			38,531			3.8	%
CCRCs - Rental		396,975			385,479			11,496			3.0	%
CCRCs - Entry Fee		297,756			285,701			12,055			4.2	%
Brookdale Ancillary Services		242,150			224,517			17,633			7.9	%
Total resident fees		2,515,033			2,412,936			102,097			4.2	%
Management services⁽¹⁾		376,933			355,802			21,131			5.9	%
Total revenue		2,891,966			2,768,738			123,228			4.5	%
Expense
Facility operating expense
Retirement Centers		304,002			298,317			5,685			1.9	%
Assisted Living		662,190			652,153			10,037			1.5	%
CCRCs – Rental		287,949			279,416			8,533			3.1	%
CCRCs - Entry Fee		221,363			224,296			(2,933	)		(1.3	%)
Brookdale Ancillary Services		196,441			176,737			19,704			11.1	%
Total facility operating expense		1,671,945			1,630,919			41,026			2.5	%
General and administrative expense		184,548			178,829			5,719			3.2	%
Facility lease expense		276,729			284,025			(7,296	)		(2.6	%)
Depreciation and amortization		268,757			252,281			16,476			6.5	%
Asset impairment		12,891			27,677			(14,786	)		(53.4	%)
Loss on acquisition		―			636			(636	)		(100.0	%)
Gain on facility lease termination		―			(11,584	)		(11,584	)		(100.0	%)
Costs incurred on behalf of managed communities		345,808			325,016			20,792			6.4	%
Total operating expense		2,760,678			2,687,799			72,879			2.7	%
Income from operations		131,288			80,939			50,349			62.2	%
Interest income		1,339			4,012			(2,673	)		(66.6	%)
Interest expense:
Debt		(121,325	)		(128,338	)		(7,013	)		(5.5	%)
Amortization of deferred financing costs and debt discount		(17,054	)		(18,081	)		(1,027	)		(5.7	%)
Change in fair value of derivatives and amortization		980			(364	)		1,344			369.2	%
Loss on extinguishment of debt		(1,265	)		(221	)		1,044			472.4	%
Equity in earnings (loss) of unconsolidated ventures		1,484			(3,488	)		4,972			142.5	%
Other non-operating income		2,725			593			2,132			359.5	%
Loss before income taxes		(1,828	)		(64,948	)		(63,120	)		(97.2	%)
Provision for income taxes		(1,756	)		(1,519	)		237			15.6	%
Net loss	$	(3,584	)	$	(66,467	)	$	(62,883	)		(94.6	%)
Selected Operating and Other Data:
Total number of communities (period end)		649			647			2			0.3	%
Total units operated⁽²⁾
Period end		65,832			65,936			(104	)		(0.2	%)
Weighted average		66,173			66,102			71			0.1	%
Owned/leased communities units⁽²⁾
Period end		48,422			47,938			484			1.0	%
Weighted average		48,090			47,947			143			0.3	%
Owned/leased communities occupancy rate (weighted average)		88.7	%		88.0	%		0.7	%		0.8	%
Senior Housing average monthly revenue per unit⁽³⁾	$	4,383		$	4,271		$	112			2.6	%

	Year Ended December 31,
	2013				2012

Resident fee revenues	$	2,515,033	79.0	%	$	2,412,936	79.1	%
Resident fee revenues under management		667,313	21.0	%		638,338	20.9	%
Total	$	3,182,346	100.0	%	$	3,051,274	100.0	%
General and administrative expenses (excluding non-cash stock-based compensation expense and integration, transaction-related and EMR roll-out costs)	$	144,100	4.5	%	$	129,844	4.3	%
Non-cash stock-based compensation expense		25,978	0.8	%		25,520	0.8	%
Integration, transaction-related and EMR roll-out costs		14,470	0.5	%		23,465	0.8	%
General and administrative expenses (including non-cash stock-based compensation expense and integration, transaction-related and EMR roll-out costs)	$	184,548	5.8	%	$	178,829	5.9	%

	Year Ended December 31,
	2013			2012
Cash provided by operating activities	$	366,121		$	290,969
Cash used in investing activities		(264,806	)		(455,334	)
Cash (used in) provided by financing activities		(112,044	)		202,769
Net (decrease) increase in cash and cash equivalents		(10,729	)		38,404
Cash and cash equivalents at beginning of year		69,240			30,836
Cash and cash equivalents at end of year	$	58,511		$	69,240

				Payments Due by Twelve Months Ending December 31,
	Total			2014			2015			2015			2017			2018			Thereafter
	(dollars in millions)
Contractual Obligations:
Long-term debt obligations⁽¹⁾		$	2,861.1		$	272.2		$	122.5		$	152.7		$	443.4		$	861.7		$	1,008.6
Capital lease obligations⁽¹⁾			452.5			56.2			54.9			47.7			75.6			35.5			182.6
Operating lease obligations⁽²⁾			1,930.5			296.0			274.3			270.8			254.1			237.5			597.8
Refundable entrance fee obligations⁽³⁾			278.2			35.6			35.6			35.6			35.6			35.6			100.2
Total contractual obligations		$	5,522.3		$	660.0		$	487.3		$	506.8		$	808.7		$	1,170.3		$	1,889.2

Total commercial construction commitments		$	110.4		$	101.8		$	—		$	—		$	—		$	—		$	—

	Years Ended December 31⁽¹⁾,
	2013			2012			2011
Net loss	$	(3,584	)	$	(66,467	)	$	(69,050	)
Provision for income taxes		1,756			1,519			1,780
Other non-operating income		(2,725	)		(593	)		(56	)
Equity in (earnings) loss of unconsolidated ventures		(1,484	)		3,488			(1,432	)
Loss on extinguishment of debt		1,265			221			18,863
Interest expense:
Debt		96,131			98,183			93,229
Capitalized lease obligation		25,194			30,155			31,644
Amortization of deferred financing costs and debt discount		17,054			18,081			13,427
Change in fair value of derivatives and amortization		(980	)		364			3,878
Interest income		(1,339	)		(4,012	)		(3,538	)
Income from operations		131,288			80,939			88,745
Gain on facility lease termination		—			(11,584	)		—
Loss (gain) on acquisition		—			636			(1,982	)
Depreciation and amortization		268,757			252,281			268,506
Asset impairment		12,891			27,677			16,892
Straight-line lease expense		2,597			6,668			8,608
Amortization of deferred gain		(4,372	)		(4,372	)		(4,373	)
Amortization of entrance fees		(29,009	)		(25,362	)		(23,966	)
Non-cash stock-based compensation expense		25,978			25,520			19,856
Change in future service obligation		(1,917	)		2,188			—
Entrance fee receipts⁽²⁾		92,331			82,705			67,989
First generation entrance fees received⁽³⁾		—			—			(12,617	)
Entrance fee disbursements⁽⁴⁾		(35,325	)		(27,356	)		(24,993	)
Adjusted EBITDA	$	463,219		$	409,940		$	402,665

	Years Ended December 31,
	2013			2012			2011
Net loss	$	(3,584	)	$	(66,467	)	$	(69,050	)
Provision for income taxes		1,756			1,519			1,780
Other non-operating income		(2,725	)		(593	)		(56	)
Equity in (earnings) loss of unconsolidated ventures		(1,484	)		3,488			(1,432	)
Loss on extinguishment of debt		1,265			221			18,863
Interest expense:
Debt		96,131			98,183			93,229
Capitalized lease obligation		25,194			30,155			31,644
Amortization of deferred financing costs and debt discount		17,054			18,081			13,427
Change in fair value of derivatives and amortization		(980	)		364			3,878
Interest income		(1,339	)		(4,012	)		(3,538	)
Income from operations		131,288			80,939			88,745
Gain on facility lease termination		—			(11,584	)		—
Depreciation and amortization		268,757			252,281			268,506
Asset impairment		12,891			27,677			16,892
Loss (gain) on acquisition		—			636			(1,982	)
Facility lease expense		276,729			284,025			274,858
General and administrative (including non-cash stock-based compensation expense)		184,548			178,829			148,327
Change in future service obligation		(1,917	)		2,188			—
Amortization of entrance fees		(29,009	)		(25,362	)		(23,966	)
Management fees		(31,125	)		(30,786	)		(13,595	)
Facility Operating Income	$	812,162		$	758,843		$	757,785

	~~PAGE~~
~~Report of Independent Registered Public Accounting Firm~~	75
~~Report of Independent Registered Public Accounting Firm~~	76
~~Consolidated Balance Sheets as of December 31, 2013 and 2012~~	77
~~Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011~~	78
~~Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011~~	79
~~Consolidated Statements of Equity for the Years Ended December 31, 2013, 2012 and 2011~~	80
~~Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011~~	81
~~Notes to Consolidated Financial Statements~~	82
~~Schedule II — Valuation and Qualifying Accounts~~	~~113~~

	~~/s/ Ernst & Young LLP~~

~~Chicago, Illinois~~
~~3 March 2014~~

	December 31,
	2013			2012
Assets
Current assets
Cash and cash equivalents	$	58,511		$	69,240
Cash and escrow deposits – restricted		38,191			43,096
Accounts receivable, net		104,262			100,401
Deferred tax asset		17,643			13,377
Prepaid expenses and other current assets, net		76,255			82,924
Total current assets		294,862			309,038
Property, plant and equipment and leasehold intangibles, net		3,895,475			3,879,977
Cash and escrow deposits – restricted		57,611			62,767
Investment in unconsolidated ventures		44,103			31,386
Goodwill		109,553			109,553
Other intangible assets, net		158,757			159,942
Other assets, net		177,396			154,105
Total assets	$	4,737,757		$	4,706,768
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt	$	201,954		$	509,543
Trade accounts payable		65,840			43,184
Accrued expenses		209,479			200,895
Refundable entrance fees and deferred revenue		388,400			370,755
Tenant security deposits		5,171			6,521
Total current liabilities		870,844			1,130,898
Long-term debt, less current portion		2,404,624			2,089,826
Line of credit		30,000			80,000
Deferred entrance fee revenue		86,862			79,010
Deferred liabilities		154,870			150,788
Deferred tax liability		81,299			96,187
Other liabilities		88,321			83,073
Total liabilities		3,716,820			3,709,782

Stockholders' Equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized at December 31, 2013 and 2012; no shares issued and outstanding		—			—
Common stock, $0.01 par value, 200,000,000 shares authorized at December 31, 2013 and 2012; 130,155,012 and 129,117,946 shares issued and 127,726,611 and 126,689,545 shares outstanding (including 3,372,937 and 3,951,950 unvested restricted shares), respectively		1,277			1,267
Additional paid-in-capital		2,025,471			1,997,946
Treasury stock, at cost; 2,428,401 shares at December 31, 2013 and 2012		(46,800	)		(46,800	)
Accumulated deficit		(959,011	)		(955,427	)
Total stockholders' equity		1,020,937			996,986
Total liabilities and stockholders' equity	$	4,737,757		$	4,706,768

	For the Years Ended December 31,
	2013			2012			2011
Revenue
Resident fees	$	2,515,033		$	2,412,936		$	2,290,322
Management fees		31,125			30,786			13,595
Reimbursed costs incurred on behalf of managed communities		345,808			325,016			152,566
Total revenue		2,891,966			2,768,738			2,456,483
Expense
Facility operating expense (excluding depreciation and amortization of $238,153, $229,072 and $230,414, respectively)		1,671,945			1,630,919			1,508,571
General and administrative expense (including non-cash stock-based compensation expense of $25,978, $25,520 and $19,856, respectively)		184,548			178,829			148,327
Facility lease expense		276,729			284,025			274,858
Depreciation and amortization		268,757			252,281			268,506
Asset impairment		12,891			27,677			16,892
Loss (gain) on acquisition		—			636			(1,982	)
Gain on facility lease termination		—			(11,584	)		—
Costs incurred on behalf of managed communities		345,808			325,016			152,566
Total operating expense		2,760,678			2,687,799			2,367,738
Income from operations		131,288			80,939			88,745

Interest income		1,339			4,012			3,538
Interest expense:
Debt		(121,325	)		(128,338	)		(124,873	)
Amortization of deferred financing costs and debt discount		(17,054	)		(18,081	)		(13,427	)
Change in fair value of derivatives and amortization		980			(364	)		(3,878	)
Loss on extinguishment of debt		(1,265	)		(221	)		(18,863	)
Equity in earnings (loss) of unconsolidated ventures		1,484			(3,488	)		1,432
Other non-operating income		2,725			593			56
Loss before income taxes		(1,828	)		(64,948	)		(67,270	)
Provision for income taxes		(1,756	)		(1,519	)		(1,780	)
Net loss	$	(3,584	)	$	(66,467	)	$	(69,050	)
Basic and diluted net loss per share	$	(0.03	)	$	(0.54	)	$	(0.57	)
Weighted average shares used in computing basic and diluted net loss per share		123,671			121,991			121,161

	Common Stock
	Shares			Amount		Additional Paid-In- Capital			Treasury Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balances at January 1, 2011		124,317		$	1,243	$	1,904,144		$	(29,187	)	$	(819,910	)	$	(327	)	$	1,055,963
Compensation expense related to restricted stock grants		—			—		19,856			—			—			—			19,856
Net loss		—			—		—			—			(69,050	)		—			(69,050	)
Common stock issued in connection with an acquisition		97			1		1,537			—			—			—			1,538
Equity component of convertible notes, net		—			—		76,801			—			—			—			76,801
Purchase of bond hedge		—			—		(77,007	)		—			—			—			(77,007	)
Issuance of warrants		—			—		45,066			—			—			—			45,066
Issuance of common stock under Associate Stock Purchase Plan		68			—		1,258			—			—			—			1,258
Restricted stock, net		2,089			10		(10	)		—			—			—			—
Unrealized loss on marketable securities – restricted		—			—		—			—			—			(998,000	)		(998	)
Purchase of treasury stock		(1,217	)		—		—			(17,613	)		—			—			(17,613	)
Other		—			—		(825	)		—			—			310			(515	)
Balances at December 31, 2011		125,354			1,254		1,970,820			(46,800	)		(888,960	)		(1,015	)		1,035,299
Compensation expense related to restricted stock grants		—			—		25,520			—			—			—			25,520
Net loss		—			—		—			—			(66,467	)		—			(66,467	)
Issuance of common stock under Associate Stock Purchase Plan		74			—		1,401			—			—			—			1,401
Restricted stock, net		1,261			13		(100	)		—			—			—			(87	)
Unrealized gain on marketable securities – restricted		—			—		—			—			—			1,846			1,846
Other		—			—		305			—			—			(831	)		(526	)
Balances at December 31, 2012		126,689			1,267		1,997,946			(46,800	)		(955,427	)		—			996,986
Compensation expense related to restricted stock grants		—			—		25,978			—			—			—			25,978
Net loss		—			—		—			—			(3,584	)		—			(3,584	)
Issuance of common stock under Associate Stock Purchase Plan		62			—		1,503			—			—			—			1,503
Restricted stock, net		976			10		(10	)		—			—			—			—
Other		—			—		54			—			—			—			54
Balances at December 31, 2013		127,727		$	1,277	$	2,025,471		$	(46,800	)	$	(959,011	)	$	—		$	1,020,937

~~Asset Category~~		~~Estimated~~ ~~Useful Life~~ ~~(in years)~~
~~Buildings and improvements~~		40
~~Furniture and equipment~~		~~3 – 7~~
~~Resident lease intangibles~~		~~1 – 4~~
~~Leasehold improvements~~		~~Shorter of the lease term or asset useful life~~
~~Leasehold operating intangibles~~		~~Shorter of the lease term or asset useful life~~
~~Assets under capital and financing leases~~		~~Shorter of the lease term or asset useful life~~

~~Asset Category~~		~~Estimated~~ ~~Useful Life~~ ~~(in years)~~
~~Community purchase options~~		40
~~Other~~		~~3 – 5~~

Statement of Operations Data	2013			2012			2011
Total revenue	$	251,002		$	233,634		$	134,852
Expense
Facility operating expense		150,396			140,950			83,499
Depreciation and amortization		64,244			49,142			23,923
Interest expense		44,416			50,825			27,072
Other expense		12,336			28,112			6,885
Total expense		271,392			269,029			141,379
Other income		5,881			123			108
Net loss	$	(14,509	)	$	(35,272	)	$	(6,419	)

Balance Sheet Data	2013		2012
Cash and cash equivalents	$	23,050	$	16,578
Property, plant and equipment, net		1,094,353		1,073,610
Other		143,000		148,960
Total assets	$	1,260,403	$	1,239,148
Accounts payable and accrued expenses	$	75,371	$	66,841
Long-term debt		802,627		892,463
Members' equity		382,405		279,844
Total liabilities and members' equity	$	1,260,403	$	1,239,148

	2013			2012
Land	$	302,444		$	296,314
Buildings and improvements		3,508,693			3,391,667
Leasehold improvements		59,948			60,186
Furniture and equipment		623,352			541,585
Resident and leasehold operating intangibles		435,012			441,603
Construction in progress		88,309			75,419
Assets under capital and financing leases		699,973			674,492
		5,717,731			5,481,266
Accumulated depreciation and amortization		(1,822,256	)		(1,601,289	)
Property, plant and equipment and leasehold intangibles, net	$	3,895,475		$	3,879,977

Year Ending December 31,	Future Amortization
2014	$	23,619
2015		21,927
2016		20,452
2017		13,586
2018		6,555
Thereafter		8,136
Total	$	94,275

	December 31, 2013									December 31, 2012
	Gross Carrying Amount			Accumulated Impairment and Other Charges				Net		Gross Carrying Amount		Accumulated Impairment and Other Charges				Net
Retirement Centers		$	7,642		$	(521	)	$	7,121	$	7,642		$	(521	)		$	7,121
Assisted Living			102,680			(248	)		102,432		102,680			(248	)			102,432
Total		$	110,322		$	(769	)	$	109,553	$	110,322		$	(769	)		$	109,553

Year Ending December 31,	Long-term Debt			Capital and Financing Lease Obligations			Total Debt
2014	$	179,115		$	56,157		$	235,272
2015		37,687			54,853			92,540
2016		70,725			47,710			118,435
2017		372,162			75,620			447,782
2018		783,047			35,545			818,592
Thereafter		917,546			182,572			1,100,118
Total obligations		2,360,282			452,457			2,812,739
Less amount representing debt discount		(53,528	)		—			(53,528	)
Less amount representing interest (8.14%)		—			(152,633	)		(152,633	)
Total	$	2,306,754		$	299,824		$	2,606,578

Current notional balance	$	26,972
Fixed rate		5.49	%
Maturity date		2016
Estimated liability fair value (included in other liabilities at December 31, 2013)	$	(1,246	)
Estimated liability fair value (included in other liabilities at December 31, 2012)	$	(1,833	)

Current notional balance	$	703,213
Weighted average fixed cap rate		4.69	%
Earliest maturity date		2017
Latest maturity date		2018
Estimated asset fair value (included in other assets, net at December 31, 2013)	$	3,751
Estimated asset fair value (included in other assets, net at December 31, 2012)	$	495

	2013		2012
Salaries and wages	$	76,278	$	71,567
Insurance reserves		31,293		37,717
Real estate taxes		25,763		22,178
Vacation		25,715		24,697
Lease payable		9,751		8,915
Interest		7,270		7,644
Taxes payable		1,477		2,469
Other		31,932		25,708
Total	$	209,479	$	200,895

Year Ending December 31,	Operating Leases
2014	$	279,011
2015		274,338
2016		270,833
2017		254,088
2018		237,477
Thereafter		597,771
Total	$	1,913,518

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding on January 1, 2011		3,540		$	14.76
Granted		2,091		$	16.20
Vested		(1,207	)	$	16.43
Cancelled/forfeited		(202	)	$	15.34
Outstanding on December 31, 2011		4,222		$	14.93
Granted		1,592		$	19.20
Vested		(1,435	)	$	14.28
Cancelled/forfeited		(427	)	$	15.62
Outstanding on December 31, 2012		3,952		$	16.67
Granted		1,328		$	26.98
Vested		(1,455	)	$	15.08
Cancelled/forfeited		(452	)	$	18.87
Outstanding on December 31, 2013		3,373		$	21.12

	Shares Granted		Value Per Share		Total Value
Three months ended March 31, 2013		1,036	$	25.32 – $27.36	$	27,858
Three months ended June 30, 2013		156	$	26.85 − $27.50	$	4,216
Three months ended September 30, 2013		50	$	26.84 − $29.20	$	1,445
Three months ended December 31, 2013		86	$	26.92 − $27.21	$	2,313

Large accelerated filer~~[X]~~

~~Accelerated filer~~ ~~[ ]~~

Accelerated filer

Non-accelerated filer ~~[ ]~~

¨ (Do not check if a smaller reporting company)

Smaller reporting company ~~[ ]~~